Starting your own company (S5E21)

[ozgeek]

How do you make money from a hosted application if you release it as free software? (I have my own ideas about this, but I'd like to learn others.)

I didn't suggest writing a free app in your spare time and hosting it - at least I don't think I did.

But apache is free software and zillions of companies make money hosting it. Same with most basic 'net services, e.g. bind/sendmail/postfix/qmail etc. All free but people are still quite happy to pay for DNS and mail hosting.
Just because an app is free doesn't mean the users that would use can, would or would even want to run it themselves.

So I guess the answer is you offer convenience, take advantage of economies of scale i.e. using a webserver as an example, if you know how to set one up it is trivial to set up, and not much harder to set it up to server for more or less any number of users up to however many users your resources (CPU. memory, disk, bandwidth etc) can handle. However if you don't know how to set one up, and you don't want to invest the years to learn and get the experience to run one well, then you may well be happy to pay to have someone else set up and manage that free software....

And you can offer additional stuff which it is not necessarily economical for an individual or small company to do. E.g. multihoming, redundancy etc.

[GingerDog]

In our case, withhttp://www.palepurple.co.uk, Kat & I both started working for the same employer and it paid well enough that we could survive from one wage while the other went out and tried it. So, she did. Hence Pale Purple.

In her first week, she had a customer (thanks to (the now mostly defunct?) OpenAdvantage), and over time we've kept growing. We didn't start with many contacts in the area/industry, so have generally relied on advertising and/or writing magazine articles (which have the same effect).

One main lesson - although you may be able to do lots of things, you have to concentrate on one. Customers really do look for "Gold plated Bath tap repairs" and not so much for "Tap repairs"..... if you're a jack of all trades, you're a master of none - at least in their eyes.

so, e.g. Don't try and do general open source consulting/development, do e.g. Linux server support.

The stack overflow podcast has a good discussion etc over this in around episode 11 or 12 (i think)

[slef]

so, e.g. Don't try and do general open source consulting/development, do e.g. Linux server support.

The stack overflow podcast has a good discussion etc over this in around episode 11 or 12 (i think)

I agree about the specialism stuff, but I need to update our website to reflect it. There is a slight danger in getting too specialised - you need to carry your colleagues with you to avoid the business having a BusNumber of 1.

It looks like the stack overflow podcast has that Joel on Software chap who really irritates me (he seems to be wrong as often as right), so I'd prefer not to listen to the whole thing: is there a good summary of the discussion? It's not in their show notes, as far as I saw. Also, their show notes don't include segment timestamps (another reason to love LUG Radio...).

[EBreezy]

The Java Posse podcast has a get together (similiar to Lugradio Live) to discuss a wide varierty if topcs relating to Java and other things. This year they had a topic on "Startup Mistakes not to Remake". Check it out..

Eric

[bolsh]

I thought of starting a support company for free software desktops. While I think there would be enough corporate interest (especially from small business customers), I don't think there's enough money in it to be worth my time.

I hear a company called GNOME International Support that started back in 2000 did pretty well.

Supporting generic desktops is a hard market. You might do well to support some niche software solution though - something like Point of Sale software, or software that paramedical people need for their job, or some other generic (perhaps boring) single-use software that people use all the time.

Think of what people want from point-of-sale software:

* Cash register functionality (add a list of numbers, calculate VAT, subtotals, allow things to be taken back, release cash drawer, interface with credit card controller)
* Stock management (keep track of what's coming into & leaving the store, get warnings when something is getting low) - you'll probably need to interface with a bar-code reader to avoid doing stock management by hand
* Cash-flow & customer-flow management (how many aisles do you need open, how much cash is coming in, when does a certain till have too much cash & need a collection, etc.)

None of that stuff is hard, but it's putting me to sleep just thinking about it.

Stores will pay you good money to install a full system that never goes down, is user friendly, and can do all this stuff really easily. Servers, clients, bar-code readers, they'll buy the lot.

