How FREE can kill innovation & your startup

June 4, 2009 at 5:21 pm | Posted in Sofware Startup | 2 Comments
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A strange dynamic has taken hold on the internet.  Just as people expect sunshine and air to be free, they also expect internet based software applications to be free.  Ok, maybe not completely free… they agree someone should pay, just not them.  Damn you Google, damn you Yahoo! why did you do this to us?

With companies left and right offering full versions of their products for free,  users have been conditioned NOT to pay for anything.  This conditioning can be seen across everything from social media sites to messaging to business applications.  The problem with this as I see it is the negative impact on innovation.

Users think that they win by getting free software or services, but do they really?  If you ask me the only real winners in the free ecosystem are the investors behind well funded companies.  By locking down markets with free offerings companies can effectively prevent new entrants from emerging.  This stifles creativity and innovation.

In a meeting a few months back with a partner from Benchmark Capital, I found out that on average they see 3-5% conversion rates on FREE offerings within their investment portfolio.  For most of us this is rather daunting news.

Let’s do some quick mathematics.  Let’s say that you are getting started and you have 2 servers from Amazon Web Services (1 web server/app server and 1 db server). Your monthly cost is going to be around $200.  Let’s now assume that your multi-tenant application can handle 100 accounts on that server, simple math $2 per account cost.  Now you go out and offer your service FREE and you have some success.  Let’s say you sign up 1,000 free accounts.   You scale your costs linearly so you are now spending $2,000 a month to support those free accounts.

You get 5% to upgrade (eventually) to your paid account of say $20/month – at this rate, even with success it costs you $1,000/month just to keep the lights on. Now add to that your Google Adwords budget, your credit card processing fees and the dozen other bills you have each month and you find yourself quickly in the hole by several thousand dollars a month.

Now what happens if you get slash dotted or an article about you ends up on ReadWriteWeb?  Your monthly costs can zoom beyond your meager savings account, all without any real revenue in return or an endpoint in sight.  The end result of your short term success will be the failure of your start up because you ran out of money.

There is also another aspect of the “FREE” account that costs you time and money.  To support a layer of free accounts you have to write code to restrict or to compartmentalize your solution.  This takes your valuable development resources and shifts them from building killer technology to building layers of management so you can support the free users.

I just heard you shout…”But David, you must have a free version or no one will use your software!” I disagree my new friend.  If you look at the Salesforce.com pricing page they don’t have a free model. Neither does Netsuite. These companies are in business to make money, not give away software.  I like this model and hope to see more and more start ups follow it.   At my start up project MioWorks.com, we are holding to this model and offering a free trial to introduce users to our software.  I feel this is an acceptable compromise because it has a definite end period and you don’t have to over-provision your computing environment to support thousands of free accounts in perpetuity.

As for you users out there, don’t be shy to actually pay for something you like to use.  You don’t think twice about dropping hundreds on a camera but you won’t spend $20 a year to store and manage your photographs in an online application.

In the past year or so, Apple has shown us that users will actually pay if the paradigm is broken.   The Apple AppStore is a great example of how to break the cycle and get users to  pay for technologies.  As entrepreneurs we need to watch how this model is evolving and how we can capitalize on it to help fund our ideas and companies.

My last word of advice helps both the user and the start up.  Users, if there are vendors with products you just love but they are too expensive, then tell them.   Tell them the price point that would be of interest to you.  Tell them how to get your business.

The end result of spending money on products you like will be a wider variety of products with more and more innovation.  And who doesn’t like variety! Maybe Google.

Search is map crazy! Claim your business NOW

May 18, 2009 at 6:36 pm | Posted in Software as a Service, Sofware Startup | Leave a comment
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The Internet has gone map crazy and location based search is all the rage. If you have a physical location and you want customers to find you when they search Google, Yahoo or a myriad of other sites, then follow this advice.

Every month there are more than 10 billion unique searches across the web. It is claimed that 40% of those searches have local intent. This means that people are looking for your products, services and your business right under your nose. If you haven’t claimed your business, then you aren’t showing your best in the map results.

All it takes is a few minutes of your time and you can update your listing and claim your business. Once you complete this step then the search engines may put your location front and center on a map before they show any additional search results. Now that’s a great advantage.

