What's the best move? Seek a partner, crowdfund or self-funding?
Here's the situation. I have a small business, to grow my business I want to develop software to build my portfolio, it's part of my business plan. I'm no programmer, and programming is not cheap. I've hired through elance and guru.com, but have not had a complete working software yet that I can sell. I'm sure my fellow entrepreneurs have struggled here too. What's the best way to 'fund' development? Do I partner with a programmer who will hopefully trade equity/ownership? Do I keep at what I'm doing and when I make enough money, hire a per-incident developer? or do I seek out crowdfunding options? What's your experience in building software to grow or become your business?
Hi Christian, what you should do is to go to tech/startup networking events in larger cities of your country and look for someone who is interested in becoming a partner. Use Meetup.com, Eventbrite or Facebook groups to find the right circles.
Alternatively, you can go to Saigon, Vietnam or Jakarta, Indonesia for a few weeks and look for a good, trustworthy developer. Connect with the global independent location movement to get an easier leg in (Facebook Groups, just look for digital nomad groups).
If you're seriously considering crowdfunding, be prepared to invest a substantial amount in the campaign, it's not that easy! Have a look at this link to help you understand what needs to happen at every stage of your startup development to reach your goal: https://www.brainhive.de/en/startup-phases-what-each-stage-is-about/
Regards & much success for your project!
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Hi Christian, Here is an option. I am based in India and have more than 20 years of Software development and management experience. I have a small startup and have around 10 very good java and android developers. I have been inviting people to join me and in your case i can offer few developers to work with you on your ideas. We can enter into an agreement to share profits once your product is launched in the market.
I will be happy to take this ahead.
I want to pause and thank everyone for their thoughtful insight and opinion.
I have decided that Croudfunding is OUT - my business model doesn't include consumer products with mass public appeal - wrong decision for me to attempt.
Partnerships - difficult, and I'd have to share equity.
Investors - I'm pre-investment, I'm not going to attract investors at this early stage.
It seems that I'm growing correctly, slow and steady. I'll continue to outsource work and pay as I go, until I have the right product, at the right price and the right time. In the meantime I will find someone willing to charge a low but fair "wage"/rate for the piecework in the immediate, and accept royalties after the product goes to market, as a bonus to their work.
Contract, contract, contract. Partner with a programmer AFTER you have a contract drawn up. You both can modify this contract prior to actual work beginning to ensure everyone involved is happy with the results. Also, this will alleviate any later issues with ownership. If this software is to be used for your business only - then by all means you should get ownership to it after it's developed. However, the programmer should get a percentage of the profits gleaned from the software he helped develop. (i.e., 15% for 5 years) or something like that. If the software is potentially sellable to other businesses then there needs to be a contract drawn up with both of you earning profit from its sale. But no matter the use - ALWAYS do it in writing. - GOOD LUCK!!
If the cost of developing a software is low, than it is not advisable to partner with an programmer. You can rather choose to fund it yourself.It depends on the kind of software, you are developing. If it empowers a user in various ways, I would suggest you to go for crowd funding. It will give you pre-sales, promotion, popularity and branding as well.
If the investment is high and the idea has a great future, I would recommend you to go for crowd funding. Most of the entrepreneurs make some mistakes while approaching for crowd funding. They don’t choose the niche specific crowdfunding websites, they don’t give proper rewards and they don’t present their ideas properly.
You may be qualified to work with a CDE to get a working capital loan through the CDFI Fund or some other socially conscious source. It is always better to borrow or self fund unless having a contributing partner is part of your business model. I own a small CDE and help companies like yours. Please visit my Tumblr page and ask me anything. sproutcde.com
Great question and sounds like you are keeping things moivng forward. I have build three small businesses (all inner related) and money is always a challenge.What has worked well for me is forming mutually beneficial partnerships.
I have found LinkedIn a good place to start. Reachout, connect, simply state you believe there may be some business synergies, and request a quick call to discuss.