[mitchlr]

I'm in the process of a startup right now, and so anything I have to say should be taken with a grain of salt. I don't know if these ideas will work or not.

Who is your target market - do you want to go for large global companies or small businesses? What kind of service do you perform? Do you intend to sell merchandise or just consultation services? These are important questions you need to flesh out.

How are you going to find work? This is the big one. How do you market your services or merchandise? How do you keep up with clients to make sure they don't fall through the cracks?

As I was An experienced marketing person gave me what seems like a sound piece of advice. See what you think it sounds like. If you're marketing to small businesses today, they are very risk averse - they don't want to risk money or time. The problem is, the main type of service you're providing - whether it's general support consulting, project development or what have you, it will require an investment of both time and money on the part of your client. Small business people do business based on trust - you are in the center of a circle of trust. People inside your circle will do business with you, people outside it won't. So how do you get them inside your circle?

The answer is you need two-pronged marketing strategy that has a front end and a back end. The front end doesn't make you much money, but it gets you the opportunity to meet potential clients and get them inside your circle of trust. The back end is where you generate income. Again - front end: generates relationships and potential clients. Back end: generates income.

Retailers do this all the time with what they call loss leaders: they offer some items on sale that they actually offer at a loss - they actually lose money selling these items to you. But those items get you into the store. Loss leaders are a front-end marketing strategy. While you're in the store buying a loss leader - a DVD, for instance, you may purchase another item - a big flat screen HDTV. That's the back end item which has a big enough markup to absorb multiple loss leader sales and still leave the store in the black.

In a consultancy you're selling very expensive services that clients really need. But how do they know you can follow through? What sort of front-end strategy can you use?

Ever hear of free software? In the process of putting together tools for my own company I put together a web site that used Joomla on the front end, and loaded an Open Source CRM tool that uses the same LAMP stack to keep track of client relations. In the process of doing so it occurred to me that these same tools might be helpful to other small businesses - most of which have websites that are little more than suckish online brochures. What if I could offer cheap and easy setup for a sharp-looking website that used Joomla (or Drupal or Plone or other open source CMS) and an Open Source CRM package? I could help businesses get up and running and implement some free tools for them.

I began visiting the local chamber of commerce, Rotary meetings, entrepreneur seminars and doing a short talk on "Free Tools for Your Small Business", a little 20 minute talk and an info sheet where I tell people where they can get some good, powerful tools for free. If they don't have their own geek, I give them a business card (and get theirs!) and then use my CRM tool to put them down as a potential client, following up with emails until they either respond or reach a timeout value and go into the delete bucket. Helping them set up a simple Joomla website and CRM application (or other FLOSS tools) doesn't make me a lot of money, but it gets me some face time with the client, shows them that I'm professional and competent, and moves them into the circle of trust.

Now I'm able to market my back end services - subscriptions for a virtual appliance that monitors their systems, gives them a dashboard and notifies them and me when a problem occurs. Depending on the subscription level, they get a couple of well system visits a month, and up to X hours of break-fix time. And they call me to implement new systems and projects. On the back end I want to be their IT department, which means being able to provide remote service, online backup and other things -- there are Open Source tools for all these things, but subscriptions are important, because they generate steady cash flow.

That's the model I'm trying to implement, without getting too specific. But I'm still in the early stages. Ask me in a couple of years whether it has been successful or not - right now it's too early to tell. I might just be getting myself into a sea of suckitude. Hope not, though.

That's the model I'm working on. I welcome feedback, advice.

Robbo

[EBreezy]

Here's another Startup Lessons Learned

Eric

[ozgeek]

I thought of starting a support company for free software desktops. While I think there would be enough corporate interest (especially from small business customers), I don't think there's enough money in it to be worth my time.

I hear a company called GNOME International Support that started back in 2000 did pretty well.

Supporting generic desktops is a hard market. You might do well to support some niche software solution though - something like Point of Sale software, or software that paramedical people need for their job, or some other generic (perhaps boring) single-use software that people use all the time.