A simple way to find the top places to get listed can be found on getlisted.org you can also download a free booklet from MioWorks that provides individual site links and 4 more tips on how to take advantage of the Internet for your small business. Here is the direct download for the PDF.

HEY STATE: Invest in Oregon Startups NOW!

March 20, 2009 at 7:35 pm | Posted in Sofware Startup | 5 Comments
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Last night over a hundred entrepreneurs crowded into Ned Space to help kick off an effort to develop funding for start-ups in Oregon. The message was clear.  The state should take a small portion of investment dollars and funnel them not into one time projects, but into entrepreneurs that can make a difference.

The brain trust behind the push is Harvey Mathews, Wayne Embree, Josh Friedman and Mark Grimes.  They aim to build a 100 million dollar investment fund that funnels much needed start-up capital into the Oregon communities.

The event started out with Harvey discussing the difficulties that start-ups face obtaining funding in Oregon.  The proposed solution is a fund that helps entrepreneurs make the leap and take their business to the next level.   With all of the talk of the Obama Stimulus Plan it just makes sense that some of the money is directed towards the people that want to create new companies.   The case is simple.  Small businesses employ a hell of a lot of people and could employ a lot more.  It doesn’t take millions of dollars to get a smart entrepreneur down the path to success.   This meeting was all about showing the state of Oregon that there is talent, there are ideas, there are businesses to invest in.

The meeting continued with an open mic night approach allowing entrepreneurs two minutes to discuss what a $250k investment would do for them.  Everyone of the speakers talked about adding jobs here in Oregon.  They averaged 5 new employees per company at an average salary of about $50,000.  (which is typically half salary based upon market rates).  But hey, entrepreneurs are willing to take risk and that’s the beauty of it.    Not only would this infusion of capital help these companies immediately hire out of work Oregonians, it would get them well down the path to building a sustainable company which would have a much wider economic impact in the community.

So you think to yourself, what would be the result of such an investment?  Let’s look at pure numbers.  Let’s say they carve out $30million of the fund to invest in 2009.  That would be roughly 120 start up ideas getting funded at the $250k level.  Based upon the feedback of the entrepreneurs, that would directly put to work 600 local people – immediately.  Now we can put this into perspective.  ODOT is using $234m in stimulus to do transit projects.  They claim it will create 3300 new jobs.  That’s roughly 71k per head.  It’s actually more cost effective to fund start-ups from a pure dollar standpoint, but here is the big difference.  The investment in ODOT projects doesn’t stimulate the economy beyond spending.  When the money runs out, it’s gone.  But with start-ups – there is a big opportunity.  Each of these companies has a chance to create a business that brings much needed tax revenue to the state on an ongoing basis.  If successful, each start-up could expand to employ more and more people over time.

Personally I know that an investment of $250k into the MioWorks.com team would change the dynamics of our business plan.  We would be able to accelerate hiring by at least 6 months and reach profitability much sooner than anticipated.  This would result in employees paying taxes, buying coffees, eating lunch near the office and kick starting out own little part of the economy.

NOTE: If you missed the event yesterday and want your voice heard, go to the Silicon Florist blog and fill out the form.  Hurry up, the info is needed by the team in the next few days.

Monitoring applications in the cloud

March 10, 2009 at 3:22 am | Posted in cloud computing, Software as a Service, Sofware Startup | 3 Comments
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Cloud computing is a rather powerful tool that allows even the smallest of businesses to provide an enterprise class environment for web applications.  In a nutshell, the cloud is nothing more than the ability to rent computer services on demand from a 3rd party provider.  At MioWorks.com we use Amazon Web Services, but there are several other services out there for you to explore.

Mastering the cloud takes a bit of work, a dash of experience and an openness to learn from others.  But once you do master it, the benefits are tremendous.  You’ll never have to order another server or rent a rack in a data center.  You’ll be able to fluidly control your environment by increasing and decreasing the services you need on the fly, saving time and money.

This power, flexibility and potential demands that you pay attention to the details.  You must anticipate that the cloud can have hiccups and that as quickly as a server comes to life, that server can disappear.  In previous blog posts I’ve already talked about the importance of backups and recovery drills, but let’s take a step back.  Today let’s talk about monitoring and how important it is to your survival.

Ok I’ll bite, why is monitoring so important

Let me sum this up in a single sentence: Monitoring can be the difference between “whew that was close” and “holy s$%t we are down”.  I lied –  I need another sentence…  Monitoring can also be the difference between a five minute outage and a five hour outage.

