"Our new software is the best thing since sliced bread and it'll fly off the shelves."
OK, good luck with that....
If you've been in the technology world for a while, you will have come across many great ideas and plenty of great products. Sadly, many great ideas never make their way into great products. And many great products never achieve the market success they deserve. Perhaps you're a market visionary or genius software developer and have created your Initial Product Release or Minimum Viable Product (MVP) and you're ready to approach the market. Now it's just a matter of getting some leads and some of them are sure to convert into sales.
"Is there more to it than that?"
There certainly is. Some experienced campaigners might suggest, only half-jokingly, that creating a great product is the easy part and your work is only just beginning. Certainly, there are plenty of other things to be taken into account when starting a company and the purpose of this article is to help identify what is necessary and what will help you move beyond a great product, maybe to become a great company, but at the very least to become a Minimum Viable Company.
Creating your company
Most software authors will have figured out that they need a company as the vehicle to sell their product. While it is possible to sell software as an individual, sole trader or partnership, a limited company is the most common choice. Before you go ahead and register a company, there is information you will need and decisions that need to be made, for example:
What is the company to be called? There are various restrictions on company names that you need to consider: it cannot be the same or very similar to another company's name; it cannot be an existing trademark; it cannot be rude or offensive (!); it cannot include certain "sensitive" words; it helps if you can register the domain name.
Who will be the company directors? Being a director of a limited company comes with a range of obligations and responsibilities that you should be aware of. You can be fined, prosecuted or disqualified if you do not meet your responsibilities as a director; it's a lot more than just a job title.
Who will be the shareholders? A limited company is owned by its shareholders; you will need to decide who is investing, for what amount and for what share of the company. Shareholders also have rights (as distinct from directors). Sometimes there are different types of shareholder with different rights, dividends and options.
Who will have "significant control" over the company? It is necessary to register people with significant control (PSCs), typically those with 25% more share of the company.
How is the company to be run? You will need a "memorandum of association" that is agreed and signed by all initial shareholders agreeing to form the company and "articles of association" which set out the rules for running the company and are agreed by the directors and shareholders.
Who will keep the company records? Perhaps you will keep company, financial and accounting records yourself or hire a professional accountant to help you.
Who will register the company? They will need personal details to identify each of the directors and shareholders and provide information about the company.
Who will register the company for tax? They will need to consider the implications for corporation tax and VAT at the outset plus income tax for employees/directors.
There are plenty of companies that will offer to setup the company at Companies House for you. Be aware, however, that they should only do what they're told; you need to make the decisions yourself and be aware of their implications. Professional companies can help you with this too.
Business Plan
Every business needs a business plan but the level of formality and content varies widely depending on your circumstances. The business plan is a formal written document typically covering the following:
A description of the business.
Background information.
Business goals.
Strategies to achieve those goals.
Methods and activities used to implement the strategy.
Timeframe for achievement of the goals.
Financing, sales, costs and cash-flow projections.
Obstacles, risks and threats to the business.
If your business is entirely self-funded then, most likely, your business plan will be filed away and not looked at again for many years; by which time it will have become a historical artefact of some curiosity and amusement. For all other businesses, the business plan is the most important document for both internal and external stakeholders, especially financial stakeholders and investors. There may be different versions for internal and external audiences but the purpose is the same: to set out your business, its goals, its opportunity, its plans and achievements.
According to Ernst & Young (EY): "... a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure."
Here are some topics you should consider for your business plan:
Executive summary. This is often considered the most important part of the document and should be designed for decision makers to do exactly that: make a decision (for example, an investment decision) about your business. If you aren't able to gain interest at this stage, the rest of the document is largely worthless.
Mission statement. A short statement of why your business exists (or should exist); your overall goal; the products and/or services you provide, target markets, customers and partners; your territory (geographically or logically). You may also describe your business's values or philosophies, competitive advantages, and your desired future state or "vision".
Industry background. What is the political, economic, social and technological environment your company will be operating in? (PEST or PESTLE analyses are discussed in my blogpost "To SWOT or not?").
Market analysis. How is your market structured? How can it be segmented? How does your offering address these segments? Is there really sufficient market for your offering? How can you be sure? Although people may say you have a great idea, are they ready to actually spend money on it?
