The steps for forming a new software company
/Do you have a great software product idea? And are you sure you want to make that product and sell it? If the answer to those questions is yes then first congratulations! and then a follow up question: have you thought about starting a new company yet?
By starting the company - I mean company as both a legal entity and as well as the actions and plans to get the project started that will lead to that software being made, shipped, marketed and sold in a structured way.
Starting a company is an exciting and rewarding experience. But it can also be an overwhelming experience for a first-time startup founder. There are many things to consider, from legal requirements to funding and everything in between. At Kaz we have been helping founders launch their software products from a mere idea to a real software with millions of users. And we’ve been doing this for the past 18 years, so we have seen many of our customers go through this experience. Here are the steps you need to follow to form your software company and some of our tips about making this process foolproof and less chaotic than usual.
Create a Business Plan First
Before you do anything formal - like search for partners, software vendors, marketers or lawyers for setting up the structures and forming a company, it’s absolutely essential to develop a business plan. A business plan is a document that outlines your goals, target market, revenue projections, and other crucial details. It will serve as a roadmap for your business and help you stay focused on your goals. Here are some of the things your business plan can have, but don’t go overboard on these, remember that the goal is to outline a rough map first so that you have some clarity. You will be updating the business plan as you go along and definitely giving it a lot of meat when you start showing it to potential investors or maybe even to your friends!
At a minimum your business plan should include the following sections, even if they are just basic outlines:
Executive summary: A brief overview of your company and its goals.
Market analysis: A detailed analysis of your target market and competition.
Product or service description: A description of your product or service and how it solves a problem for your target market.
Marketing and sales strategy: A plan for how you will reach your target market and generate revenue.
Financial projections: A detailed financial forecast, including income statements, balance sheets, and cash flow statements.
A little googling will help you give some idea what you should be putting in there and maybe some templates too. Here’s a great article from Shopify’s blog (which is good place to look at other startup/small business setup content). One great thing that we’ve seen many of our founders use is the Business Model Canvas which is like a template for thinking of new businesses. It guides you through all the important aspects of the new business you should be thinking of (e.g. what value will be there, what are the competitors, where will I get my money from, etc.). It’s the best starting point for any new business concept and we find that most successful businesses actually stay on this template for most of their journey and use it to create all their business plans.
From: HBR
Decide on the Legal Structure of the Company
Once you have a business plan in place, you’ll need to choose a legal structure for your company. The most common legal structures for startups are:
Sole proprietorship: A business owned and operated by one person.
Partnership: A business owned by two or more people.
Limited liability company (e.g. LLC in the US, Ltd. in Bangladesh, etc.): A flexible business structure that provides liability protection for its owners.
Each legal structure has its own advantages and disadvantages, so it’s essential to choose the one that best suits your needs. If you aren’t sure, the default should be a limited liability company, but it’s always good to consult with a lawyer or accountant to help you make the right decision. Here’s a great summary and comparison reading material for your further reading.
Register the Business
Once you know the legal structure want to go with then it’s pretty much a step by step process that you have to follow. The actual steps vary from country to country. But in all cases you’ll need to register your business with the appropriate authorities. This will typically involve filing paperwork and paying a fee.
Get the Permits and Licenses
In any country, there would be a requirement of getting a permit or a license to start your business. This is beyond just registering the business above. For example, if you plan to start a restaurant, you’ll need to obtain get a food premises permit and maybe a liquor license. In the case of software, typically it’s less convoluted, you’ll probably need a merchant’s permit if you an e-commerce store, etc. The big exception is if your software is in a highly regulated space such as fintech, communications, transport, etc. You’ll need to find out the permits you need from the local business bureau or your accountant. Whatever you do make sure you know the requirements and get the relevant permits before you actually start doing the actual business. We’ve seen founders who’ve delayed this one important task and then ended up paying hefty fines or worse getting into legal challenges. A complete waste of energy and time.
Get Funding
Most new businesses will require some form of funding to get off the ground. There are several options for funding, for example:
Bootstrapping: Funding your business with your own money.
Friends and family: Borrowing money from friends and family.
Bank loans: Borrowing money from the bank - you’ll need your business plan for this!
Crowdfunding: Raising money from a large group of people via an online platform.
Venture capital: Raising money from investors in exchange for equity in your company.
Each funding option has its own pros and cons, so it’s important to carefully consider which one is right for your business. You’ll need to research the options well, know what you are getting into and plan for the additional overhead for managing the funding. Many times we see our founders getting off track with money issues. It’s good to plan this well.
Get your Team
You can’t really create a software business completely by yourself (there are many exceptions though, one of my favorite stories is how two brothers made and ran a multi-million dollar software company for the game doodle jump). You will need a team around you. At the very minimum, you’ll need a software development team. If you don’t want to (or don’t have the money to) hire a permanent team you should definitely consider using a software development agency like us, this strategy gives you a lot of flexibility and control.
When hiring team members, look for individuals who share your vision and values and have the skills and experience to help your business succeed. Be sure to clearly communicate your expectations and provide adequate training and support.
Well, that’s it for today. Good luck on your journey! And drop us a line about what you want to make …