What to monitor

Every web based application environment in the cloud is a jigsaw puzzle of pieces.  At the core you have your virtual hardware followed by your operating system.  Each of your servers is then configured differently depending on its specific duty.  You may have application servers, web servers, search servers, database servers and the list goes on.  Each of these servers needs to be monitored from several points of view – both internally and externally.

Internal Monitoring

The big question isn’t “Is the server running?” it should be “Is the server and all of its pieces running correctly? Each virtual server in your setup is a maze of processes, files, directories and file systems.  At any given time a hiccup can occur within this delicate environment that will eventually disrupt the end user’s ability to use your service.   In our environment we use monit and munin (two open source tools) on the inside to provide us with critical monitoring, recovery & trending capabilities.

Monit provides systems monitoring and error recovery for our Unix systems.  In our environment at MioWorks.com we have configured monit to watch dozens of potential failure points.   Monit can start a process if it is not running and can kill/restart a process if it takes too many resources. Monit is also configurable as an intrusion detection system by watching for changes in files, directories and file systems.  By spending a little time learning and using Monit your system administrator has a great tool to keep a constant eye on all the pieces of the puzzle.

In addition to the direct monitoring and error recovery system, we also like to see the bigger picture.  We use Munin to aggregate information across our server pool.  Munin provides a graphical view that allows your team to quickly see what’s different from yesterday.   You can quickly determine your resource utlization and plan in ADVANCE any increase of capacity.

From the outside

Keeping track of all the pieces inside the cloud is very important, but you also need to know how your environment in the cloud is performing to the outside world.  There are more external monitoring services out there than I can count.  But I’ll tell you who we use.  Our favorite at the moment is monitis.com.  We like them because starting at just $10/month you get on demand fault & performance monitoring for your environment. This external watchdog system helps to keep everyone informed if/when the cloud is having issues.  It also provides us with important statistics on response time and application performance that we use to determine how to adjust our infrastructure.

Continuous improvement

Your monitoring program must become a living, breathing element of your systems administration.  As new problems arise or potential problems are identified, the monitoring system must be adjusted to be proactive.   The good news is that the more you adjust your monitoring and error recovery system, the less you’ll be surprised in the future.  It takes discipline to post mortem each problem and determine how to proactively detect for it in the future.  And this discipline will distinguish your application in the frenzy of the cloud.

Real world results of a good monitoring program

In the real world your monitoring system can be the difference between keeping your systems alive and thriving OR having unhappy customers and missed SLAs. It can help you pinpoint exactly what went wrong and reduce the time it takes for the first responders to identify and solve the issue.  There are lots of solutions in the marketplace including commerical  and open source alternatives.  It may seem overwhelming at first, but once you start the process and improve little by little, you’ll be amazed at the positive impact your monitoring program will have on your environment stability and your ability to get some sleep.

TechStars make available their seed funding documents

February 10, 2009 at 6:39 am | Posted in Software as a Service, Sofware Startup | Leave a comment
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A bit of interesting news from startup land.  The tech incubator TechStars has released a set of documents to be used as a model for early stage startup companies.  These documents include articles of incorporation, bylaws, subscription agreement, election consent and even a sample term sheet.  

If all of these document titles are greek to you, then go visit the TechStars site where you can download them and get your legal groovy on.  I do recommend that those thinking about venture funding should download these documents and actually read them.  It will give you great insight into what will be required once you sign on the dotted line.   A big thanks to the team over at TechStars for making these documents available and helping to reduce the cloud of uncertainty around venture funding. 

As a side note, TechStars is taking applications for their Summer 2009 funding round.  The summary is that TechStars picks a small number of projects to help get off the ground.  They fund up to $6,000 per founder up to a maximum of 3 for a total seed round of $18,000.  Take a look at their application and read about how they help companies get off the ground.

Portland Web Innovators – Bootstrapping & Business Models

February 5, 2009 at 7:39 am | Posted in Software as a Service, Sofware Startup | 4 Comments
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Dateline: Wednesday, February 4, 2009 – conference tables at Cubespace in Portland, Oregon for the Portland Web Innovators Meeting

The early evening meeting of the Portland Web Innovators group was attended by about thirty people with a mix of developers, designers and business folks.  The conversation centered around money.  Having it, not having it, making it and spending it.   Carolynn Duncan (@hundreddollar) lead a talk that took the group through the paces on bootstrapping a company.  Here is my rendition of her talk slightly condensed and sprinkled with colorful commentary from yours truly.

