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Lessons learned during 48hrs in the Valley

clock December 11, 2013 10:00 by author JKealey

We recently attended the C100's flagship event named “48 hrs in the Valley” and want to share some key moments, lessons learned and observations. The event was filled with so many activities that it is difficult to distill everything into a concise picture but we'll give it our best shot. Before we get started, we'd like to take a moment to thank the C100's organizing committee for their great work. Coordinating this type of event is very challenging work and we appreciate it the effort put into it.

Key Moments

Picture by Kris Krüg Rob Burgess' insightful talk is the first things that come to mind when looking back at the event. Coming from a web design & development background, it was awesome to hear the inside story behind Flash. After becoming CEO of Macromedia, Rob had the foresight to pretty much cancel all development on the company's main revenue source (tools like Shockwave) and re-orient resources towards building products for the web (aka Flash). Given how drastically the industry has changed, this was the right decision but the amount of guts it took to perform this pivot is mind boggling. Pivots in a startups are difficult, but completely re-orienting a successful & profitable company with tons of money in the bank is much more challenging.

We also were fortunate to be matched with Debbie Landa for one of our one-on-one mentoring sessions. What started out with “I know nothing about franchises” concluded with a plan to revolutionize the franchise industry. By making parallels to the venture capital world, the future appeared obvious to us and we validated that FranchiseBlast's in a great position to completely alter the industry. Debbie had the energy and big vision we expected to find in the Valley. Combined with the open-mindedness to learn new things and the creativity required to challenge assumptions, these traits guarantee success regardless of your geographical location.

Being a bootstrapped startup not looking for funding, pitching to venture capitalists was also an interesting change of pace. The dynamics of each pitch was completely different. The first presentation was made to an analytical VC with a great poker face. Razor-sharp questions followed in quick succession to lead up to very insightful comments. It was the toughest meeting, but also one of the most valuable. Our second presentation was characterized by stellar flow: each slide was followed by a question answered on the next slide. It was a short meeting due to time constraints, but even in this short blitz one could sense the intellectual alignment. It's great to work with people with whom you can have fast-paced exchanges. Our third pitch slowed things down as we were given twice as much time as allotted and ended up being a conversation more than a pitch. This VC had domain expertise not found in the other meetings which lead the discussion in a completely different direction. The final pitch ended up being the easiest (emotionally) with great validation but few challenges. Putting myself in their shoes, though, I understand how gruelling it can be to deliver insights which can push companies to the next level, pitch-after-pitch.

Finally, I enjoyed the “both sides of the deal” talk where a startup and their VC discussed their deal from different perspectives. Not only was it extremely funny, it was also very insightful. Rather than discuss the specifics, let us dive into key lessons learned – some of which emanated from this talk.

Key Lessons Learned

Picture by Kris Krüg Although we learned a lot during these 48 hours, we didn't necessarily learn anything explicitly taught. These lessons learned materialized after talking to enough people in Silicon Valley and reflecting on their thought process.

First, the importance of shared vocabulary cannot be overstated. In the software world, best practices are often boiled down to design patterns. When two software engineers have internalized concepts behind these patterns, they can propose & refine software architectures very efficiently. The same shortcuts apply to everything in the Valley: software, finance, companies, people, eras and methodologies. While we do not personally stay abreast of every hot new startup mentioned in tech news and feel it gets in the way of getting things done, we acknowledge that shared vocabulary is critical. In particular, being aware of some of the key events which shaped the technology industry in the past and general knowledge of current trends helps us align ourselves with success and avoid repeating past failures.

Furthermore, having intimate knowledge of the people behind those events is key. In our early days, we saw networking events as a chance to meet interesting people. We went into an event not expecting much and that's precisely what we got: nothing much. However, we unknowingly started to build a network of peers and, after a few years, we're now connecting some dots. We can start transposing our concrete needs onto the desire to meet concrete individuals – or at least give our interlocutor enough information to help guide us to a person which meets our criteria. Although you may randomly bump into the perfect contact, it is much more efficient to do your homework and seek out individuals yourself. As an aside, we purposefully dedicated some time during the event to plugging other local startups (Exocortex, Shopify, Project Speaker, etc.) when meeting relevant individuals because we firmly believe that we're not only founders, we're ambassadors for other startups in our community. “A rising tide lifts all ships”, as Scott Annan often says speaking to the Ottawa startup community.

Picture by Etienne Tremblay We also discovered that the more successful your company becomes, the lonelier it becomes for the founders. By this we don't mean people start ignoring you or despise you to the points of throwing rocks in your direction. No, in fact, we mean that the essence of loneliness is derived from the fact that you can't talk about your fears, successes, challenges or motivations with anyone else. To help illustrate this fact, visualize entrepreneurship as a pyramid of thousands of layers where the dimensions of each layer represents the number of likeminded individuals & companies. When you first start out at the base, pretty much anyone can give you valuable business advice. However, as your business grows, the value of this advice diminishes. This causes you to look elsewhere (higher-up in the pyramid) for high-impact advice, but it becomes exponentially more difficult to find it. As an example, when you've raised venture capital, you may find that there is a limited pool of likeminded entrepreneurs in your city with whom you can discuss your challenges; this forces you to branch out. We believe the same logic holds for every major transition in your company's lifecycle, from your first part-time freelancing gig to IPO to managing a trillion dollar company. In the technology industry, we believe the entrepreneurship pyramid reveals Silicon Valley's greatest asset for founders: a greater density of likeminded individuals to accompany you in your journey.

Key Observations / Thoughts

  • If you wish to raise capital efficiently, you must know which funds are aligned with your business model, which ones of those are at the right place in their funding cycle and which individuals within those funds you should talk to.
  • If you wish to network efficiently, you must know what you're trying to accomplish, which companies have done it before and which individuals within those companies are responsible for the behaviour you wish to emulate.
  • Company culture is important for all businesses but even more so for companies undergoing hyper-growth.
  • Toughest thing to do as a CEO is terminating someone who's gotten you to where you are now but hasn't evolved.
  • You will outgrow the impostor syndrome.
  • Our peers during the 48hrs event were there to get things done. Everyone is independent and focused. This may come off as arrogance; break through the shell.
  • Behind every success story are individuals who are just like you.
  • The C100 organizing committee sets up the context, but it's up to you to leverage the opportunity to reach your goals. Sink or swim.
  • Once you board the funding train, you're not getting off.
  • The only way to minimize risk is to use pattern recognition. (Hiring, investing, sales, growth, etc.)
  • Because of the importance of pattern recognition, most people follow. (Many investors chasing the same startups, etc.)
  • Fitting the right patterns increases your likelihood of success. Revolutionary ideas must break the appropriate patterns, but not all of them. Finding the perfect balance is extremely difficult.
  • Pick good lawyers; vet them.
  • Business is not a zero sum game. Find a win-win agreement.
  • At lastly, a tweet I saw while leaving California: Help others. Luck favours those with good karma.


