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How to Start a Software Company
Executive Summary
Starting a software company refers to the process of creating a new business that develops and sells software products or services.
Software Product Market Highlights
The market of global Independent Software Vendors (ISVs) – organizations that make, market, and sell software while not being controlled by any hardware manufacturer – was estimated at $1.55 billion in 2023 and is projected to reach $5.65 billion by 2030, growing at a CAGR of 20.3%. The market is highly fragmented, with emerging players accounting for 55–60% of the market revenue share.
The ISV market grows the fastest in financial services, healthcare, ecommerce, and manufacturing. To stay competitive, software companies should invest in scalable and reliable architectures, data security, and regulatory compliance measures.
How to Start a Software Company in 8 steps
- Research the market and analyze the target audience, formulate ideas.
- Create a business case.
- Conduct a PoC to assess technical feasibility.
- Develop an MVP to collect quick feedback from initial customers.
- Build the full commercial software.
- Establish user behavior and feedback tracking.
- Organize support for the software product.
- Iterate to enhance product-market fit and actively market the product and brand.
Popular Software Business Models
By target audience
B2B
Focus on:
- A dedicated sales team to handle long sales cycles.
- Advanced customizability.
- Comprehensive support services covering:
- Integrations of your product with customers’ custom or third-party in-house systems.
- Migrating data to your SaaS product from other business applications.
- Partnerships with other software providers to offer comprehensive software solutions.
B2C
Focus on:
- Digital marketing.
- Viral capabilities (e.g., gamification, sharing activities via social networks).
- In-built user feedback gathering via live chats, user satisfaction surveys, from social media mentions.
By pricing and revenue streams
Revenue from a product
- Licensing (an upfront fee with the right to use software forever + optional recurring maintenance fees).
- Subscriptions (e.g., per user per month).
- The pay-as-you-go (PAYG) model: payment is based on a measurable unit of product usage, e.g., per transaction, per gigabyte of storage, per connection.
- Freemium/in-app purchases.
Revenue from a product + revenue from a service
- Software support services.
- Software customization services.
Note: Software product services can constitute up to 60% of software companies’ revenue.
Revenue from data collection
- Software or user-generated data (deriving value from selling research services or aggregated, de-identified data).
Note: Make sure to obtain the consent of software consumers for the use of their data and honor data privacy regulations (e.g., GDPR, COPPA, HIPAA, FTC).
By deployment strategy
Cloud
Best-suited for SaaS products (sold on a subscription basis).
On-premises
Making a software product installable on a customer’s premises.
Hybrid
Combining on-premises and cloud environment, usually, for security reasons (e.g., when customers don’t want to store sensitive data in the cloud).
Important Features in Modern Software Products
ScienceSoft has identified six distinct feature groups relevant for most types of software products. The specific features will depend on software’s purpose and its target users. The common groups are as follows:
Identity and access management
- Single sign-on.
- Multi-factor authentication.
- User privileges.
- Session management
- Identifying an unauthorized session.
- Protection against multi-sessions.
- Session hijacking countermeasures.
Payment
- One-time or recurring payments via:
- aggregators (e.g., Braintree, PayPal);
- bank transfers (PayPal, Apple Pay / Google Pay, etc.).
- Smart retries of failed payments, automated failed payment emails for users.
- Managing subscriptions by users (for SaaS)
- Viewing, tracking and downloading invoices by users.
- Users’ viewing and filtering transactions by status.
Marketing
- Integration with social media.
- Pricing and promotion management.
- Loyalty management.
- Email marketing.
- AI-based targeting.
- User experience surveys.
Analytics
- Enhanced monitoring of SEO metrics (for web solutions).
- Conversion optimization (heatmaps for mouse movements and clicks on webpage elements, session recording, personalized conversion paths, web form analytics).
- Visitor profile tracking.
- User activity and engagement patterns tracking.
- Live chat, short surveys, and social media to collect user feedback.