Carolynn began the conversation with a slide that says “Bootstrapping is good. Having a revenue model is better.” This set the tone for ensuing discussion.  Carolynn’s opening volley was to set the stage for what bootstrapping really is.  For many of us that are familiar with the “golden days” where VCs just through out cash to any idea, we have a warped perception of bootstrap.   Back in the day we would outline all of our wishes and wants to make sure we could pay salaries, get comfy offices and attend trade shows.  We would then double that amount and go look for funds in the amount of millions of dollars.   Carolynn reeled us in and helped us to think in terms of reality and today’s economy.  She defined bootstrapping a business as determining the bare minimum amount of cash needed to get a solution to a point where the revenue model out paced the expenses.  What a novel concept.  Spend as little as possible and make as much as you can.  Although this is inherent to our every day lives, for some reason the tech start up world forgot about this basic business tenant and it’s about time the tech community was told straight up to change their ways.

As Carolynn continued she explained that the equation for bootstrapping your idea was rather simple.  You need to determine the core ingredients necessary to get from point a to point b in your project.  For every item on your list you should determine if you must pay cash for that item or if you can get creative to minimize your expenses.  She offered suggestions of using less than perfect hardware for certain tasks, bartering or trading for needed services or leveraging external services where you can create a win/win situation without the exchange of cash.  She warned the audience of a failure of many companies; not exchanging value for value received.  She explained how even the most ambitious company has a limit to what they can endure when it comes to helping out your business.  Be cautious of what you are asking of your network and your suppliers and make sure that you know where to draw the line and cough up some of your hard earned money to keep the circle of life spinning.

Carolynn then displayed a simple ratio graph where she explained that a half ass product would require less than prudent sales tactics that would then result in a negative income stream which would eventually result in poverty and unhappyness.  On the flip side, she said that with some planning and an idea of what you are selling and knowing why they want to buy it (remind you of any previous blog posts?) then you can flip around the equation.  She demonstrated that a strategic product offering based upon a customer need could result in the pursuit of a working revenue model & customer acquistion strategy.  The end result of this type of planning and smart approach to development could lead to a much improved income stream resulting in the minimization of poverty in your household.    Simple concepts, yet another data point behind my continual harping in my blog that you should know your customer and determine what problem you solve BEFORE you write any code.

As Carolynn began to wind down the talk she posed one rather forward question.  The question was “Why build something if you don’t know how you are going to make money from it?”  You could hear the slight groans from the audience as our Portland based freedom fighters wrestled with this concept.  Now to be fair, there are times when people build things without the intention to ever make any money from it.  They are building things for the greater good and to enable them to contribute to the world at large.  But today’s talk was about money and making money, so in context of the meeting – her question was tremendously relevant and to the point. Carolynn also offered some great lists of what not to do when determining your business model.  Again the simple was supreme.  Don’t creat a new model.  Don’t be free.  Don’t seek double revenue models.  Don’t have special rates for friends and family. She also went on to discuss what does work and offeres 23 ways to think about revenue models. In her presentation she then gives us her insight on what she has seen work with 43 ways to get customers.  To see all of Carolynn’s tips and tricks you can visit her blog at www.bigpaperblog.com or follow Carolyn on twitter @hundreddollar

Thanks Carolyn for sharing you knowledge with the Portland Web Innovators and I hope that your advice will be put to good use by the brilliant minds in the audience who are almost all working on side projects or startups.  I loved your goal of seeing 10 new MILLION dollar businesses in Portland within in the next year.  I know for one I’ll be following your advice to make sure that MioWorks.com makes it into that short list.

Telling your story – episode 1

February 4, 2009 at 10:59 pm | Posted in cloud computing, Software as a Service, Sofware Startup | 2 Comments
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Over the past few months I have been watching new technologies come to life  in the silicon forest of Portland.  Although I see some great new solutions that actually have a fighting chance, it has become clear to me that messaging is something that eludes even the smartest of the entrepreneurs.  It seems to me that there is almost a void when it comes to the concept of marketing with the small teams.  The focus remains on the technology for the duration of the project and only at the very end of the cycle the team spends a morning at a coffee shop trying to figure out how to market what they have built.   In a three part series of posts beginning with this one, I plan to  offer a bit of my assistance to help the young company come to grips with the fact that marketing must be part of the bigger process.  Marketing must be something you think of when you start your project, as your build your project and even past the day you launch the project.  Marketing isn’t just using twitter to tell your peeps about your cool application, it’s a process that takes some thought and process.