New Grant for Canadian Franchises to Adopt Tech

clock November 15, 2011 11:18 by author JKealey

(From left to right) Jason Kealey (President, LavaBlast Software), The Honourable Christian Paradis (Minister of Industry) Yesterday, the Minister of Industry announced a new grant pilot program (DTAPP) offering up to $99,999 in financial support to Canadian small- and medium-sized enterprises (SMEs) to facilitate the adoption of digital technologies. The announcement featured FranchiseBlast as an example of such a digital technology and was made inside one of the Boomerang Kids stores, our newest franchise client (see photo).

This pilot program is great news for Canadian franchises as it includes the adoption of business systems (franchise management, customer/work order management, inventory management, etc.). In the context of a franchise, these are often customized systems ensuring the uniformity of their proprietary business processes across all franchisees. Off-the-shelf hardware and software are not covered by this grant, but the following are:

  • Internal labour costs: franchisor’s time spent elaborating the system
  • Contractors: technology firm helping the franchisor adopt the technology
  • Travel & Training
  • Hiring of recent college graduates as a part of the adoption process

The new grant program is managed by NRC-IRAP. As with all NRC-IRAP grants, the process starts with the franchisor developing a relationship with an Industrial Technology Advisor (ITA). Over 240 ITAs, located all over Canada, will work with you to determine the best course of action for your business, whether is be via the new Digital Technology Adoption Pilot Program (DTAPP) or one of the numerous existing grant program­s.

As our specialty is creating franchise-specific software solutions, we’ve gone through the process in the past. Our team can work with both you and your ITA to establish the scope and requirements for your project.

For more information about DTAPP, please visit this site and call toll-free 1-855-453-3940 to be assigned an ITA in your area. 



Startup Pivot: Lessons Learned

clock November 16, 2010 10:12 by author JKealey

logoWe’ve just launched a new website, FranchiseBlast.Com. Simply put, we’re spinning off all the content related to our franchise software from our main site onto this domain. We did this for a number of reasons, but one of them was that we decided to perform a minor segment pivot. We launched LavaBlast in 2007, focusing on an integrated solution for retail franchises. We built an awesome solution around this problem but, for a number of reasons – mainly scalability, we are pivoting to service-based franchises instead. We provide an equivalent feature set to both types of franchises; the main distinction is simply the deployment architecture. Our differentiators are still our focus on integration and our desire to build franchise-specific software solutions.

Since we’ve just pivoted, I don’t have any witty insights on the business aspects of the pivot. Sorry folks, you’ll have to tune in later to see if was a good idea or not! However, I do want to share a few lessons about the nitty-gritty details of the pivot.

 

1) Working with an outsider

Early on in the process, we got Ben Yoskovitz involved. In case you didn’t know, Ben is not only a co-founder of Year One Labs but also assists existing startups with product development via Flow Ventures.

  1. Working with A-Team individuals simplifies things. Even though our backgrounds are dissimilar, we share the same general philosophy about how to grow a business. Therefore, our debates were short and focused on key decisions to be made. Once decided, everyone could run with the idea and get things done.
  2. We didn’t want to look like fools. Explaining what you do to a respected outsider forces you to better articulate your thoughts. He didn’t need to point anything out; we preemptively realized inconsistencies or flaws in our own logic while explaining our business strategies. 
  3. Get some different thoughts. A breath of fresh air… unrelated to the use of Binaca.

 

As time passes, the business context changes. Going through this exercise once in a while helps you refocus and re-orient when necessary.

2) Moving away from SubSonic CMS

The LavaBlast website is built using a tweaked version of the SubSonic CMS.  We started using that CMS the first week it came out and slightly tweaked it for our needs. It is plain and simple and did what we needed it to in 2007. However, the open source project was never maintained and we keep getting burned by random issues. As an example, the rich text editor it includes doesn’t seem to work consistently on Google Chrome (which did not exist back then) and has issues with session timeouts.

The FranchiseBlast website is built on WordPress. Given our busy schedules, we didn’t waste any time with the revamp. Having never played with WordPress before, the main thing that struck us was the wide variety of plugins that are available. 

  1. Install WordPress. [Yes, you can install it on IIS. ]
  2. Purchase a WordPress theme. [There are awesome ones for software-as-a-service type startups].
  3. Tweak the site structure/theme. Pump out some content.
  4. Install plug-ins as you go.

 

As an example, we installed one plugin for our contact forms. Time spent configuring: 5 minutes. This enabled us to focus on the message, not the form or infrastructure-related-time-wasters.

3) The social web has changed dramatically

I remember reaching out to franchisors and franchise bloggers back in 2007. There were a handful of blogs and that’s about it.  Social media adoption has tremendously increased in the past years thanks to services such as Twitter. It is much easier to get in touch with someone now (using warm introductions) than it was back then.  We’ve now reached an era where franchisors are overwhelmed by the number of social media services they need to feed information to.

Have you been in business for a few years? Do you have lessons learned to share?



Stop trying to build the next Facebook

clock November 9, 2010 12:58 by author JKealey

facebookyouredoingitwro There are a number of strategies to build a successful software startup but my favourite is to focus on a niche. Find a very specific group of people with a common problem and solve it well. As software startup founders, we have the luxury of picking very narrow niches (and still surviving) while non-software businesses need lots of capital. For example, you can build software to connect potato growers with buyers for a fraction of the upfront/ongoing costs of launching a business that provides innovative farming tools to potato farmers.  (Yes, potatoes are awesome.)

What’s ideal about niches is they allow you to start your business and survive, if you’re serious and dedicated. When leaving the comfort of employment and starting their first business, I feel that survival is all you should worry about. You’ll never become filthy-stinking rich and your face won’t be on the cover of any magazine, but you’ll make a living. Your lifestyle will be completely different: you’ll be happier because of your flexible schedule or, more importantly, your work will have a direct and visible impact on other people’s lives. Take this time to learn about being in business and grow as an individual: that’s all that is important. To use an oft used insect-related analogy, you’ll emerge from your cocoon as an entrepreneur after a couple years of trial and error.  (Other ones include Be A Cockroach but they smell.)

Now kick the training wheels off and really get started. You’ve gained some experience, built something and can start thinking about growth. You’re now in a much better position to decide what should be done to turn your business a multi-million dollar company. Most probably, you will have radically changed your original plan based on what you’ve learned. The dynamics of the game have changed: scalable growth, not survival, is your goal. 

In a niche, you can determine who to talk to (potential clients and partners) and can do so in a structured manner. Without one, you’re wandering. This is critical: you shouldn’t be building anything without getting validation that it is the right thing to build. Although we all like to think about software as innovative, the fact is that the technical risk is very low for most software startups; the real risk is market risk. Know the answer before starting your business: can you build something people will buy and can you sell enough of it to make it worthwhile? You can’t discover this on your own; lay out your idea on paper and talk to your target customers about it.

  • Don’t fool yourself into thinking your ideas are unique or that you’re spectacular.  Ideas are a dime a dozen; everyone has the same ones.
  • Given enough money, you can build and sell anything. Know how much you have and what you can accomplish at your size. Drop the ideas you can’t properly build or commercialize and move to something realistic. I’m sure you could genetically engineer unicorns if you had a billion dollars, but do you see Mark Zuckerberg peddling unicorn meat?.