Business environment. Who will your customers be? How will your company market and sell your products? What is the size of the market for this solution? What would customers do if your offering was not available? How big an issue are you solving for them?
Business description. What problem does your company's product or service solve? What is your company's solution to the problem? What niche will it fill? How does the cost of your offering relate to the cost of the issue you are addressing? How will you make money? How will you validate your business model?
Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. What are your company's advantages and disadvantages? Where are the opportunities and where are the risks? How will you take advantage of the opportunities? What will you do to mitigate against the risks? (SWOT analyses are also covered in my blogpost "To SWOT or not?").
Competitive analysis. What are the respective strengths and weaknesses of your competitors? What about potential competitors? What is to stop a competitor from replicating your offering? What are your key differentiators? What value do customers place on those differentiators? Are they sufficient to beat the competition? How will you maintain your competitive advantage?
Marketing plan. What is your marketing strategy? What activities will your company implement to deliver on that strategy? How much will this cost? What is your social media strategy? What results will be obtained? How do you review and update the marketing plan in the light of experience? Are you able and willing to change direction quickly?
Sales plan. What is your sales strategy? Who will deliver that strategy? What resources are required? What is the customer’s purchasing process? What is the use case for your offering? How do you review and update the sales plan in the light of experience? Can you change quickly?
Channel plan. To what extent will you sell direct and through channel partners? What is the desired profile of your partners? How do you arrive at a win-win-win for all concerned? (For a discussion of win-win-win positioning, please see my blogposts "How do we win-win-win?" and "How do we win-win-win bigger?").
Operational plan. How will you translate your strategy into tactical activities? What processes are required? Who will be responsible for creating, updating and managing them? Where are you now? Where do you want to get to? How will you get there? How will you measure progress? How will you manage operations as the business grows?
Financial plan. What are your capital and operational expense requirements? What is your company's financial track record (if any)? What is your projected income and expenditure? What is your projected cashflow? What does your balance sheet look like and what will it look like? What are the main variables? When will you run out of money?
Management plan. Who will run your company? What is their background and what makes them qualified to do so? How will the company be organised? Who will oversee management (e.g. a company chairman)? How will disputes be avoided/resolved?
Milestones. What are the key milestones for your business? How will you review progress? How will you know you are on the right track? Are these realistic? Are you able to update your strategy if it's not producing the expected results? How quickly can you change direction?
Supporting documents. For example, analyst reports, independent analyses, test results, case studies, references, sample marketing materials, director CVs.
If your business plan is to win the credibility it deserves, it must be thorough, accurate and up-to-date. You must therefore have a plan for keeping the information contained within it relevant and timely. Decision makers will expect to make decisions on the best available, current information. Even if your company has a great offering, an amateurish business plan could easily make the difference between your success and failure.
Investors
All companies require funding during their lifetime, even if it's from the original founders. Most people immediately think of venture capitalists when they think of start-up ventures but there are other alternatives. Whichever source you use, having a well-written, up-to-date and credilbe business plan is a key to unlocking investment funds.
Compromise is always involved when it comes to funding; it's therefore a matter of understanding and choosing the most appropriate compromise for your business. But before embarking on your quest, it's important to consider if you really need to raise funding. What could you achieve without funding? How far could you get toward achieving your goals? Is there a more creative way of getting your business underway?
If you have decided to seek funding, here are some common sources you might like to consider:
Self-funding. Do you have savings you can use? Do you have spare income that could be redirected? What would be the personal impact of losing the money? How would you value a greater stake in the business (as opposed to exchanging a share in the company for funding)? How much money can you afford to invest? What happens when this runs out? If your funds are limited, what limitations would this impose on your business?
Friends and relatives. What would be the impact of losing the money on your friend or family member? What would be the impact on your relationship? How will their investment be secured (e.g against assets)? How will their investment be contracted? How much do they know about your business? Would they be able to offer advice? Would it be preferable to obtain funding from someone specialised in your business?