Now don’t get me wrong.  Marketing isn’t always about yelling “Sunday Sunday Sunday, big monster trucks in the mud.”  Marketing is as subtle as a simple story that explains what you are doing.  Unfortunately many think that marketing is rather simple and doesn’t really require much thought.  This would be yet another one of those mistakes that the entrepreneur can make.  Creating your story takes a little patience on your part and an understanding of what your target market wants to hear.  Creating the story is more than telling the world why you build something or what it actually does.  Telling the story is explaining why the software will help the user in terms that the USER understands.

Let me offer a scenario to make my point.  You are at a cocktail party and you are mingling around the group.  As you make your way across the room you are approached by the slick salesman wearing his pimped out suit and shiny shoes.  He introduces himself and starts to tell you all the great things about his condo project.  The earth quake proof building and how it took a design team 5 years to architect it.  He talks about the two story glass pool.  He talks about the great access to public transportation and the soundproof walls and the high speed elevators.  He goes on and on about the condo project.  You sip your drink and smile politely waiting for the opportunity to escape.  After he divulges all these great amenities he asks you if you would like to stop by to see the project.  You politely decline, telling him you like your home and aren’t in the market for a new one.    Finally you walk away and think to yourself, wow that’s 5 minutes of my life I’ll never get back.

Let’s make the correlation to what I see with software companies.  Many of the companies are just like this sales guy.  They start to spew out feature after feature hoping that something in there will gain interest by someone (I think we call this throwing s*&t against the wall to see what sticks).  They think to themselves “If I show all the features or how many whiz bang buttons I have, the audience will see for themselves that our solution is vastly superior and they will use it instead of the competitor.”   DING DING DING….wake up! This won’t happen.  Success isn’t a magical event.  It’s a planned strategy that takes time, hard work and great timing.

To create your story, the first step is to define your audience.   I won’t harp too much on target market, but if you have read my previous posts you are starting to see a pattern.  Once you know who you are speaking to, you will have the insight to speak to them in the terms that they will understand.  Your story should use words that make sense to the audience. If you are speaking to small business owners, drop the techno-jargon.  If you are speaking to doctors, talk about patients, medical records and insurance forms.    Do a little research about your target markets and find out how they refer to the issues or challenges that you solve.  Create a list of these keywords to use later in the process just like you would create simple functions to use later in your code.

As an example, if your application manages documents then get more specific based upon your audience.  In the case of MioWorks.com, we help to manage documents between companies and their customers across six verticals. But instead of just saying documents we look deeper at our target markets and find out the types of documents they use on a day to day basis.  This allows us to talk to our customers in terms that they will associate with and easily draw conclusions between our software and their business.

Now that you know how to “talk the talk” it’s time to take a walk through your own solution.  Put on your customer hat and view your application as if you were a customer.  Think about a day in the life of that person.  Think about how they would actually use your software.  One ritual I always perform with my applications is to physically set up an instance as each customer type.  I then try to mimic their use of the solution.  I also try to find a few people I know to help me simulate the role of the customer.   Afterward we have a chat about what we thought were the most compelling reasons for using the software.  At the end of this session you should have the foundation to your messaging and this is what we need to move onto the next step of creating your story.

Stay tuned for episode 2.

Completing the elusive first version of a web application

January 29, 2009 at 10:13 pm | Posted in Software as a Service, Sofware Startup | 1 Comment
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It’s just a bunch of web pages, right?  Why do developers struggle with getting these pages completed?  Why do the the developers go back and do rewrite after rewrite?  Why has the team missed three deadlines and are telling us it’s another six weeks?   

Do any of these questions sound familiar? 

Well, don’t feel bad.  In all my years in the software industry I can confirm that this syndrome hits every company from the smallest to the largest and every generation.  It started with mainframe applications for 3270s, then continued to plague developers in the client server era and now continues with web applications.   The struggle to deliver a product on schedule  seems to be the monster lurking behind every side project, start-up and well funded corporate effort.  But don’t despair, there is a way out of this seemingly endless maze. 