As a quick read it looks like you're asking the wrong question/s. If you need programming services - it's like hiring a tradesman - you need to find a qualified entities (persons or companies) and get a bid. If funding the bid is the problem that's the question you should be asking. A partnership is an entirely different question but could be a part of the answer to the funding question but with an entirely different set of parameters. partnerships are like getting married! I've designed and developed many software programs/applications let me know if you'd like a sounding board on your thoughts. It's a lot less expensive than you might expect in today's global sourcing environment.
1) Would recommend a partner when either you know them well to hit it of as a team or when the partner can fill a skill gap difficult to find or retain or costly to engage,
2)Crowd funding when there is scope from possible users of the product or services or complimentary product producers/Service providers so that you see a engagement&involvement beyond plain returns (As an investor)leading to product/Service/Brand promotion through synergistic efforts
3)Self-funding needs to be looked at instances of long gestation,requirement of control for product idea/Technology etc,the idea is more conceptual etcas clamour for returns in the short&medium term can affect progress.Can look at availing other fundings ,when the idea/project has taken some sort of shape.
Partnerships fail a lot more frequently than the other two - and more than the average U.S. marriage. Plus, you then have dual decisions to make when good decision-making alone has its challenges.
Crowdfunding requires you to deliver some market experience with your product/service ahead of time. In other words, you have some track record and information/experience to make an argument others care about. Self-funding is good too. But it has its pros and cons.
I recommend starting with some track record and collect data so you make the best informed decision you possibly can. Start small, though. If you over-think it then you might kill your motivation.
If you want support and/or research that backs up what I just shared just let me know.
I have been in 3 partnerships before and it did not end up well. I am a software engineer. I either had partners funding me on one project while wanting more than three, or I had partners that did not keep their part of the deal. I have spent a couple of years developing 3 major software and now have strategic partners (not in my company but as separate entities) to sell these products which is a benefit for them and for me. These software automate their work and they can service many more clients. The idea is to have great incentive.
It all depends on what your software does? Does it have a blackbox? Do you trust a developer with the code and idea? Maybe it's better to hire someone fulltime.
The advantage when you give a developer part of the profits or if he has a good salary as an employee, he will for sure make the best out of it and treats the software as his baby.
To me, hiring a per-incident developer seems a safer option. Make sure to construct the development agreement wisely to connect the the major payment with the success of software commissioning and achievement of all agreed upon deliverable. Wish you the best of luck.
Christian, It depends on how close you are to going to market.
I like the idea of launching what you have in order to gain funds, then introduce the upgrade model.
With Crowd-funding, you really do need a compelling story to get the attention, keeping in mind that you are competing against everyone else who are posted at that time.
If you are building market specific software that is ready for phase 1 implementation, Use the initial installation to fund enhancements by offering heavily discounted new applications to the initial company to help with funding and expand the capability to meet their needs. GE used a model of 5% of the equity of the company to pilot new to the market software and leverage of their name..
No one will fund your R&D stage and dont trust anyone that offers to!
So first seek a programmer who will trade equity ownership to develop the software or invest in hiring a programmer so you can develop the software & demo your unique software and show that it works than seek funding to expand the business model
otherwise you are just wasting your time
partnering with a software professional would be a bonus for you in the long run when at some stage you are looking at technology investors to invest in your company. They always look at the team, and in your case, you would need a software person.
self funding is good, depending on how deep your pockets are.
crowdfunding is also a possibility. the concern here is, what if you don't get the targeted funds.
One thing I could recommend you is to learn a bit of Agile. Its used for software development. It has an exist strategy at every point, just to be sure you are not investing a lot of money for nothing.
Lean Start-up is also a good book to read.
Another thing you could do to answer between partner, crowd fund or self fund is by doing a feasibility study. it would help answer some important questions like Technical, Economic, Legal, Operational, and Scheduling.
Take a look at "Slicing Pie" if you're going to try to get someone working for equity. If that doesn't work for you, try changing your contract model with the freelancers - you shouldn't be paying for SW that doesn't work. If you haven't validated your business model yet, then don't pay SW developers - spend the time proving that people will buy what you are thinking about selling. If you get some good solid market data, you should be looking for angel money to get to the next level.