Got the niche, business model, system design, waiting customers...need to build it.
Classic Chicken or Egg Dilemma:
- I need to raise funds to build the system I have designed.
- I need the system built to generate revenue from my customer.
- I need to be generating revenue to raise funds for the build out.
The actual development is beyond my capacity, though it would be easy for a good developer. Also, now that I've formally documented the system design, I see that a significant business model could be built around it. Minor tweaks to my initial design make this marketable to a whole industry, one which is completely under served. My system could solve real problems there and I have connections to start the sales channel, assuming I have a working system. New functionality can be added to the initial system later that would be easy to implement and create new revenue streams.
Back to the questions and my dilemma.
- I need to find a good developer I can trust to build out the initial prototype.
- I need to get funding together for the initial build.
The system isn't complex, but will probably take a good two months for a good full time developer to build. I don't work for free and don't expect anyone else to, but I also don't have the cash on hand to pay a full-time employee (particularly someone with the necessary skills) for two months without this system generating revenue. My original plan was to go to local VC/incubators I have contacts at, but I'd rather approach them after the initial system is built and generating revenue. Those guys tend to value an operating revenue generating business model much more than a great idea for one.
Questions: How do I find a good developer I can trust to build this out?
My next step is: build it or get funding? How do I do one without the other?
Getting Started Funding Business Model Developers
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This seems like a classic "Crossing the Chasm" scenario, where you need to get your early customer(s) to pay for the up-front development costs, in return for a promise of free access, equity stake, profit share, etc. You need a really good relationship with the client(s), but it can be a really effective alternative to going down the VC route, etc. – Steve Jones 11 years ago
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This has been considered as a possibility and dismissed. The initial customer would probably be willing to fund the entire initial build for an equity stake or long term discount, but that eliminates an entire market segment for my system. The initial client is influential in their industry, and there would be no way to hide that they were a part owner of my company. My initial growth plan is to have them provide introductions and refer "peer" companies that they don't compete with. If they're part owner, the "peer" companies would know and think they're just doing it for their profit. – W00dc4ip 11 years ago
3 Answers
This is why rich people get richer. Because they have money to put behind good ideas, deals and opportunities. With that said, your problem is not that complicated.
I would recommend one of two options.
- If you have a good relationship with the company which wants the software get them to put their intentions to buy your software on paper. This is called a Letter of Intent, and basically breaks down that they will pay you X dollars a month for X months if you can deliver X service by X date. Its not easy to get, and most companies dont go signing off these letters willy nilly. But you can explain to them that with the letter you can break ground on the project and deliver it to them. The alternative is that they spend their own time and resources on the project which sometimes just doesnt make sense. If you get your LOI then you can raise money from investors, friends, and use those funds to hire a developer.
- Option two, is to build it yourself. You can raise capital by tapping your own resources. This can be as simple as using your own money, changing your personal budget, getting extra cash by getting a room-mate, selling something you own. It all depends on how much it costs a developer to build your "simple" project. Use those funds to build your software and then use any profit you make to grow it, refine it, and market it.
- Option 3 is to bring on a partner who can handle the development for equity. This is harder in practice than theory. The reason is that good developers are usually not waiting around to waste their time on money they could be making versus collecting $50 - $250 hour getting paid to work on projects. It all depends on who you can find. If you find someone who is passionate and sees the potential then they might be willing to invsest their time to get it off the ground. Talk to your local college to see if any Software Development students would take the job as experience or resume building project with possible equity, or bonus based on performance.
Last note, You really dont want to be raising funding unless you really have to. Use your own money first, dont give up equity so quicky if its a good idea.
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Option 1 - I can get a letter of intent, and that is something I actually have a meeting scheduled for early next week. Option 2 - I'm currently considering putting my own money behind this, but I'll only do this if I can find a developer that I trust. Option 3 - When I find a developer I can trust, I would be willing to bring them on as a partner. I'll need a long term CTO. When this system does well with the initial market segment (which I can sell into), it will be generating enough profit to interest VC, which would make it worthwhile. Like the idea of going to local college. – W00dc4ip 11 years ago
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Local college resource doesn't sound like a long term trust arrangement. If you're technical, consider PM'ing a remote developer and maintain control. – Jim Galley 11 years ago
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for a startup you dont need a long term trust arrangement. You just need a few kids, a few pizzas, and a way to keep them motivated to give you a working prototype. Over time you can rebuilt the whole thing (as with most technical projects version 1 just is a proof of conecpt). if you bring on someone heavy (cto level) at the beginning you risk overpaying and having that person being so critical that the project gets delayed. You really need a hackathon, quick and dirty prototype which you can get your first few clients make $$ and take it to the next level. Agile in business. – Frank 11 years ago
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@Frank - how would I go about putting a hackathon together? I've considered contact my alma mater's career center to offer a 3 month paid internship, but don't really know the employment laws surrounding this. – W00dc4ip 11 years ago
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Its the non paid internships which usually get you in trouble with employment laws. I would hit up the local colleges and talk to instructors who teach computer science. The instructors can usually spend 15 minutes with you and see if its something that students can do. At that point, if you are willing to pay, its really as simple as the instructor coming up with credits for the project and you paying the students who code it. I have seen guys put flyers on bulliten boards and even craigslist and find good dirt cheap talent. Right now with the bad economy a lot of folks need to build rep – Frank 11 years ago
You have a single interested client - that alone does not make a business.