Much of the problem lies within the definition of “done”.  Developers want the product “done” before they release it to the world.  They don’t want to be judged on a design, a work flow or a business process that they aren’t 1,000 percent satisfied with. Product managers want the product “done” according to the precise specification they wrote.  Sales teams want the product “done” to satisfy that one customer who is on the cusp of a sale.   And executives and founders want the product “done” to meet their investor expectations.  Unfortunately if you line up the trajectory of each of these stake holders, more often than not you will not find point in time where they all converge.   This mismatch of expectations and understandings  result in missed schedules, arguments between teams, dis-satisfied customers and even worse, a company in chaos.  

The good news is that the solution to this problem isn’t new.  As a matter of fact it is well understood and has been tested over time.  The only problem is that as entrepreneurs we think that we can shortcut reality and just get the job done.  Well, let me warn you.  If you take this approach to your first version you will be very unhappy when you realize you are in the wheel of chaos missing deadline after deadline. 

History has told us that a good plan gets a good result.  Software development is no different, regardless of the medium.  After many lessons learned, I always guide my teams with a high level plan before we get started.  We answer four basic questions before we ever talk about a single feature or cool technology.  These questions include: 

  1. Who is our target market? And this isn’t just a label – it is the actual companies we want to sell to.  Names, locations, characteristics. 
  2. Why would these companies have an interest in this solution? – Get real here.  Don’t fantasize, explain it and see if you believe it yourself.
  3. What is the compelling reason they will use your solution? – Get away from your computer and go ask some people even if its only a dozen or two  This input  will give you insight into what the customer thinks and if there is something to your ideas. 
  4. What must the solution do for the target market to win their hearts?  Continue discussions with a few select prospects and see what really gets them excited.  Find out the “must have” elements to make them happy.  I will tell you now that customers need less features than you think they do.  Find out what drives them and what makes them excited about your idea. 

If you notice, I have not talked about writing one line of code, creating a single wire frame or thinking about color schemes.  The success or failure of the delivery of the first version lies squarely on the answers to the four questions posed above. 

For our application, the MioWorks.com team sat around a virtual conference table and talked about the type of customer we thought was being ignored by the Software as a Service marketplace.  That was pretty easy to define.  But we still had nothing more than a label that defined 100 million companies.  Not very targeted.  We then generalized the types of problems that were the most compelling to solve for this marketplace.  We then took it a step further and performed an analysis of dozens of verticals.  Finally we had our set of six vertical markets in a well defined geographic region that we thought would benefit the most from our idea.  

Once we had the answers to our question we were able to start to bring the idea to life.  We wrote a document that described the problems faced by the target market and what could be done to solve those problems.  Then we shared that document with all of our team members and consultants.  This set the foundation for all decisions to come.  At the end of the planning exercise we knew exactly what we should build to provide the biggest benefit for our target market.  

From the business definition we then began sketching our wireframes on paper and bringing together all of our ideas.  As new ideas came to light that were not directly aligned to our plan, we tabled them for a later time.  In our project management system we created an area called the “Idea Bin” that everyone could contribute to.  This allowed us to keep track of the great innovations that we can implement after the first version is completed.  As progress continued, we applied strong discipline to focus on our solution according to the plan we set out with.  I think that this is where many companies falter.  They have a “better” idea along the way and want to make wholesale changes to the application and the schedule.   

As our development continued and we broke through each of our milestones, we were challenged with potential schedule breakers. But this is where our plan and our answers saved us.  Every time we ran into a roadblock we took a step back.  We didn’t try to force a solution or try to build a bridge to cross a stream once.  We re-evaluated the software requirement and then looked at how it impacted the overall plan.   In many cases we were just trying to be way to slick for our own good.  We realized at times that using a piece of open source technology here or a library there would solve the problem and let us continue down the path to completion.   As problems arose we talked about them as a team.  We looked at options and the impact of each option.  We then made the best decision that would allow us to keep momentum and still satisfy the needs of the prospective customer.  

The process we follow with the MioWorks.com application may not work for everyone, but the guidelines behind the process will.  No matter what you are building, start with knowing who is going to buy it and why they will buy it.  Once you have that golden nugget of information, you can direct your team and make decisions much easier and get just a little more sleep!