Controlled experimentation and feature management
- A/B testing to determine the best version of a new feature or measure the improvement in performance.
- Feature toggles (feature flags) to hide, disable and enable certain functionality during runtime, without deploying new code.
- Targeted feature rollouts specified by audience.
Strong Competitive Differentiators for a Software Company
Uniting products into ecosystems of reusable parts
Building products modular and flexible and bundling together modules and parts that are common across product lines, you make new product development faster and cheaper. Moreover, by providing access to your ecosystem of plug-ins, APIs and SDKs to third parties, you increase the stickiness of your products by allowing third-party developers to contribute to your product scaling, customization and innovation.
Using AI
Use cases:
- User re-engagement (tracking customer behavior, building an early warning system to identify accounts that are at risk of canceling, activating personalized tips about how to benefit from software).
- Data security (noticing suspicious behavior and activities).
- Personalization (adjusting content, customer journey and experiences to individual customers).
Reducing development time
- Choose the technology stack (a programming language and frameworks, architecture patterns, APIs, and more) that supports streamlined development (the difference in the speed of development may be 2 – 20 times).
- Develop and test iteratively (prioritizing on essential functionality).
- Apply all-around automation (CI/CD, container orchestration, test automation).
Sample Investments for Software Product Development
The costs of commercial software development differ a lot depending on software product specifics, techs, targeted industries, and software development process organization. Below, you can find sample estimates for one of the most popular types of software products – SaaS software products.
Ways to Speed Up Software Product Launch
You can significantly reduce development efforts while building your software product via:
- Using cloud services (messaging services, analytics and AI services, image processing services, etc.) by well-established cloud providers, e.g., Azure and AWS, as a part of your software product.
- Using third-party libraries – both freely and commercially available.
- Using open APIs.
How to Achieve Company Profitability Faster
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Target “hot” markets (e.g., software for greentech, nanotech, IoMT) or money-saving enterprise software. |
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Address digitally an urgent, widespread need/pain that is currently insufficiently addressed by traditional approaches. |
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Launch a code-based MVP to start selling and get feedback early and develop further in quick iterations to gradually perfect a product-market fit. |
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Invest in CRO (conversion rate optimization) and conversion-driven UX design. |
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Integrate digital marketing automation. |
Consulting and Development Services for Software Companies by ScienceSoft
In software product development since 1989, ScienceSoft helps plan and build quality and selling software products. Our service offering includes:
Software product consulting
Our consultants can help with:
- Software product idea elaboration.
- Market-entry and business strategy.
- Feature roadmapping and tech choice.
- Planning MVP.
- Empowering your product with AI, machine learning, big data, AR/VR, etc.
- Cloud resource optimization strategy.
- Complying with security and industry regulations.
- Delivering a detailed software product implementation roadmap.
End-to-end software product development
Our team can take over:
- Idea productization and feature management.
- PoC development.
- Clean, intuitive, conversion-driven UX design.
- Unique UI design.
- MVP development.
- Iterative development of the product with major upgrades each 2-6 weeks.
- Integrations with required third-party systems.
- All-level QA.
- (optional) Software product support according to agreed KPIs and evolution based on user feedback evaluation.
What makes ScienceSoft different
We achieve project success no matter what
ScienceSoft does not pass mere project administration off as project management, which, unfortunately, often happens on the market. We practice real project management, achieving project success for our clients no matter what.
About ScienceSoft
With 35-year experience in software product planning and development, ScienceSoft has expertise and resources to:
- Transform your idea into a selling product.
- Innovate and accelerate time to market.
- Optimize software development and operational expenses.
- Help you grow your software business and create long-term customer relationships.
Achieving project goals in spite of time and budget constraints, as well as changing requirements, is ScienceSoft's top priority. You set goals, we drive the project to fulfill them.
Being ISO 9001 and ISO 27001-certified, we guarantee comprehensive quality and data security management of each project.