This brings me to my main point: stop trying to build the next Facebook. By this I don’t mean “avoid building social networks” but rather “stop trying to be an exceptional anomaly” because you will fail. You’re not a contestant on “Who wants to be a billionaire?” and the odds are stacked against you. Anomalies are, by definition, rare. However, everyone has heard of these companies, making them appear as within reach and misleading hordes of would-be entrepreneurs. You should have large scale ambitions, but past a certain point you become a dreamer, not an entrepreneur.

Go niche. Work hard. In a couple years, you may be able to attack the larger market you originally had in mind because you now have both the expertise, the contacts and the funds to execute on your original larger-scale idea. Step out of the dream, enter reality and you may be able to set the stage to actually achieve what you dreamed about. Otherwise, you’ll end up like one of the weirdos screaming they invented Facebook in front of a local pub on St. Patty’s day. Additionally, if The Social Network is accurate, Facebook was actually niche-specific (Harvard only) in its early days.

I smile when I see businesses with niche focus and would have liked to have seen more at the latest Ottawa DemoCamp. Even if the product/niche evolves over time, I believe they have a greater chance of survival. Here are a few sites that exemplify the strategy:

Astute readers may have noticed that the above list includes a link to our software product for the franchise industry: FranchiseBlast. We spun-off some content from our corporate website onto its own website for marketing purposes and to reflect our current focus on software for mobile/service-based franchises. More on this in an upcoming blog post.

I’d like to know your thoughts on taking these types of niche businesses to the next level. Seems like the most common strategies are:

  • Same product, different vertical [if the company focuses on scaling product sales]
  • Generalization to many simultaneous verticals [same as above, but harder to accomplish]
  • Product diversification (new products) in same vertical [if the company provides value-added services in addition to a commercial product]

Are there any good success stories in this area? Spectacular failures? You tell me!



Lead To Win Program Review

clock June 28, 2010 08:41 by author JKealey

 

IMG_4322 Over the past few weeks, LavaBlast has been participating in the Lead To Win program in Ottawa. At a high level, people starting high-tech businesses in the region are invited to apply to the program which helps them get to market faster and/or accelerate their growth. After a number of filters, the cream of the crop become a part of an exclusive business ecosystem of local companies. I joined without knowing what I was getting into but truly enjoyed the experience. Since one of my critiques of the program is that the website doesn’t do a good job communicating what the program is or what the benefits are, I thought I’d write a short post on the subject!

Who can apply?

  • Anyone who is serious about starting a business than can generate six high-tech jobs over the next three years.

What is the process?

  1. [filter] You submit a written application
  2. [filter] You pitch your business idea to a board of reviewers before being let in.
  3. Phase 1: You attend three consecutive twelve hour days (8am to 8pm) of hands-on presentations on various subjects (business idea, differentiation, sales, marketing, etc.).
  4. [filter] You pitch to a diverse group (Founders, Funders, Professionals, Education, etc.) and are hopefully invited to Phase 2.
  5. Phase 2: You attend three more consecutive twelve hour days of hands-on presentations (finances, accounting, legal, cash flow, sources of funding, etc.)
  6. [filter] You pitch to another group of reviewers and hopefully graduate into Phase 3.
  7. Phase 3: You’re part of the ecosystem
  8. [filter] If your business is obviously going nowhere, you get kicked out.

 

Are the presentations any good?

Definitely. They’re a lot more hands-on than what you’d find in university courses. The 60 to 180 minute presentations are:

  1. Given by credible individuals in diverse groups (local entrepreneurs, angel investors, venture capitalists, service providers, academia, lawyers working for “patent trolls” :), etc.)
  2. Of tons of different subjects (there is more than enough diversity in the material to justify a 6-day commitment)

 

Why are there so many filters?

  • To ensure that only high quality businesses are in the ecosystem.

What are the benefits?

  • Strengthening the plan: You get validation that you aren’t crazy and that your plan makes sense.
  • Networking: When 30+ businesses are put in a room together for six twelve-hour days, bonds are created between the companies. You get to know like-minded people much faster than at random networking events. One major part of the concept is to build an ecosystem that collaborates and generates leads for each other. Moreover, you meet tons of other experienced individuals that contribute to the community (networking is not limited to other startups).
  • Increased credibility: There are dozens of government programs to fund startups and, because they know the value in the program, you’ve already proven yourself to them before starting discussions.
  • Joint ventures: Apparently [have yet to live through this], businesses collaborate on larger opportunities brought into the ecosystem.

Review

IMG_0575 What I disliked the most about the program are easy fixes and aren’t worth going into details (clarify website message, advance notification of the process & dates, facilities, etc). In general, a few small things could be improved, but the Lead To Win program is built around continuous improvement so these kinks will be worked out with each new session.

I have only good things to say about the concept, the presenters, the quality of the presentations and how good you need to be to get through the filters. The latter was something I was especially worried about, because weak filters would undermine the whole credibility of the program. You don’t need to be a superstar to get through, but I was surprised by some of the talented individuals who did get filtered.

I was also happy to see that most of the program was not tailored for people with dreams of VC funding. They burst that bubble fairly quickly. The program pushes you to reach an appropriate scale but I enjoyed how the focus was on growing your business and not about reaching 100 million in revenue in three years. This is a big thing to me because I like to avoid crowds of dreamers that don’t get anything done.

Conclusion

If you’re serious about starting up a high-tech business in the Ottawa/Gatineau region, consider Lead To Win.



Collaboratively Defined Business Strategy

clock March 31, 2010 13:54 by author JKealey

 

bookingblast For those of you who’ve been keeping track, we launched LavaBlast Software back in April 2007. A year later, we posted three software startup lessons about how we got started and followed up the year after that with four more fun software startup lessons. Now that Year 3 is complete, I should write another set of software startup lessons, but that can wait. Today, I feel we’ve come full circle because we’ve begun working on the type of fun project that we would have enjoyed doing three years ago, but couldn’t afford the risk. In a sense, it feels like a full circle and a new beginning for LavaBlast even though we’re simply working on a new product.

BookingBlast is going to be legen – wait for it – dary. Read on to know more!

Starting from scratch

Pretty much straight out of university, we started LavaBlast Software. We had no money so we had to be creative. By creative, I mean we had to be cheap, work hard and work on something low risk to pay the bills.  The recipe for success is simple and we’ve said it before. Let’s just say we sell to businesses and we keep the intellectual property. This strategy has allowed us to start from scratch and making a living. 

We already have BookingBlast’s building blocks and now have enough runway to execute on our idea.

Ramping up

Some may stop here – but that’s not enough for us. We have greater ambitions - we’re looking for something bigger - for a greater reward. Based on the assumption that it takes a decade to launch a successful business, we’re not even a third through. We’ve passed through survival and have been growing steadily, but we’re now anxious to move to the next level.

