Launching any new business requires you to figure out your finances. Further, it will require a lot of planning to keep your budget on track while maintaining a decent level of cash flow to sustain your company.
The same rules apply for a software focused startup as you’ll need to have enough capital to cover your expenses. Although a lot of experts recommend that you have enough money to cover all expenses for at least six months, it’s not all set in stone.
For a software startup, in particular, the skills and background of the founder or co-founder will come into play. If you can do a lot of the work, specifically coding until you have a Minimum Viable Product (MVP), then it can be a lot cheaper.
Obviously, costs can vary a great deal as some software might be more labor intensive and difficult to create. Further, you may also need to outsource some parts of the development that you cannot execute yourself.
But first, let’s think about expenditures associated with starting a business. This can look like the following:
- Legal and professional fees
- Research and development
- Health insurance
- Internet access
- Contractor wages
- Miscellaneous overheads
1. Development Should Be the Primary Focus
For a software startup, development has to be the number one priority. So most of your human and financial resources should be focused on developing the end product. Besides, without a good product or service, this whole exercise will be pointless.
If the founder or co-founders of the company are busy coding in a friend or relative’s garage, your expenses at this point will be minimal. At the end of the day, it’s always going to be a hell of a lot cheaper when you know how to do big ticket items yourself with the bare minimum (when it comes to office space).
Some basic skills that will be required are as follows:
- Software programming
- Design and branding
- Marketing and promotion (a bit further down the development cycle)
- Server setup and management
- Customer support (once the software has been released)
- Operations (throughout the lifecycle of the business)
Skills alone aren’t enough as you also have to be able to work together efficiently.
Once you’re almost ready with the end product, the marketing phase will kick in. While it’s second in your list of priorities after development, they will switch places once your software development is complete.
2. Cost-Effective Marketing and Promotion
Promoting your software can be expensive, but there are also cost-effective options. For example, you can get your software featured by influential bloggers. Further, you can also do a lot of the word of mouth and PR activities yourself.
There are also options like MailChimp that costs nothing to target 2000 subscribers. Additionally, you can also use tools like AdWords, SEO, and social media to promote your business and product while carefully managing costs.
If you can do this yourself, you will be saving your business a lot of money. But if you can’t, freelancers with a proven track record can also be a cheaper option to agencies.
3. Operations and Management
Most people forget to consider operational costs when they start out, but it’s important. Think about it, even if you work out of your parents’ garage, how will you pay for that plane ticket to meet and present to a venture capitalist?
But not everything requires a budget as there are also some great free options. For example, you can take advantage of Helpscout’s free shared (three users) mailbox to manage your emails and support requests. Further, if you want to boost your Helpdesk, there are packages available for just $20 or $40 per month.
Then there’s Mandrill that can handle 500 thousand emails for just $20 a month. So all the emails that are generated from the software can go straight there.
So just like app development costs are relative, software startup costs can also be just a few thousand or go into the six figure range. It all depends on the variables that make up your specific product and company. So it doesn’t really make sense for me to talk about actual figures!
Although this is also relative, the costs associated with a traditional software startup will look something like this:
Phase 1: Development will eat up 100% of the budget until there’s an MVP.
Phase 2: Development will probably take up 60% of your budget while marketing will demand around 30% of your budget. Operations will take the remaining 10% of your budget.
Phase 3: Once the product has been released, marketing will require approximately 60% of the budget while operations and development (fixing bugs) will be around 20% each.
I encourage you to use our IT Team Cost Calculator to get the ballpark cost of your tech talent hiring depending on location and urgency.
What’s your experience with software development startups? Share your thoughts and experience in the Comments section below.