Crowdfunding. Platforms such as Kickstarter and Seedrs offer funding for business startups. What is expected in exchange for funding? How much work do you need to put in to secure funding? Is your business ready? How much help and assistance will they be able to provide? What are their expectations for return on investment?
Angel investor. Angel investors (also known as business angels, angel funders, private investors or seed investors) are typically wealthy individuals who provide funding for start-up businesses in exchange for a shareholding in the company (or possibly some form of debt). Do you know, or can you be introduced to, any such individuals? How much are you willing to give away for their investment? What help and advice are they able to provide? What are their expectations for involvement and return on investment?
Venture capital. If your business plan promises high growth and long-term potential, then you may be able to attract the interest of venture capital financing. Is your business ready for venture capital? Are you prepared to give up the equity that the venture capitalist expects? What advice and assistance will they offer? What degree of scrutiny and expectation will your company be subject to? To what expect will they expect to be involved in decision making? Could you find yourself excluded from your own company?
Banks. Some banks provide loans for business start-ups and these are typically well-structured and clearly defined. What is the application process? Do you have the time for this process? What are the limitations and restrictions on the loan? What is the interest rate? What are the repayment terms? What help and advice are offered?
Public funds. Some local authorities, government organisations and small business associations offer loans for start-up businesses. What hoops would you need to jump through to secure such a loan? Can you afford the time involved? What are the restrictions and limitations on the loan? How quickly does it need to be repaid? What help and advice are offered with the loan?
Grants and awards. Some start-ups qualify for grant funding; does yours? Are there relevant competitions you can enter for awards? What are the terms, conditions, limitations and restrictions? How much time and energy is involved in applying? What are your chances of success?
Joint venture. If you're working with a partner who is interested in your offering and the market, they may be encouraged to invest in your business rather than addressing it themselves. Do any of your partners have a track record of investing in startups? What would they expect in return for an investment? What degree of control and oversight would they expect? What 's to stop them from entering the market themselves? How is your Intellectual Property protected?
These are just some of the options and the questions you should consider. Even if you're not at the stage where you need, or want, to raise funding, it's well worthwhile exploring your options for when the time comes. Some of these options can take considerable time between first contact and the funds arriving so it's a good idea to embark earlier rather than later. Connecting with potential venture capital investors, for example, can yield valuable help, advice and guidance for your business. And then, when the time comes to seek funding, you will already have the necessary contacts. Don't forget that if you run out of money, it is game ov
Suppliers
Even if you have developed all the software yourselves, you will still need to buy things in to enable you to do business. In no particular order, here are some items to consider:
Website. What will the site be called? Has that name already been registered? Who will develop the site? Who will design it? Who will provide the content? Who will update the content? What services will you provide on the website (e.g. software download, purchase, trial, support)? Which host provider will ensure a reliable service at a reasonable price? How will that scale as your business grows? How will you drive attendance to the site? Who is responsible for Search Engine Optimisation? How will you analyse site traffic & visitors? How will you manage users' cookie preferences? How will you gather user registrations and how will you store the data?
Social media. Which sites will you engage with? Who will monitor the media? Who will write posts? How will their work be approved? How often will content be updated? How will you deal with comments, feedback, trolls? Who will write the responses? What is the policy for staff and directors? Is there history that might have implications? How will you drive followers and likes? Should you pay for premium membership? Advertising?
Marketing content. Who will provide the brief? Who will provide content? How will it be checked and approved? How will it be updated and how often? Who will design it? Where will it be posted? Where should it be posted? What is needed (e.g. web content, brochure content, white papers, social media content, videos, graphics)?
Email. Which email platform will you use? Which service provider will you use? Is the service sufficiently reliable and professional? What service level agreements do they offer? What support do they offer? Can email be accessed from all locations and all devices? What features are offered (e.g. email forwarding, out-of-office)? What capacity is needed? What email address should you have (e.g. info@, admin@)? What signature block should you use? What looks good and what is required?
Calendar. What features do you need? Do you need to view each other's calendars? Do you need to schedule time in each others' calendars? Do you offer customers/partners the ability to schedule appointments? Can you send calendar appointments outside the company? Can you accept incoming calendar appointments?
