by Steve Pavlina, founder of Dexterity Software. Reproduced with permission. Part of a series.
Only 3% of people ever achieve the dream of starting their own business. A common statistic is that 80% of new businesses fail in their first five years, and of those that succeed, 80% of them fail in their next five years. The odds of success are not good, but there are ways to turn them in your favor. This article will provide some basic guidelines to consider when you are ready to turn your part-time software development hobby into a full-time business.
The first step is planning. Make a clear, written budget, and get serious about finding ways to live cheaply. Instead of going out to the movies, rent movies instead, or better yet, check them out for free from the local public library. Eat at home instead of going out. Forget about buying new clothes. Work at home instead of getting your own office. Get your basic living expenses as low as possible. Calculate your “burn rate” as the amount of time you can last with no money coming in. Your goal in the beginning is to get that burn rate up to 3-6 months, and since it will take a while to build up your new income, the best way to do this is to get your monthly expenses as low as possible.
Because the failure rate is so high, you must be ultra-conservative with your cash. Treat your cash as the most precious resource you have — it is. Never buy what you can lease. Never lease what you can borrow. And never buy new what you can get used. Favor the cheapest solution whenever possible. If you don’t make a serious effort to hold onto your money, it will slip through your fingers faster than you can imagine. Don’t spend $2000 to buy that new computer if you can lease it for $50 per month. Don’t buy a new photocopier if you can make your copies for two cents at the local copy store. Maintain a 30-day purchase freeze for all new major purchases. If you decide to buy something, write it down on a list, and force yourself to wait a minimum of 30 days before purchasing it. You will often find that what you thought was a necessity wasn’t even needed at all. At the end of the 30 days, if you can commit to putting it off for another 30 days, then do so. Procrastinate on spending money whenever possible.
Get serious about building your income, and work hard, hard, hard. You must get to the point of positive cash flow as quickly as possible. It is more important to reach this point than it is to go after some one-time big money deal. When you go full-time, you are running a business, not enjoying a hobby. Pretend you have your own stockholders that expect you to start showing a profit as soon as possible. In the early stages before you are profitable, you must keep your focus on getting to a positive cash flow. Until that goal is achieved, everything else is secondary.
Be flexible. As soon as you realize your original plans aren’t working, change your approach. You’ll shift directions a lot in the beginning until you find what works for you. I can’t recall any developers whose first release was a hit. I didn’t see decent sales until my fifth release, and that seems about average among the successful shareware developers I know. Your first product will probably fail. And when it does, dump it and get started immediately on the next one.
Take on consulting work on the side to make up for cash shortages. If you have even halfway decent computer skills, consulting work should be easy to get. Use your consulting revenue to supplement your income while you build your long-term business. I did consulting work myself for a while, and I hated it so much that it motivated me to make my business profitable very quickly.
Practice risk management. Realize that risks multiply, so taking a lot of small risks is like taking one big risk. Keep a top-10 risks list, and update it once a month. A top-10 risks list is a prioritized list of the 10 greatest risks that could cause your business to fail, particularly those that will cause you to run out of cash. For each risk you identify, establish a plan to prevent it from happening. And decide in advance what you will do if a risk does become reality. Always have a plan B. For instance, if you don’t make enough sales by the 20th of the month to cover your bills, you might use that date to know that you’d better do some consulting work fast to make up the shortfall.
Once you go full-time, realize that you are no longer a programmer. Now you are a business owner. As such, programming is only one of many skills you must master. Marketing and sales skills are perhaps even more important. If you aren’t an expert in selling, you’d better become one fast. Read books and listen to audio programs to improve your skills in your weakest areas. There are plenty of great business books sitting on the shelves of your local public library. Commit to reading business books 30-60 minutes a day. No matter how much you think you know, you have a lot to learn.
It is a truly wonderful experience to take your software business full-time. If you ask anyone who’s done this, you’ll often hear stories of hard work overcoming great adversity, but what you won’t normally hear are regrets. I don’t know any full-time developers who wish they hadn’t gone full-time, even if they’re making less money than they were in the corporate world. It is a wonderful feeling to be your own boss, to set your own hours, to choose your own projects, and to get paid for your results. Building a successful business is one of the most challenging yet most rewarding things you will ever do.