Building a Software Company from Scratch


By Art Reisman, CEO, CTO, and co-founder of APconnections, Inc.

Adapted from an article first published in Entrepreneurship.org and updated with new material in April 2010.

At APconnections, our flagship product, NetEqualizer, is a traffic management and WAN optimization tool. Rather than using compression and caching techniques, NetEqualizer analyzes connections and then doles out bandwidth to them based on preset rules. We look at every connection on the network and compare it to the overall trunk size to determine how to eliminate congestion on the links. NetEqualizer also prevents peer-to-peer traffic from slowing down higher-priority application traffic without shutting down those connections.

When we started the company, we had lots of time, very little cash, some software development skills, and a technology idea.  This article covers a couple of bootstrapping pearls of wisdom that we learned to implement by doing.

Don’t be Afraid to Use Open Source

Using open source technology to develop and commercialize new application software can be an invaluable bootstrapping tool for startup entrepreneurs. It has allowed us to validate new technology with a willing set of early adopters who, in turn, provided us with references and debugging. We used this huge number of early adopters, who love to try open source applications, to legitimize our application.  Further, this large set of commercial “installs” helped us ring out many of the bugs by users who have no grounds to demand perfection.

In addition, we jump-started our products without incurring large development expense. We used open source by starting with technology already in place and extending it, rather than building (or licensing) every piece from scratch.  Using open source code makes at least a portion of our technology publicly available. We use bundling, documentation, and proprietary extensions to make it difficult for larger players to steal our thunder. Proprietary extensions account for over half of development work, but can be protected by copyright.  Afraid of copycats?  In many cases, nothing could be better than to have a large player copy you.  Big players value time-to-market.  If one player clones your work, another may acquire your company to catch up in the market.

The transition from open source users to paying customers is a big jump, requiring traditional sales and marketing. Don’t expect your loyal base of open source beta users to start paying for your product.  However, use testimonials from this critical mass of users to market to paying customers, who are reluctant to be early adopters (see below).

Channels? Use Direct Selling and the Web

Our innovation is a bit of a stretch from existing products, and like most innovations, requires some education of the user.  Much of the early advice we received related to picking a sales channel.  Just sign-up reps, resellers, and distributors and revenues will grow. We found the exact opposite to be true.  Priming channels is expensive.  And, after we pointed the sales channel at customers, closing the sale and supporting the customer fell back on us anyway.  Direct selling is not the path to rapid growth.  But as a bootstrapping tool, direct selling has rewarded us with loyal customers, better margins, and many fewer returns.

We use the Internet to generate hot leads, but we don’t worry about our Google ranking.  The key for us is to get every satisfied customer to post something about our product.  It probably hasn’t improved our Google ratings, but customer comments have surely improved our credibility in the marketplace.

Honest postings to blogs and user groups have significant influence on potential customers.  We explain to each customer how important their posting is to our company.  We often provide them with a link to a user group or appropriate blog.  And, as you know, these blogs stay around forever.  Then, when we encounter new potential customers, we suggest that they Google our “brand name” and blog, which always generates a slew of testimonials. (Check out our Web site to see some of the ways we use testimonials.)

Conclusion

Using open source code and direct sales are surely out-of-step with popular ideas for growing technology companies, especially those funded by equity investors.  But, they worked very well for us as we grew our company with limited resources to positive cash flow and beyond.

Here are some notes on what type product to create. Obviously, you’ll want to do something you are passionate about, otherwise there is no sense in even getting started.  If you are passionate about more than one thing remember this:  trying  to sell product on value, to IT people or engineering types, is much harder than selling to other Entrepreneurs or sales people.  Technical people are generally skeptical about new claims of something working well.  Also, unless somebody asks, they often really don’t tell many other people about the product they bought and the value they are receiving from it.

Looking for a peer group to get some advice from?  Find a local software group that you can join.  If you are in the Denver area,  I would recommend trying  http://www.denversoftware.org/

3 Responses to “Building a Software Company from Scratch”

  1. The Story of NetEqualizer « NetEqualizer News Blog Says:

    […] “Building a Software Company from Scratch” – Adapted from an entrepreneur.org article. […]

  2. Dale Moreau Says:

    I would add that you must find a targeted market, find a way of communicating to your target market, make sure you know enough about the items that you sell, and lastly, you must scale and rate your market and your products.

    http://www.tosucessandprosperity.com


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