We feel we can get there by converting the enterprise-level software we’ve been producing to date into more scalable Software as a Service (SaaS) products. We’ve been wanting to do this since day 1, but needed short-term revenues.  We’re now re-investing into LavaBlast to give us this flexibility. (I guess that visit to an unspoiled private tropical island will have to wait.)  We toyed with a few concepts during the past year, looking for software products that:

  1. No per-client customizations (greater scalability)
  2. Sold to businesses, not individuals (faster revenue)
  3. Shorter sales cycle, lower recurring dollar amount per sale (easier to commercialize)
  4. Related to our existing work and/or future strategies (reuse and upsell synergies)

 

Hold your horses! I’ll describe BookingBlast’s awesomeness in a minute.

Context & Goal

Our short-term goal with this project is knowledge. We’ve been building enterprise software for a while and want to dumb things down and start aiming for higher volume, but we need to adapt our know-how. We see BookingBlast as a practice run whereas our business is a marathon.

Our long-term goal is growth, in terms of revenue and the size of the company.  Lots of the enterprise-level work we’ve done can be commercialized to a broader market but we need a longer runway.

Spill the beans already! What’s BookingBlast?

BookingBlast allows service-based businesses to accept online bookings. Reservations are accepted only during available time slots and deposits are paid online, in advance.

To clarify, our software will allow customers to:

  • Book your child’s birthday party online
  • Book mobile clowns/magicians/comedians online
  • Reserve a massage / spa services online
  • Book your chiropractor from their website
  • Book a photographer from their Facebook page
  • … and accept bookings/reservations in many other industries.

That’s it. It’s not rocket science. It’s been done already – there are many competitors in this space – the market exists. The barrier to entry is low. But that’s not stopping us, because we have a plan. What better way to test our plan than to go out and execute it?  The worst that will happen is sales will be lower than desired and we’ll still reach our short-term goal of knowledge. We’re not betting the farm on this – it’s a stepping stone in the context of our longer-term vision.

How did you come up with your secret master plan?

We understand that this is a marketing play more than a technical one. We’re not inventing a killer product, although we can be innovative in our implementation. We decided it was in our best interests to share our plans for BookingBlast with people from diverse backgrounds and get them involved in the process. Ian Graham of The Code Factory always says the engineering students/graduates from the University of Ottawa are more secretive than the ones from Carleton University and we decided to prove him wrong. We openly solicited feedback on Google Wave and at TeamCamp. In the end, we found that we’re not that crazy after all as this validated our initial opinions. We did discover a few interesting twists which we plan on using, however.

Therefore, our plan is not secret – you’ll hear more about it when our product will be in beta. However, here a few lessons we learned from our experiences with collaborative planning.

Phase 1: Internal research

We looked around to find competitors and market penetration strategies. We discussed this internally over a coffee and did our homework. I produced a one-page executive summary of my initial plans.

Phase 2: Feedback solicitation via Google Wave

We published a private wave and invited two dozen random people. We made sure to invite people who were not extremely close to us because their feedback would be biased. We made it clear that the participants could feel free to ignore us as we didn’t care to force anyone into open collaboration, especially if they were busy with their own work. We found that the people least close to us were the ones who contributed the most to the discussion. Within 24h, the discussion had grown to approximately 8 times as long as the original executive summary. Within the next 48h, the discussion grew a bit more, with a few late-comers giving their comments.

The early discussions were the most valuable. They brought in new elements and got everyone involved. They definitely changed our strategy. However, as the discussion grew, I felt that most people lost interest because there was too much to be read. The barrier to entry had been raised, which caused most of the late-comers to elect not to participate. Initially, we thought this was a bad thing as we wanted more feedback, but in retrospect, we feel that what needed to be said was said early on. Had we discussed the same material with each person individually, we would have elicited the same comments over and over. Redundant feedback is not useful (other than for validation) and is a huge time waster.

In conclusion, open collaboration is a great technique to elicit feedback very quickly. I am greatly thankful to those who participated.

Phase 3: Feedback solicitation via TeamCamp

jkjp Ottawa’s primary co-working location, The Code Factory, hosts a bi-monthly event initiated by Chris Schmitt called TeamCamp. Once in a while, TeamCamp will have a pitch night where the participants pitch their idea to the group and get feedback. This is a very informal round-table setup but you get to chat with interesting people in Ottawa. A few weeks ago, I pitched BookingBlast to the group. This was great validation for our online booking software, as it proved that we had properly thought it out. Some new strategies were put on the table, but the biggest lesson learned is that you don’t need to spend months thinking about your project if you’re agile enough to adapt it along the way.

Furthermore, we finally had someone stand up and say our idea wasn’t good enough, something we had been waiting for since we started planning BookingBlast. Given the small scale of the project and the low barrier to entry, I was expecting most people to shoot our idea down quickly. Maybe I watch Dragon’s Den too much and read too many angel investor/venture capitalist blogs. In any case, this brought forth great discussions where it appeared other individuals were reading my mind while defending our online reservation software for me.

We’re now ready to start implementing the project! (In fact, we’ve already started and it is progressing nicely!) 

We need your help

We’ve posted a basic information request page on our website. If you know business owners that would be interested in participating in our alpha/beta programs, please have them sign-up to our newsletter.  We’re approaching the market in a different fashion that what the competition is doing, so we’d love to talk to business owners directly.

Since a good portion of our readers builds software for other businesses, we’d also like to talk to web developers that manage business websites.

Also, feel free to share your thoughts on BookingBlast and how to make it work in the comments. We’re thinking of openly blogging about thinks like SaaS pricing and gathering data concerning some of our strategies for future discussions and commentary.



Penniless Startup Founders

clock November 6, 2009 09:02 by author JKealey

Where will this path lead you? This post is a follow up to one of our previous posts that discussed starting a software business during the recession. In this post, I want to focus on the cash flow aspects for very early stage software startups. A few years ago, we started the company with nothing in the bank and we've managed to not only survive but prosper regardless of today's tough economic conditions. It is possible to launch a software startup with no money: the tradeoff is time. It will take longer to get out of the very early stages.

Context / Introduction

Before starting, I'd like to point out that the tips that follow are only valid in a particular context:

Understand that these tips are for the very early stage

  • Your first business goal is to get out of the very early stage as soon as possible.
  • Lots of these tips concern petty little details. However, together these details matter when at the very early stage, when you're fighting for survival.
  • Survival is a huge milestone but it isn't the end goal

You have no money and aren't interested in loans.

  • If you have no money, this is probably your first venture. I strongly feel loans are a bad idea for your first venture, but others have different opinions.
  • Cash is a great accelerator - once you've launched your first business you'll probably have a need for speed and will either have cash or be more open to debt/equity financing because you'll have already learned what you have to learn in organic growth.

You're starting a software company.

  • It is possible to start a software startup with limited cash. You've picked a good industry. If you wanted to become a dairy farmer, you would need a massive initial investment. However, for a software startup, your investment will be time writing code - not acquiring assets.

Tip 1) Sell to the right group

Since this is your first business and you have no money, you need to establish a consulting sideline selling to businesses that will give you a good return for your time (even if you're building a product for individuals). You won't be able to pay your bills selling $20 licenses to individuals in the early stage. We recommend selling customized versions of something that will help you grow your core product, as long as you can keep the intellectual property. Read more about this strategy in our previous post.