Checklist for starting the business (and their costs)

January 5, 2009 at 11:54 pm | Posted in Software as a Service, Sofware Startup | 1 Comment
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Here is my checklist for getting the business formed and off the ground.  I also detailed what it cost in ()’s. 

1.  Determine business structure, submit paperwork via legalzoom.com, obtain articles of incorporation from State ($400)

2. Contact IRS and obtain taxpayer identification number for the business (No cost) 

3. Open bank account and make initial deposit (No cost but added 2 months of expense money as initial deposit) 

4. Apply for Portland Business License from the city (No cost) 

5. Obtain business insurance ($2M liability policy cost approximately $25/month) 

6. Find appropriate office space, sign lease, move in (Leased a small office for approx $1,000/month) 

7. Establish account with phone/internet provider (Installation was $350, monthly costs $150) 

8. Secure domain name for 3 years ($100) 

9. Establish account with Amazon Web Services for application hosting ($120/month and will grow) 

10. Setup online account for code management, repository and project management ($30/month subscription) 

11. Setup online marketing database and eNewsletter system ($30/month subscription) 

12. Obtain a merchant account for payment processing from your bank/provider (No charge) 

13.  Establish a payment gateway account to integrate with the software to actually take credit card payments. (No charge) 

14. Establish a method for recording all expenses related to the business. 

15.  Determine budget (1 month, 3 month and 1 year) so that all partners are on the same page.

16.  Determine how you are going to fund everything going forward (ok – this was actually step 1 but I forgot to put it up there and I’m too lazy to re-number everything)

Dual tracks – build an application, build a business

January 5, 2009 at 4:11 pm | Posted in Software as a Service, Sofware Startup | Leave a comment
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Within a few weeks of putting the team together the software application was under development.  The technologists began building the data models, security frameworks and application frameworks.  The designer came up with what I think is a terrific visual for the application and the pieces were starting to progress.  Everything was humming on the product side.  Now it was up to me to build the business.

The business is the part of a start up that is hardest for innovators.  Unfortunately there are hundreds of moving parts, legal issues and other issues that must be taken care of before you are really a company.  This can be a full time job just to get things established.  I’m fortunate that I learned all of these pieces while working for other companies.  We knew what needed to be done, it was just a matter of making decisions and putting everything together.

Our first major decision was on business formation.  In the USA we have several options on how to structure the business.  Partnership, Corporation, S Corporation and LLC are just some of the options.  In our case we decided that a Limited Liability Company was our best course of action.  The main reason is that the company is owned by the founders and we want to keep it that way.  In an LLC the profit/loss of the company is passed directly through to the members (owners) of the LLC.  We felt that this structure would minimize double taxation (as in the case with a Corporation).  We also felt that the LLC supported our goal of building a software company from the ground up using our own resources.

Once we determined the type of business to create now we had to decide what state to establish the LLC in.  After some research and forward thinking we decided to create an Oregon LLC.  I utilized LegalZoom.com for the formation, filled out the online forms and paid the fees.  A few weeks later the name Mio Partnerz LLC was secured and the paperwork was filed and approved by the Secretary of State in Oregon.  Once the articles of business formation were received I then contacted the IRS to obtain an employer identification number for the business.  This is necessary for opening a bank account so it’s important to get it right away.

With the business formed and the IRS number in hand I went off to a local bank to establish an account for the business.  The process was relatively simple.  I provided copies of the paperwork and the Tax ID Number to the bank along with about a hundred forms of my personal identification (ok – more like 2 or 3).  Within a few minutes the bank account was established.

Meanwhile my marketing counterpart was taking care of getting us office space to call home for our business.  We found a perfect space on the East side of Portland in a converted warehouse project.  To secure the space we had to execute the lease individually.  They wouldn’t allow us to execute it as the business.  This is a downfall because it makes us personally responsible for the lease term, but there was no way around this.  We also had to obtain business insurance at this point to take possession of the space.  A few phone calls to local insurance agencies and we wrapped up a million dollar liability policy for around a hundred dollars a month.

At the beginning of December we made our trips to Ikea and got the basics we needed to setup a small office.  We moved into our space and began calling it home for Mio Partnerz.  Both tracks were now well under way but there is still a big moutain ahead of us to climb.

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