Some advice for building a sustainable software business from Steven Mitchell.

1. Beyond the Start-Up:
Best Business Practices
for Software companies
Steven Mitchell, Ph.D.
Componica, LLC

2. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Farming vs. Strip Mining
Do you want a "Startup" or Make
a living?
"Imagine you've purchased a
plot of land. What are you going
to do, mine or farm?"
I’ve been in a tech incubator
since 2007 and I’ve yet to see a
company IPO or Sell.
My talk is about making a living...

3. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Outline of the Talk
Background on Componica
Stuff you wish people taught you about business.
Consulting and product development.
Things I wish I could have told myself.

4. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Componica - The Startup
Started in 2004 after finishing my
Ph.D. with my wife and two
partners.
Idea: Create a system to help
pronunciation by displaying the
vocal tract.
Wrote a business plan, entering
competitions, earned a place in an
tech incubator.
Wasted a year developing alone.
“AH”

5. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Componica -The Business
Shed the Partners and
focused on consulting.
Slowly built cash reserves
until I could hire additional
help.
Created our first product, it
was a success.
Now it’s a hybrid of contract
and product development.

6. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Stuff not Taught in Class.
Basic Business Formation. What is your company?
Sole Proprietorship, Limited Liability, C Corp, S Corp
Why?
You want a real company, not Steve’s Basement
Software Emporium.
Separation of Business Assets from your Personal Life.
Bank account, FEIN number, Taxes.
Firewall to protect you from liability.
Deduct certain expenses

7. Copyright 2011 - Componica, LLC (http://www.componica.com/)
A Menu of Entities

8. Copyright 2011 - Componica, LLC (http://www.componica.com/)
How to Create an LLC
Clear your business name with the State ($50)
File “Articles of Organization” with the State ($50)
Agree upon an “Operating Agreement”
Get a Federal Employer ID # (FEIN/EIN/TIN) from
the IRS. Freaky easier online for free.
Set up a bank account with that FEIN.
Get liability insurance. ($300/yr or higher)

9. Copyright 2011 - Componica, LLC (http://www.componica.com/)
It’s all about Cash-Flow.
Income goes in...
Money goes out: Taxes, Equipment, Employees,
your living expenses, rent. hosting, etc.
Track it all. At minimum:
Use a spreadsheet or better.
Toss all receipts and checks in a box.
Compile a binder for tax accountant.

10. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Cash flow, continue...
Things that make you different from other businesses:
Cash often comes in big spurts so you have to spread it
across months.
You can easily structure deals to pay out royalties or
monthly fees.
Small volume of transactions unlike retail.
Biggest expense is your sweat and personnel, not
innovatory or equipment.
Dual monitors, fancy chairs, whatever works.
Don’t waste money, it’s your fuel.

11. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Healthcare?
It's not that expensive if you're single, under 35,
and healthy to get insurance for $160 to $300/
month.
Typically it involves joining a group.
Don't go with group-rate insurance. It's biased to
pay for older people by screwing young people.
Mooch off your spouse if you’re lucky.

12. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Employees?
Are you sure? PITA factor goes up considerably.
Worker's Compensation Ins. ($500/yr)
Unemployment Insurance.
Start monthly, quarterly, or annually
withholdings to the Feds and State.
You will really need that payroll accountant.
1099 MISC contractor instead plz?
Start with internship and promote up.

13. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Generating Cash Flow
Can you come up with a product that will pay off?
Work on it for free up to a year and get paid
for your efforts. Sometimes it works.
How about contracting first and earn enough to
speculate?
Don’t forever be a contractor. Be innovative!

14. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Finding the Gigs.
Best customers are past customers. Never burn
bridges.
Learn skills slightly off the beaten path.
Learn to say NO!! Avoid the Equity Trap!!
Past works are your calling card. Keep a portfolio.

15. Copyright 2011 - Componica, LLC (http://www.componica.com/)
Finding the Gigs - ProTips
Dedicate time to understand the crowd
Can you cold call people? It’s hard but learn to get
over it.
Hire a sales rep at 30% commission only. (I’m
considering it)
Again, learn to say No!! Out of 100 leads, 5-10 will
pan out.
Learn to not bite off more than you can chew.

16. Copyright 2011 - Componica, LLC (http://www.componica.com/)
If only I knew...
Minimize the number of employees. I should have
went with one person in 2008, not two.
Outsource whenever possible like marketing, graphic
arts, programming.
Artwork for an app should never cost more than $1k.
People will game the system to weasel more
unemployment and you end up paying.
For data entry work, pay by work item, not hourly.

17. Copyright 2011 - Componica, LLC (http://www.componica.com/)
If only I knew...
Try to start a partnership with someone with
complementary skills
You need insane tenacity.
Goal is to aim to produce more products that
generate cash flow, ideally passively.
Always try to structure deals that pay residuals.
Products need that special hook.

18. Copyright 2011 - Componica, LLC (http://www.componica.com/)
If only I knew...
Get an office that you go to or you’ll go crazy.
Never do a gig less than $100/hr.
Find a sales rep to find quality clients.

19. Copyright 2011 - Componica, LLC (http://www.componica.com/)
If only I knew...
Be more active and
focus on your health and
well-being outside of
work.
Seriously! You WILL
regret this if you don’t.
Do not let this consume
your life.