Everyone values the dollar differently. The earlier stage you are, the harder it is to define appropriate pricing given your credibility level and you don't give the same value to each dollar as your customers. As you grow, you’ll find your sweet spot and will be able to focus on your consulting clients that are right for you.

Eventually, you should aim at moving out of consulting, as it doesn't scale.

Tip 2) Minimize your expenses

No, this isn't where we started LavaBlast! Assuming you have no money, it's important that you only spend when necessary. At a high level, you need to be versatile and be able to do as much as you can on your own. Later, you'll be able to delegate but not in the early days. Of course, know your limits and get pros to do things that are impossible for you to do properly.

  • Don't hire an accountant to prepare invoices for you. Learn how to use accounting software and do it yourself. Only hire the accountant for an annual review or for real accounting work. Once you know how, it will take you a few seconds or a few minutes to do the most common tasks - you won't be paying someone four hours of work at a high hourly rate. 
  • Don't hire a law firm to review a simple non-disclosure agreement sent to you by a customer. Learn to read legal text on your own. Only hire a law firm when you've got something important to prepare or review.

There are plenty of examples of ways not to spend money when you're just starting out and have none of your own. It's time to learn things on your own.

Be smart about the commercial bank account you choose

I've dealt with a few different banks over the years. If you're a tiny business, it is good to know a few simple facts and comparison points.

Get a business account with a variable monthly fee

  • Don't bite when they offer you a $50/month fixed rate. You won't have enough transactions to make it worthwhile to upgrade. When you reach that point, switch to the fixed rate plan that is a best fit for your business. You can easily save $480 per year.
  • Some Canadian examples: Desjardins: $7/month, TD Canada Trust: $12.50/month, Royal Bank of Canada: $6/month
  • Some variable plans charge transactions on top of the minimum monthly fee. Do your homework.

Know the minimum balance you need to get it for free

    Get an ING Direct Savings Account
  • Some customers may pay you in advance or you may get grant money. Bottom line: you may end up with cash that you can't spend for a few months to a year. (Actually, you can spend it if you know more will be coming in - depends on your management style.) If you do have it in the account, earn interest on it.
  • Business accounts often don't give interest. If they do, the interest is horribly low if you don't lock it in. (Not paying service fees is often more than the amount you'd earn in interest anyways).
  • ING Direct's account is free. They have the best rates I've seen for low amounts that can be withdrawn at any time.
  • Best of all, they have a referral program. Both the new member and the referrer earn $25. In today's market, this could easily end up being worth more than the interest you'll generate in your first year. Our orange key is 33514316S1 – go ahead, signup (personal or business) and you’ll help support us and receive $25! :)

Don't get a commercial credit card for your purchases

  • Unlike personal cards, they're not free and most don't have any rewards programs.

Do you really need to accept credit cards?

  • It is a good fit for some users or services, but know the costs. If you have few transactions but most of them are high value, you're better off with a wire transfer.
  • Some banks charge you more for wire transfers than others.
  • Remember that cheques are slow - you don't have access to the funds are week.
  • You'll be paying $20-50 per month plus 2-3% per transaction. This quickly amounts to several thousand dollars.

Will you be dealing with multiple currencies?

  • We're a Canadian company but we have lots of clients in the US and in Europe. In the very early days, we chose not to open two separate bank accounts (one in each currency) because of the associated ongoing operating costs and increased accounting complexity.
  • Banks all have different exchange rates. However, I've found one bank consistently gives us a significantly worse rate when receiving transfers in another currency. A few percentage points makes a huge difference as the size of the payments increases.
  • The larger your conversion, the better your rates. Talk to a specialist like @JamesonBankTrav.

Minimize your telecommunication fees

Don't get a commercial telephone line via large companies

You'll pay much more than needed. Investigate Voice Over IP solutions such as Skype. You can get your own telephone number and free long distance in Canada + USA for an annual fee of $60. This service saves you hundreds per year. Don't get a fax unless your customers nag you for your fax phone number often enough. If you need one, look at online services such as myfax.com which deliver faxes by email and give you toll-free fax numbers for less than what you'd pay to get a separate telephone line in your office for the fax, without the clutter of a deprecated device.

Don't sign-up for a massive cell phone plan if you've got empty pockets

Depending on what you do with your phone, you can save upwards of a thousand dollars a year by downsizing to a prepaid plan. Smartphones are great, but depending on your situation, it might be a wise choice to minimize those expenses. Let's hope you're not locked into a crazy-expensive three year plan! In the end, this is a personal decision which depends on your personality; once you've tasted a smartphone you may be unable to go back. Just keep in mind you might be paying much more for your cell phone than the much faster Internet connection you use all day.

Minimize your rent

Use a co-working facility

One tip often given to people starting their own company is to avoid renting office space too early in the process. Instead, work from home or from a more affordable co-working location. Not only do co-working locations reduce costs, they help you build your business because of the contacts you can make there. Once you’re read, upgrade to shared office space.

Don't minimize everything

In addition to being able to exchange services with other companies to cut costs, there are a few places where you can't afford to cut costs.

Your Image

One thing you don't want to be cheap on is branding. Your image is everything - quality needs to be high. Get nice business cards created by pros. Don't do your own web design if that's not something you specialize in. Your product will look amateurish and you'll lose sales. There are tons of affordable graphic designers out there: find one and have something nice created. Use online marketplaces such as 99designs. Since you're still a software expert, however, you should know enough HTML and search engine optimization techniques to be able to maintain your website. If you're a horrible writer, have someone review your content. This basically boils down to knowing your limits; there are some things you won't be good enough at even if you try.

Hardware & work area

We agree with Joel Spolsky's view that you should buy the best computer hardware and computer chair you can find. These are your primary tools and they are relatively inexpensive compared to your salary, even when you have very low revenue. One investment that is definitely worth it is a second monitor as it tremendously increases your productivity.

Your health

As much as your work environment is important, you should also value your health. Even if you're living on a very tight budget, don't eat hot dogs all day. Proper nutrition and good sleep cycles keep you in good health and makes you more productive. You should not be falling asleep in the afternoon. Starting your business is a marathon, not a sprint. Make sure your lifestyle is well adapted for a marathon.

Tip 3) Leverage your money

We've already covered this part in a previous blog post. Know what government funding opportunities are out there. Some require matching contributions. Some are based on your expenditures. Look around for these opportunities but mostly talk to other people to know what's out there and what's worthwhile.

Tip 4) Cash flow projections for dummies

You should always keep an eye on your cash flow, not just your revenue. I've created a very simple Excel spreadsheet to help with our cash flow projections. This one is simply a template with some random numbers in there. The one we use internally is a bit more complicated as it includes things such as currency exchange rates, taxes, etc. Build it however you like, but I've found that the two most important elements in there are:

1) Past Sales versus Projected Sales

What are my known sales (recurring revenue) versus what serious leads do I have in the pipeline. Being conservative, I base my business decisions on my past sales not my projected sales because I've learned that projected sales are often postponed. We have long sales cycles that culminate with a large sale which has a big impact on that month's revenue. Separating known sales from projected sales is of critical importance because of this because we either make the sale or get zero revenue from that customer in that month. If you're selling lots of lower value items (subscriptions to your service, for example), each individual customer has less impact on your total monthly revenue.