I have connections to start the sales channelThen start now. Find other companies in the same space and figure out if they have the same needs and demands.
Once you've validated that your offering is something that is truly wanted, then determine whether the demand is strong enough to support a business. In addition to Franks suggestions, consider doing a paid beta with multiple interested parties (shows commitment and generates cash) or offer a discounted license to generate enough cash to fund development.
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Actually it does. My single interested client already committed verbally to provide 500 paying, monthly subscriptions for a minimum of a year. That revenue would offset the development cost in 4-6 months. They indicated a desire to refer 6 regional peer companies to me as soon as it's ready, which would provide up to 1500 additional users. My main problem is finding the lead developer and getting it built so we can start collecting, and built right for easy future expansion. – W00dc4ip 11 years ago
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500 seats is a good catch. But referrals are not the same as actual interviewed and "Ready to sign up" customers. You want to make sure that the product isn't so customized to the individual company that it isn't applicable to the general marketplace. – Jim Galley 11 years ago
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@jimg dont you think you are being a bit of a pessimist? I know of many companies who were started on a handshake arrangement alone. As long as you know someone is willing to buy what you will be selling and that you can make a profit off that relationship it sounds like a business to me. – Frank 11 years ago
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@Frank - perhaps I am. But doing the extra legwork to validate additional customer demand is easier than burning through cash & closing shop. Many startups tend to be over optimistic about opportunities (I was, and am still!) and validating them in as objective a matter as possible is (IMHO) a good idea. – Jim Galley 11 years ago
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I guess it depends on the personality. In practice you are right. But i remember thinking back to my first venture (a land deal) I had no idea what i was doing and it was sheer balls alone which got me through it. I kinda think of it as walking through a landmine, you are sometimes better off not knowing you are walking through one versus weighing every risk scenario. I also know from my experience that so many big money deals are made just because of inside baseball. Its sorta like corporate bribery with kickbacks. greasing wheels is something they dont teach you in college. – Frank 11 years ago
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Spoke briefly to one of the "referral" customers today at the request of my client. They want to sit down and talk more next week as well. That's 230 additional users for a system I don't have built yet. Any suggestions on putting together a Hackathon as you suggested in your other comment? – W00dc4ip 11 years ago
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Not sure you want to create a "hackathon" in the classical sense - but here is a guide that may be of use: https://sites.google.com/site/hackathoninabox/Home/guide – Jim Galley 11 years ago
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Thanks jimg. Was thinking more about getting a couple recent grads from my Alma Mater together and asking them to hammer through the prototype for pizza and beer over a month or two (and then throwing them some real money and a job offer on completion, assuming all went well). Appreciate the link. Just contacted an old lead developer friend from my enterprise days. Waiting to see what he comes back with as well. Excited to see this project moving forward. – W00dc4ip 11 years ago
If you really can recoup the dev costs in 4-6 months, go get a loan! Even if you close after 12 months you have 6 months of profit.
Hire the developer offering to pay the first 6 months worth of sales directly to them. If it never goes live, they don't get paid.
If you want a developer, I'm willing to listen. My username is my gmail address.
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Right now my problem is finding a developer with the right skills. – W00dc4ip 11 years ago
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Well, here is a developer that has built 2 businesses, what skills do you need? Do you even know what those skills are? I'm assuming you don't have them yourself, or you would just do it. So if you want to chat about your needs, let me know. – Mark0978 11 years ago
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Back end is essentially a pretty simple relational database, so developer has to be pretty good with MySQL or equivalent design and admin. The initial prototype functionality should probably be built Ruby on Rails, to get it working quickly for the initial client and bringing in revenue. I have 17 of 28 screens and the workflow / data-flow designed (functional, not look & feel). Remainder are content & config. Eventually API hooks to Google Calendar and similar services. Was considering building the whole thing on Google App Engine, but not sure yet. Chicago based company required. – W00dc4ip 11 years ago