I suspect if yo9u do choose this path, you will need to make your software export to whatever small busness software it is people in the UK use.

Here is is MYOB (mind your own buisiness) or quicken.

This would probably be one of those cases, where you'd need to buy proprietary software in order to make free software work with it - assuming you didn't hate freedom and were intending to make your software free.

Of course you could eventually include such functionality in your won software, however I suspect at the start that would be quite difficult as you'd need to know a lot about small business regulation taxation, wage practises etc, so it would be far easier just to have your POS or whatever export whatever data is required to the small business software.

One semi niche software product I thought about was POS software that used the same data that an online store used.

I.e. whether someone bought an item online via a web shop or in person the same database would be decremented for the items they bought.
The attraction here is that the store owner only needs to do data entry once, instead of once for the bricks and mortar store and once for the web store and doesn't need to reconcile the web sales and the bricks and mortar sales to find out how much stock they are holding.

Lots of different possible architectures and a few problems to solve/directions to choose, but I reckon it would be useful for small niche retailers who have an online as well as bricks and mortar presence.

[slef]

You should at least make the software communicate with the developing free software solutions like Ledger-SMB/Ledger-NPO.

Last time I looked, there weren't many standards in that area, though. Some bookkeepers seem to make half their money from reformatting spreadsheets exported by one program into the import format of another. Or maybe it's really clever and I just don't understand it.

I've been keeping my accounts in a glorified spreadsheet. No complaints from the accountant yet. Thing is, most small business owners make horrendous accounting mistakes and they're often far more horrendous if they're trying to use a complicated accounting package untrained, as far as I've seen. Keep It Simple and Stupid and never, ever upset the Excise if you can help it.

[WTFShelley]

After Adam's 20 minute segment on his new company im reminded of an earlier episode, episode 48 @ 00:01:22 and adam's comment to jono

[ahickey]

Some simple questions from somebody who has done it and failed as well as succeeded.

What are you selling?
Be very clear on what you sell and the value of it to your customers
As mentioned before 15 second pitch that makes customers want to know more

Who are you selling to?
Why are they your market?
Make sure you have a way of reaching them

How are you going to sell it?
Marketing, cold calling, networking - all good, and all needed
Learn to sell yourself - people buy from people

How much do you need to sell to support your lifestyle?
This is the big one. Work out what income you need from starting your own business to make sure it's financial viable
Work the numbers back for your pricing and quantity that you have to sell
Work the numbers again

There are a lot of people with great business ideas or products/services that would really benefit other people and companies.
Just having this is not enough to start a business. You have to nail down how you are going to sell to them.
What are your financial goals per week/month/quarter/year.
Be brutal - I now believe it takes twice the amount of time or 3 times the money to get a business to the point of success from a standing start (no netowrk, leads, guaranteed business). Anything you can do to affect this is worth doing.
As mentioned before build the network and if possible do work on the side while in full time employment.
Practise selling when ever possible. It's no use being great and delivery if you have no customers. I see this as being a huge mental shift for technical people who are use to backroom positions and have no experience of actually selling and closing business.

Use all the local support options available to you when starting a business. You're not alone. Just go to your local council and they can let you knwo what the options are.

Finally, just do it. Let friends, family, contacts know you are available to help. Refine your message. Do some work you can reference to build credibility. If for free - make sure it's a personal contact who knows the payback is a reference or a publishable testimonial. I wouldn't do unpaid work for brand new customers as it sets an expectation in the marketplace. At some point you have to go from free to paid and it might affect some of your relationships, or you end up burdened with ongoing business that will never be profitable.

Finally, finally, check out the following: Entrepreneuring: The Ten Commandments
http://www.scbrandt.com/ten_commandments_011.2B.html
First published in 1982 before the .com boom/bust with some sound advice.

Hmm... that was a longer post than I expected to do.