2) Runway

Given our current burn rate, when will we run out of cash if none of the sales in the pipeline are realized. This is useful to help you decide if you can hire and/or if you can give yourself a raise. It can also make you realize you're heading towards a problem and you need to correct the situation as soon as possible.

cashflow

It would be nice to have a simple, open source, application that helps business owners track their cash flow projections in this fashion. You could go overboard and integrate it with accounting software, but I think it's nice when it's simple.

Conclusion

The path ends up being longer than expected When you start your first company, and you have no cash on hand, you need to focus on making money and keeping the little money you have. Survival is a major milestone, but remember that it isn't the end goal. You'll learn tons of things along the way, and once you do leave the very early stages, you'll need to manage your cash flow properly. Later on in life, you'll probably start another business - this time you hopefully won't be as strapped for cash - and you'll be able to speed up the whole process.

I'm not sure what is harder between:

  • A) Going from nothing to survival
  • B) Going from survival to success
    I do know, however, that going from nothing to survival appears a lot easier if you have cash to start off with or if you've done it before. Since success is in the eye of the beholder, it all depends on what you want to achieve.


Software Startup Lessons (Part 7) - Versatility

clock April 20, 2009 11:41 by author JKealey

The many steps of launching a business... This is Part 7 of an ongoing series of lessons learned during the first years of our software startup. Feel free to take a look at our first year (Part 1, Part 2, Part 3) and our second year (Part 4, Part 5, Part 6). Today we'll talk about of the key lessons that we learned in university that helped us during the first two years of our business: versatility.

We recently presented to a class of computer science students at the University of Ottawa where we spoke of the single most important thing I learned in university: the importance of versatility. To make a long story short, we strongly feel that the more versatile you are, the more valuable you are to a software startup. Small startups don't always have the luxury of assigning roles to each employee (quality assurance manager, database administrator, usability expert, website maintenance, etc.) because of the team size. The founding team is responsible for all of the aspects of the business and they must face fresh challenges every day. The wider the breadth of experience, the better the team can propose cost-effective solutions to their customers. Today's software engineer must be aware of the tools at their disposal, whether they be open source or not. In a sense, this is where a founding team with complementary skills and experience is almost mandatory.

University courses usually introduce subjects that self-learners wouldn't necessarily discover on their own. Although one might not directly apply the theory learned in courses, individuals grow their knowledge base which might eventually help them solve problems efficiently. As an example, data structure and algorithm course gives students the knowledge required to know when to use a hash table or merge sort, even if in practice (almost) no one implements min-max heaps on a daily basis. You probably won't be opening your probability charts for a Gaussian distribution this month, but the lessons learned do help you solve problems such as “which point of sale does an abnormal number of refunds” efficiently. University is all about gathering tools to be able to face all the problems you will encounter in your career.

Furthermore, most new grads grasp the importance of software in a software business. However, lots of people forget about the business aspects. When launching your own startup, you need to have some basic business experience: accounting, marketing, sales, legal, etc. If you've never done your own income tax or budget before and don't know much about software intellectual property, you'll eventually run into problems. In a small software startup, every dollar counts and you want those high-paid experts to do what they're suppose to: solve you hard problems. You don't want to be paying them 200+ dollars an hour to do data entry, but that's what will happen if you don't have a basic understanding of accounting.

In addition, we feel that all computer scientists should have basic knowledge about the various open source software licenses out there, even if they aren't working on open source projects. Why? Simply put, your goal as a software engineer is to avoid reinventing the wheel and write the least amount of new code (less code means less time writing it, less time testing it, less time supporting it). When solutions already exist and can be found on blogs or other sources, it is very tempting to re-use it. However, depending on the software license, bringing this code into your project can have significantly different consequences. Some licenses mean “do what you want with it, but don't sue me if it doesn't work” while others mean “if you import these fifty lines of code into your project, your project becomes open source and you must give a copy to anyone that requests it”. There are tons of nuances, but it doesn't take long to get up to speed. Although we learned this in Dwight Deugo's excellent course, anyone can get up to speed with a few hours of googling.

We use RescueTime One area we haven't mentioned yet is communication / social interactions. We track our time using RescueTime and, over the past 12 months, we can confirm than more than a third of our day is spent on communications. Not only do we collaborate within the team (project planning, testing, managing, etc.) but we also need to maintain relationships with outside parties (clients, prospects, suppliers, etc.). I think the simple fact that we're spending a third of our time talking/writing is justification enough to force ourselves to improve our communication skills. We're definitely not English majors, but we know how to express ideas in simple way that facilitates communication.

In summary, if you want to launch your own software startup after university:

  • Take some business courses
  • Take some law courses
  • Try to improve your writing skills (reports, blog, etc.)
  • Improve your communication skills (oral presentations)
  • Try to avoid student loans!
  • Get as much work experience as possible (coop terms, summer internships)
  • Do more than what is expected of you

 

Passion is the key to success

We've explained how versatility is important, but we should mention that passion is required. We feel it is critical than we tackle any work with the same passion that drives us when developing software. That means balancing bank account statements at 10PM on a Sunday night with passion, if needed. That means attentively reading a 20 page legal document, on a Friday afternoon when required. That means writing a quote with enthusiasm even if the last three failed and someone stole your car stereo last night.

We never feel thrilled to do accounting, but once started, it is important we make the best of it and focus on the task at hand with as much passion as possible. Unfortunately, motivation needs to be intrinsic and cannot be imposed or learned. Some of us can find passion in certain tasks more easily than others, but it is possible to get the same thrill of getting things done regardless of how boring the task is in appearance. Programmers know the importance of getting “in the zone” where productivity is at its maximum. This “zone” is not exclusive to programmers or writers: it can be reached during any task. We're not psychologists in any way, but it does appear that constant observation of how a task is supposedly boring doesn't help productivity. Self-awareness and re-evaluating how a task is executed is definitely a good way to find process improvements, but it shouldn't get in the way of getting things done. Convincing yourself that a task needs to be done, done well, and done efficiently is the first step to getting “in the zone”. Stop thinking about the pain and, eventually, it will go away. Passion improves throughput. Passion improves quality. Passion helps you get back to software development sooner (or whatever you like doing).

While we're on the subject, we've heard another rule of thumb: success is one third hard work, one third contacts, and one third luck. Assuming you've got passion, you've got the hard work area covered. Assuming you've got passion, you'll be able to inspire other people and build a network of contacts. It's going to be harder, but you can do it. Finally, assuming you've got passion, you'll make your own luck. This is probably the hardest fact to accept in business: regardless of you/your team/your idea/your contacts, business is not an exact science. You can improve your chances, but nothing is guaranteed.

