Thursday, February 16, 2012

Why Everyone is Starting a Software Company -

and why choosing the right company focus is so hard.

I have written here, that the entrepreneurial talent in Southern Illinois is opting to try their hands at Internet/Software Companies. First, the good news, it is possible to start a software company for cheap. For $25k to $100k, you can have a good run at making a product and launching. When you think about most any other kind of company, it is going to cost a whole lot more to launch.

More good news, because our entrepreneurs are mostly young, college undergrads, they can raise the money to start a company from many places. The traditional statement about funding sources is friends, families and fools. After all $25k, just isn't that much money. You can also depend on volunteer labor, unpaid interns and founding partners to work cheap, instead of that coming up with all of the $25k yourself.

There is a feeling that somehow the startup business is being dominated by the young. A more valid thought is that if enough monkeys type randomly on typewriters... or if enough people start internet companies, surely some small number will succeed. It will be so much easier at 30, assuming they work hard until then, than it is at 22. Historically, the sweet spot for starting a company and being successful is between the ages of 30 and 50 years old. Those are the years where you are energetic enough and experienced enough to solve many of your problems. Hopefully, you have management experience, some money in the banks, polished technical skills. Where there are many examples of people founding companies much younger, they are the exception and not the rule (yes, I know about Microsoft, Facebook and Quatro's).

I respect the desire to start a company and can see why software is so desirable, but let me suggest that there are several problems that are common to Southern Illinois software startups.

First - there is no management team. How can you attract investors or run a company, when you are a one man company? You can't. If you can't find a few friends/fools to start a company with you and you can't manage to keep that core together, how can you possibly manage a company?

Second - there are no management skills. Not only do most of our startups not have any management skills, ideas or experience, they often have never had a job working for anyone. I started launching startups with a complete management philosophy, that I learned through reading, working, managing and watching the startups I worked for fail. I'll write about my management philosophy was at 30 and why I lost it in my last tour through Carbondale soon.

Third - there is a real lack of the talent to do the work. Even if you are a great new college grad, you just aren't a senior engineer. The saddest thing that could happen to anybody is to be as good at 20, as you will be at 30 (or 50). You just can't get there, from here, without walking that road. It shouldn't amaze you that when startup companies talk to me about software, they will almost always change some important strategy. I once was a senior software engineer and might have a few other skills too. You can overcome these problems by knitting together a team with diverse talents, but that implies you have a team.

Fourth - the scope of the project is very large. So large that the company will not have the resources to have a real chance. I'm sorry, your Carbondale based company is not going to get big enough to provide software service solutions to every car dealer in the USA or the like.

Fifth - the business plan makes no sense. I can write a reasonable and fundable business plan in a day. Of course, I would have to invest my heart and soul in that area for months to understand what is possible first. If you can't provide a business plan that explains the vision, the team, the market place, the competition and the money - you are not getting funded. You can start with four pages, it isn't long. The problem is, you have to understand business and your business space, to begin writing and there are very few people who do.

Sixth - the Silicon Valley culture is to have an "Advisory Board." Unpaid, and general stock compensated, to help provide an infrastructure of support to startups. In Southern Illinois, we have inserted the Dunn-Richman incubator folks into those rolls. They are there to help, but that isn't their job.

Seventh - you need to give people stock in your company. It just doesn't work to get people to help you for free. They want to play. There are no high growth companies where the founders have all the stock. Your chances go up, if you buy people's support with stock. Yes, that is employees, advisors, and the pizza delivery person. Everyone wants a small piece.

Finally - the product choice was made too quickly. If someone told you they were starting a company, attacking a space with two venture capital backed companies, each with a multi-year head start, would you invest your life savings? No, me either. What about, if they told you there was a multi-billion dollar market, but if they worked really hard, they could make several million? Nope, not me.

The good news - it is cheap and easy to start a software company. Several people are trying. There is lots of good literature about starting and running companies.

The bad news - it is still very hard and success is difficult to achieve. People don't read the literature. People don't get the right kind of help. People don't share the wealth to bind people to their cause.

More to come.

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