How to Start a Software Development Business?

Businesses are being transformed digitally, and one of the fundamental reasons for it happening is the increased use of different software. Companies are going in for automation and digital transformation in streamlining their existing business process. Such a situation has made software ubiquitous in the scheme of things. Currently, the software publishing industry has an annual revenue of $238 billion with a steady growth rate.

Such immense revenue potential backed by steady growth makes software development a lucrative business, with more entrepreneurs showing keen interest in setting up their business in the domain. There is enough scope for new entrants in this business who have a valid business idea and the required enthusiasm.

This blog attempts to engage readers, especially potential entrepreneurs who want to start a business in software development. Also, it will guide the entrepreneur in identifying new business ideas or best business ideas. This blog will provide the reader with enough information on the steps towards starting their software development business. Here we go:

Step 1: Plan the Business

Planning is fundamental to any business, and software is no exception. The entrepreneur needs to have a good idea on these points before venturing into the business:

• One-time and recurring costs: A software firm can be launched with a small amount of seed money or would require millions of dollars to get started. Most of the money in a software business goes into the – IT infrastructure, specialised software, capital for safeguarding any intellectual property (Patents & Trademarks, etc.), and salaries of the workforce. The rest of the money would be overheads associated with running the office and associated expenses, and these happen to be recurring costs.  
• Target Market: If you are a software company meant for individual users, then your customer could be anyone with a recurring problem. However, if you offer a specialised service, it is important to clarify the type of audience you want to target. Without a target market, there would be a lot of wastage of time, effort, and resources during the marketing stage, which needs to be avoided at all costs.
• The mechanism for Revenue Generation: In the past, software companies charged license fees for software usage. Although this model is still around, it is not as prevalent as before. Today, most companies go with Software-as-Service (SaaS), where the user is only required to pay as per their quantum of usage on an ongoing basis. There are other pricing models as well, like subscription-based, service charge-based, and so on. As an entrepreneur, you would be required to decide how you plan to offer and charge for your services.  
• Finalising the Pricing: This would mainly depend on the complexity of the service being offered. For a simple app, there would be no charge and would be offered for free with pricing restricted to certain specialised features. But if we are talking about enterprise solutions, then the monthly fee itself would be a few hundred dollars for high-end customers. An entrepreneur will have more clarity on this if the market and the existing competition are included in the scope of initial business research.

• Profit Forecasting: Once you have a pricing mechanism in place, you need to anticipate the profits that can be generated from the business idea. The potential for profit for a software company is enormous. However, it is prudent to remain realistic in the initial phase with good-old number crunching to arrive at reasonable profit goals. Also, some software companies hit the jackpot when larger companies show interest in buying them. Then business evaluation as per the capital raised to build the business is what counts. Overall, it is all about providing a good product or service and giving your customers value for money for long-term business sustenance.  

Step 2: Form a Legal Entity

Commonly observed business structure types are sole proprietorship, partnership, corporation, and limited liability company (LLC). This is an important step in getting a business started because it offers legal immunity to the business in case of legal disputes.

Step 3: Register for Taxes

As a business owner, you would be required to pay taxes as per the existing laws in India or wherever you plan to start your business. In India, you would be required to have a Goods and Services Tax (GST) certificate, which will enable you to charge the associated tax on your product or service.

Step 4: Open a Business Bank Account & Keep Finances in Order

It is suggested that business and personal finances are kept separate. This will provide the necessary protection for your personal assets. After having opened a business account, it becomes easier to manage accounts and file for taxes. Moreover, a software business must opt for a business credit card to avail opportunities for credit from associated banks.

As a business owner, you must remain clear on the financial health of the company. For this, engage financial professionals with relevant expertise who would keep accurate and detailed accounts of the cash flow and keep the balance sheet clean.

Step 5: Obtain Necessary Permits and Licenses

There are mandatory requirements laid out by the law of the land to function as a business. Remain conscious of these requirements and obtain the necessary permits and licenses. These could be business licenses to function in the building premises (certificate of occupancy) and environmental regulations which need to be adhered to.

Step 6: Get Business Insurance

Just as permits and licenses allow the business to function legally, insurance ensures your business interests are protected in case of an unforeseen event. There are several types of insurance policies for different types of businesses with various risks. However, the most common happen to be General Liability Insurance. This is the most commonly used by small businesses.

Step 7: Define your Brand

Now that you have fulfilled the obligatory needs of the business. It is time to pay attention to developing your business brand. Invest your time and effort in devising a brand entity that will reflect your core values and beliefs. Make it unique enough to elicit instant recall among your prospects and customers.

Having built a brand entity, invest time and resources in developing the brand online, primarily through your website and social media. Reach out across to your target audience and generate good online visibility to turn your visitors into possible leads.

Step 8: Hire Staff

With everything in order, it is time to recruit staff for your business. This would seem easy but requires immaculate attention to detail in picking the right candidate for specific positions. A good team can make all the difference to the functioning of the company. In case you find the prospect daunting, you can always partner with a recruitment agency for the candidates' initial screening.

Step 9: Execute your Sales and Marketing Plans

Take a cue from your business plan and start targeting your potential customers through a well-intentioned and practical marketing plan. Have an experienced sales team in place who have what it takes to convert qualified leads into customers. For a small business, it may not be possible to hire full-time sales specialists. Hence, the founders should research & study enough in getting up to speed on their marketing and sales skills. There is no dearth of material and literature about sales and marketing.  

Also read:

1) Should You Lease or Buy Equipment for Your Small Business or Startup?
2) Business Ideas: 8 businesses you can start from home easily
3) PoS Machine: Types, Benefits for small businesses & more
4) All About Small & Medium-Sized Enterprises (SMEs)
5) OkCredit: Simple, Paperless & Secure solution for businesses

FAQs

Q. Are new software companies offered any government incentives?

Ans. Yes, the government is keen on more start-ups and software development companies that allow job creation. In line with this thought, the government does offer tax holidays and tax waivers for software companies. The specific details will be available on government websites that represent the ministry of information technology.

Q. How do I test the validity of my business idea?

Ans. An entrepreneur, to begin with, must have a business plan in place that describes the validity of the business idea. This can be done by collaborating with agencies that provide such services. Approach such business consultancies who are capable of writing crisp and concise business plans that can validate the business idea. Such agencies will also give hints to how you can tweak a business idea to make it sustainable if it is not there yet.  

Q. Is starting a software business difficult considering government permits and licenses?

Ans. There was a time long back when it used to be. But things have changed, and today India is majorly known as a services-based economy. In fact, the government wants more entrepreneurs to start businesses; this has made the government proactive in granting licenses and permits swiftly. For quite some time now, the government is promoting the idea of India is an ideal destination where there is complete “ease for doing business.” Besides, the government is actively promoting the “digital India” initiative where there is a priority for online business ideas.