This concludes the lessons learned in our second year. I would not be surprised if we added more lessons in twelve months, as we never stop learning new things! If you're thinking of taking the plunge, you should as it is definitely worth it!

kick it on DotNetKicks.com



Software Startup Lessons (Part 6) –Looking back at one failure

clock April 14, 2009 10:57 by author JKealey

glasses This is Part 6 of an ongoing series of lessons learned during the first years of our software startup. Feel free to take a look at our first year (Part 1, Part 2, Part 3) and our second year (Part 4, Part 5). Today we'll talk about one of our failures.

When you run your own company, you never run out of things to learn. We feel we've made great progress learning from our successes but mainly our mistakes. As Bill Gates once said, “It's fine to celebrate success but it is more important to heed the lessons of failure”.

In this line of thought, it is much easier (and faster!) to learn from the failures of other people than your own. It is for this reason that In Search of Stupidity and Founders At Work are on our recommended reading list for anyone launching a software business. We've talked about the books before on this blog, but must mention them again, as they are such a great reads.

Learning from failures is an important part of self-enlightenment but failure, as you can expect, is not something people like to share with others. Therefore, it is hard to find good stories that describe the steps that lead to failure and what could have been done to turn the failure into a success story. In this spirit, I feel it is important to describe one of LavaBlast's failures. I hope that this will encourage those of you who also run startups to post about your own failures, so that we can collectively learn from our experiences.

Even though we build software for the franchise industry, we cultivate a love-hate relationship with it. We decided to launch a business that focuses on franchises for many reasons; one of them being we fill a need in the market. Simply put, we build operational software: our clients need our software to run their business. Amongst the other software companies that build software for the franchise industry, many of them focus on converting web visitors into franchisees, in exchange for a hefty commission. This populates (read pollutes) the Internet with thousands of sites focusing on franchise opportunities. This is something we strongly disliked as it makes it hard to find anything related to franchising on the Internet without landing on one of these websites. (Don't get me wrong... these sites do provide a good service, but make it hard to find anything else.)

Being users of DotNetKicks, a site that aggregates news/articles/blog posts about Microsoft technologies, we thought it would be a good idea to launch a similar site based on the franchise industry. The end result would be a community-driven franchise news site that keeps people informed of what was going on in the franchise world: franchisors going bankrupt, unhappy franchisees, new franchises, franchise trends, franchise humor, etc.

Normally we would have said that this was a crazy project as there was nothing in it for us in exchange for hundreds of hours of programming time. However, DotNetKicks being an open source engine built using the same technologies that we use on a daily basis, we figured it would be easy enough to launch our own engine based on this code. Thus, Franchise NewsBlast was born. In less than a day's work, we had the site up and running and ready to receive content.

We knew we had to create some base content to generate interest and get the ball rolling. We therefore carefully read hundreds of articles and picked the cream of the crop to post on Franchise NewsBlast. We wanted to fill every section EXCEPT for franchise opportunities. Once that was complete, we contacted hundreds of franchise-related websites to inform them about our new engine. We promoted our site to the few bloggers in this space. We wrote a press release and sent it on a few channels. We wrote blog posts on Blue Mau Mau, the largest community-driven franchise website (which we also published here).

To make a long story short, after investing over a hundred hours (most of which in promotion, as the coding had already been done), we had one subscriber. Yes... only one person registered to post and rate articles on Franchise NewsBlast. ONE person joined our free site. This person also runs twelve-or-so franchise related blogs. Obviously, he registered to self-promote and we were happy about this as this is exactly what the site was intended to do... but when there's no community to rate the posts, the site has no value. We never reached the tipping point for it to go viral.

Practice makes perfect. Over the course of the following months, we signed up to various franchise news sources and cross-posted relevant articles. As time passed, we did gain readers but very few posters. We also gained spammers that were obliged to block. We reduced our quality standards in order to keep cross-posting on a regular basis. After three months, the site still stagnated and we discussed the inevitable: shutting the service down.

Three months later, the site was still online as it costs next to nothing to host. However, we're shutting it down today as it hasn't attracted any interest since. We're officially calling this project a failure. Why did it fail? Was it the software? No, the software is great – take a look at the DotNetKicks website. Was it lack of marketing? I don't think so. We did invest tons of time initially to make this work as we wanted this to be our gift to the franchise community.

Before starting this project, we did not know if the community would be interested in this online service. We thought it was a risky project, but were willing to lose a few hours to promoting our altruistic gesture. In the end, we believe there are simply not enough people that are interested in this type of service. If this is not the case, then these people are simply not computer savvy enough to see the value in such a service and/or find us. The last possibility is that we didn't promote it to enough people, even if we gave it our all. (Of course, we never paid a dime for advertising which might have helped us reach the tipping point.)

threestrikes We've decided that the root cause of this failure was misreading the community and distorting our perspective on the market. We looked at the franchise market from a software engineering perspective: a classic mistake made by developers. This is exactly the reason why most software is unusable: developers don't spend enough time thinking like people or getting feedback from users.

Since we launched Franchise NewsBlast, an online franchise communities called FranMarket was launched using the Ning social network generator. Franchise Market Magazine is the originator of this community and we are happy to see they've started building the online franchise community. They've got more users, but our blog has more traffic than they do, according to Alexa. Franchise Brief is probably the simplest yet most active franchise new aggregator we've found but it doesn't appear to have lots of visitors.  Blue Mau Mau is still the biggest player in the online franchise community, and it is the online community for Franchise mavens.

Why are online communities failing in the franchise world? There are many reasons, but we can't claim to know them all. The franchise world is composed of franchisors, franchisees, franchise prospects, and franchise service providers.

  • Franchisors: There aren't that many around. They're not the bulk of the community.
  • Franchisees: There are more franchisees and we can see them being very vocal about the issues they have with their franchisor on sites like Blue Mau Mau. However, most of them are probably too busy running their business to be spending time learning about events in other franchise systems. (And they have better sources than public websites for news about their own franchise.)
  • Franchise prospects: Prospects are the largest part of the community. They are interested in hearing everyone gossip about a franchise they're thinking of buying when doing their due diligence. However, once they do buy, they're probably don't care about what's going on in the franchise world anymore (as they are now franchisees).
  • Franchise service providers: There are lots of such consultants/firms, but as you can imagine the goal is to sell services to others. It's the equivalent to putting a hundred lawyers in the same room as six startup founders. The service providers are not generating the news and hence are not usually that interesting (there are some exceptions – Michael Webster). Service providers like LavaBlast are part of a healthy community, but we're not what defines it.

What's left? Not that many people: and the cream of the crop is already using other services such as Blue Mau Mau. We ignored the classic “know your market” recommendation. We feel that's why we failed. We are disappointed but we don't regret trying out Franchise NewsBlast. After all, we did learn more about the franchise world and we did make a few contacts. Best of all, it gave us a story to write!

Now that we've told you about our failure, we would truly appreciate it if you did the same! Think about your recent failures and blog about them! Everyone fails once in a while! There's no shame in failure as if you never try anything, you'll never go anywhere!

kick it on DotNetKicks.com


Software Startup Lessons (Part 5) - Being a software startup in a recession

clock April 6, 2009 10:47 by author JKealey

Leigh Hilbert Photography captured a Lava Blast! We're six months late to inform people that you can/should still start a software company in a downturn as this has been covered already here, here, here, here, and here.  Why are we six months late informing you of this, you ask? We have been incredibly busy building software for our existing / new customers during this period. For reasons left unexplained, we've seen the number of leads in our sales pipeline increase dramatically since the start of the recession. Furthermore, people have been coming to us for consulting services thanks to the reputation we've built since we launched LavaBlast.

