Why Now is a Great Time to Start a Software Company
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Is a depression a good time to start a software business? Of course I hope things in the financial system don’t get to that level, but even if things stabilize it’s obvious that there’s going to be a serious financial impact for some time.
As I’ve been thinking about this it’s struck me that this could be a great time to start a business, especially a MicroISV or small partnership. Here’s why:
1. The large or medium software companies are likely to feel an impact from the downturn. They have the most money out in advertising, payroll, etc. Some may not make it at all, others will certainly be cutting back to try to limit expenses. They’re likely to cut in places MicroISV’s can excel such as customer service.
2. #1 gives you a chance to get into an existing strong niche where the other competitors may have their guard down and generally be more focused on staying in business than providing great service and products. However, the niche itself still has the upside of these companies prior advertising and marketing. So customers are out there still needing this service which is the type of need that MicroISV’s can never create on their own.
3. Yes, customers will still need software. We’ll, certain types of software anyway. I wouldn’t go near consumer software with a 10 foot pole. Businesses, however, still need to run. And if anything they’ll be looking to run more efficiently than ever. If you can create a product that saves companies money you should be OK.
4. A small ISV can run on almost no money. Basically just the salary of the founder and a few bucks for hosting and computers. You probably only need to make 50-100K to do alright which is all you need to do in your first year. Meanwhile the competition must make many times that number to turn a profit and they’ll be distracted while they’re trying to do it. Perhaps a few competitors even disappear making it even easier to pick up market share.
5. Getting in at the bottom is often how you make the most money. Warren Buffet knows that, it’s why he’s buying up all these great companies. Getting in at the bottom means you can do things even cheaper than you’d expect. Server companies are discounting heavy to get sales, ad space will get cheaper, it may be cheaper to find high quality full time and part time employees or contractors if needed.
None of this means you still don’t need a great plan and a good idea for a product. All those things I’ve discussed before still apply, but if you’re on the sidelines and have some savings, it could be a good time to jump in.
Discussion
There's one other really good reason that an economic downturn can be a good time to start a software company: You might not have a job anyway! I'm not saying this to be funny or overly cynical. I'm saying that, if you find yourself unemployed you might consider that a good time to focus your efforts on your own software company -- at least if you have the resources to go without a regular job for a while.
Created by jb on 09.29.2008 11:36 am
Damn it, Ian. I had a blog post just like this in draft, about to go up in a couple of days. Now I'm going to have to post something wholly original. You're making me work over here, dude! 
Created by Christopher Hawkins on 09.29.2008 1:58 pm
Heh, more evidence that great minds think alike 
Created by Ian on 09.29.2008 2:31 pm
There's an old saying around : 'it's always a good time to purchase good quality real estate'. I'd propose a 21st century revision : 'it's always a good time to start a quality software company'.
I think another two things you missed on your list are:
1) Companies that start in, and get through, bad times are always positioned better to take advantage when times get good again. The survivors of the dotcom bust times have consolidated near-invincible market positions (ebay, amazon, google etc). Bust-time-founded companies also learn to do business as lean as possible (perhaps not so much in the case of the three examples cited).
2) Large purchases require credit, and it's credit that is going to be difficult to get. Small software purchases are done out of cash/revenue, and should remain under the radar of corporate purchasing policies.
Created by Bruce Chapman on 09.29.2008 7:43 pm
I've been thinking about this too, the last few days. One other thing that jb touched on is that in a shaky economy, it seems like a good idea to base your livelihood on a diverse income base (i.e., many customers) rather than one source of income as an employee.
It also occurs to me that when time gets tough, businesses (at least rational ones) should be looking harder at finding ways to be more efficient and save time and money. So software companies that offer business productivity tools might even come out ahead in this environment.
Created by Jesse Smith on 09.29.2008 9:47 pm
Good points guys. Also in regards to Jesse's points it's often possible to diversify your income regionally. In our case about 30% of HelpSpot sales are outside the US which is nice as well.
Created by Ian on 09.30.2008 12:03 am
There is another good reason - opportunity costs. In time of downturn, you'll have lower paying job or may be no job it all. Hence, it is "cheaper" to start a company.
P.S.: MBA schools say number of applicants increase when economic outlook worsens. Pricesely for this reason - people have more spare time. 
Created by Max Ischenko on 10.01.2008 12:33 am
Good points, but you still need a good idea, a market that isn't covered yet. And that's getting more and more difficult IMHO.
Created by Thomas Holz on 10.07.2008 3:44 am
The best way is to work while working as a freelancer, in this way you can easily monitor the work flow and you can outsource too. Yes, i agree its easy to open the new software company but question is how to run it with out maximum resources.
Created by TestKing on 10.08.2008 6:11 pm
Post a message in the forum if you'd like more detail on how to do either.
Created by Anny on 10.10.2008 7:35 am
As to me because many of the present millionaires have become rich through the Internet and IT
Created by Anrrey on 10.12.2008 1:47 am