If we had to name a single element that has helped us / will help us during the recession, it would definitely be our capacity to discover commonalities between seemingly different situations, abstracting them out and generalizing the problem. We can build systems for people who may not be in the franchise industry, but have similar needs. This lengthens our runway. This is one of the skills that we learned in university (more on this subject in Part 7).

If you take a deeper look at what LavaBlast does (building customized software that helps collaboratively manage a franchise) it is easy to notice that we're solving a problem in a particular vertical that is present in numerous other business contexts. We build operational line-of-business applications (aka help-me-perform-my-daily-tasks-easily software) that are used by franchise owners and franchisors (aka different-users-can-see-different-parts-of-the-data-while-sharing-some-of-it software). Without going into greater detail, many businesses are looking for software that helps them simplify their day-to-day operations and reduce costs, recession or not. It might not be as scalable as a consumer-focused website and not as glamorous as other projects, but it does have its challenges and is a great type of business that one can bootstrap!

[ We'd like to thank Leigh Hilbert for the "Lava Blast" picture seen above. ]

 

A mix of software products and services

In the Part 1, written last year, we describe how LavaBlast builds products (franchise management solution, franchise point of sale, etc.) but also services (as we adapt our software to each franchise's business processes). To help sustain development in a bootstrapped startup, software consulting is often a necessary “evil”. This year, we did do some consulting but managed to make the best of it. We've made a few interesting realizations that we've shared at a recent TeamCamp event at The Code Factory and would like to re-iterate here. This discussion assumes you're building software for other businesses instead of consumers (for obvious reasons, it is easier to bootstrap a software startup that targets businesses).

Typically, software consulting companies produce the same kind of software a couple times for different clients before deciding that it would be a good idea to build a product that addresses this same problem. At this point, they've delivered source code to each of their customers, as the customers retained the intellectual property rights related to the produced software. Therefore, to build a product and commercialize it, the consultants need to start from scratch. Although this may seem bad as the firm loses time and money rebuilding the product, it typically allows them to “build it right” thanks to the lessons learned during the first iterations. The product's architecture is well implemented as the main variation points have been clearly defined.

Simply put, we did the opposite and have kept the intellectual property rights from day one. (How? We got lucky that our customers had limited funds to invest and knew the value of intellectual property.) We sprinted for over a year building the core of our solution that allows retail stores and e-commerce websites to communicate with a centralized franchise management application. This was a large undertaking, but we had our first customer already using the product and paying for its development, while we kept the rights to the source code. (Note: we still did multiple iterations and learned from our mistakes!) Once completed, the core was easy to adapt to different franchise systems because we're experts at rapid application development and because our core architecture allows us to vary software behaviour for each franchise (thank you the strategy design pattern and dependency injection!).

What's interesting to note here is that because we own the intellectual property for the core of our system, it is much easier to sell enhancements to our core (to new customers) while preserving the rights to the source code for the combined system. It is also easier to find new customers because the core is already built. Simply put, investing a year into a software product is an investment that keeps on giving, even in the services arena. Because we have a flexible core that has already been implemented and we're keeping the IP, it helps us keep costs down during a bad economy. This is a win-win situation for both parties!

Advantages for the software startup

  1. Retain the intellectual property
  2. Build applications faster, giving you time to work on other things
  3. Keep costs down - easier to find clients in bad economic times

Advantages for the client

  1. Lower cost
  2. Put the software to use quickly
  3. Lower project risk

 

To get back to the discussion we had at TeamCamp, the question was how do you turn your service business into a product-based software startup when you have limited/no funds, have limited/no leads, and own limited/no intellectual property? Well, I'm sad to say it, but it “sucks to be you”.

You have to break the perpetual cycle you're currently in and do something different.

For some people, that means realizing that you're never going to make a decent living building static websites for $200 when you've got to spend 20 hours with the customer to figure out where they want the pictures of their puppies on their upcoming site before actually starting the work. Your competition is doing it at half the price with pre-built templates, stock photography and, as an added bonus if you order within the next 24h, offering them a box of branded pens, 500 full-colour business cards and a mention on their next Twitter post. You are a commodity.

For others, the decision boils down to what short term loss can do accept for possible future gains:

  • Build a product, build your reputation, and try to sell enhancements to customers while retaining the IP.
    • Tradeoff: money. You don't earn much revenue while doing this (often nothing during the first months). If you don't have prospects and don't know if your idea is any good, this is risky.
  • Assuming you can't afford this, build something during weekends and evenings and reap the rewards when it is complete.
    • Tradeoff: time. It takes five times as long to build it. However, you aren't screwed if things don't work out because your regular work pays the bills.
  • Build a quick alpha version and see what happens. Spark interest? Find funders? Find partners? Abandon your crazy idea?
    • Tradeoff: features & quality. It is preferable to fail quickly if you are bound to fail. I'd prefer investing a week of my time and getting proper feedback from peers informing me that my product idea sucks and I am bound to fail than eating cheap noodles for six months before discovering than no one will buy my completed product. Talk to people at events like TeamCamp or DemoCamp - stop being scared someone will steal your idea. Don't ask Mom or your beer buddies as they won't be harsh enough on you (although some of them might be mean drunks!).

One tip that we do want to give fellow bootstrappers out there is that, in the early days, you can give the customer a non-restrictive copy of the code, while retaining ownership for yourself. That way, both parties have a copy of the source code and both parties can do whatever they want with it, including selling it to others. However, you're the developer and the customer has better things to do than commercialize your software: all they care about is being able to maintain the code when your contract with them is over. This is a win-win situation for both parties, especially when you've managed to collect various modules that you can re-use for different customers.

How to launch a software startup in a recession

(Precondition: Start something that you can sell to businesses to lower the risk. )

  1. Find a first potential customer. Sign contract that says the intellectual property is yours but they get a copy of their version and they can do anything with it.
    • At this point, your software is worth nothing more than what the first customer is willing to pay for it.
  2. Take your core software and refine it with other customers.
    • This time, try to keep the source code to yourself, as it is starting to build value.
  3. Repeat step 2 until you've got enough funds and a high quality product.
    • Your product is now valuable. You are now out of the perpetual cycle.
  4. Sell copies and grow your business
    • This is where LavaBlast is at now, after two years.
  5. [insert secret sauce here]
  6. Success!

 

Conclusion

Considering all that has been said about launching a software startup in a recession, I think it all boils down to asking yourself "is this the right time for me?". Software startups / Micro-ISVs are tiny in comparison to what's going on at the macroeconomic level. Before taking the risk to launch your own business, what matters is the presence of the following elements:

  • Dedication / Passion / Interest
  • Capacity to execute on the idea
  • Support (family, friends, partners)

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Disclaimer

The opinions expressed herein are my own personal opinions and do not represent my employer's view in anyway.

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