Teleconferencing. Which service should you use? Is it sufficiently reliable and professional? Can it be accessed from all locations and all devices? Can customers and partners access it? How good is the audio/visual quality? What extra equipment is needed? How do you appear professional when using it? Can it be used to host events/webinars/training/conferences? Can sessions be recorded? How many attendees does it support? Can it be re-branded?
Computer equipment. What hardware is needed to support your business activities? What are the implications of the brand chosen? What functions and performance are needed? What accessories (e.g. monitors, audio, stands, keyboard) are needed? Who will support and service your equipment? What is the service level agreement? How will it be paid for? How will it be depreciated? How will it be disposed of?
Office software. What software is needed to run your business? What functions are necessary? What software provider should be used? Where should the applications be hosted? Where should the data be stored? How will this scale with your business? How much will it cost? How can documents be shared within the company? With customers and partners?
CRM software. Do you need Customer Relationship Management software or can you just use a spreadsheet? What information do you want to gather? What information can you gather? How do you want to record information? Who needs access to view, update, modify or delete information? What do you want to do with that information? Have you got permission to use that data? Can you legally use the data?
CPQ software. Do you need Configure, Price, Quote software or can you just use a spreadsheet? What information do you need to produce a quotation? How do you verify configurations? How do you send quotations to customers? How professional do these look? How do you update quotations? How do you know what quotations have been sent? How do you know they are still valid? How do customers order?
Telephones. Do you need a fixed line or can you just use mobiles? How can you transfer calls between numbers? What happens if no-one picks up? What outgoing message should you have? What telephone hardware do you need to support your business activities? Does everyone need the same? What voice and data contracts do you need? What services do you need? What upgrade options are there? How will this scale? What service level agreement do you need? How will these be financed, depreciated and disposed of?
Security. How do you secure all of the above? How do you protect yourselves, your applications, your data, your customers, your partners and your equipment? How do you keep protected? How much does it cost?
Brochure. If applicable for your market, who will provide the brief? Who will provide the content? How will the brochure be produced? How many do you need? How do you pay for them? How do you store them? How do you distribute them? How often do you refresh them?
Business cards. Who designs them? Who produces them? How much do they cost? How often are they updated? What information is on them? What is on the reverse side?
Accounting and book-keeping. Who is responsible for keeping financial records? Who reports on financial activity? Who produces filings for corporation and sales tax? Who calculates National Insurance (NI) payments? What is your tax status? How will you deal with imports and exports? How will you deal with foreign currencies?
Accounting software. Do you need your own or should you use whatever your accountant recommends? Where is the data and how is it secured? Who has access to add, update and view? How do you use it? How do you create invoices? How is this linked to other parts of the company (e.g. CPQ and CRM systems)? How do you process expense claims? Purchases? Time sheets? How do you monitor cash flow? Debtors? Creditors?
Lawyers. Who is responsible for all of the contracts above? How much do they cost and how much can/should you do yourselves? Who briefs and directs the lawyers? What contracts are needed now and what can wait until later? What are the legal obligations to customers? To partners?
Insurance. What insurance does the company need? What insurance do the directors need? Who can provide the insurance? Who will advise on what is needed?
Pensions. What are your pension obligations? What can you afford? Who will advise you?
Compliance. What regulations and standards do you need to comply with? When does this need to be done? How much does it cost? What are the ongoing implications? Who can advise?
General Data Protection Register (GDPR). Do you know how to become compliant? Do you know how to remain compliant? Are you a Data Controller or Data Processor and do you know the difference?
Information Commissioners Office (ICO). Do you need to register with the ICO? Who is your Data Protection Officer? What are the equivalent bodies in other European countries and do you need to register with them?
Testing and approval. What testing needs to be carried out on your product? What is legally required for this market? What do customers and partners expect (e.g. penetration testing)? How much does it cost? How long does it take? Are you ready and will you pass?
Documentation. Can you produce product documentation yourselves or do you need outside help? Do you have the information needed to produce the documentation? What do customers and partners expect?
Banks. What sort of bank account(s) do you need? What bank should you choose? What features do you need? How do you open an account? Who needs access to view bank accounts? Who needs access to authorise payments? How are deposits made? What currencies do you need / are accepted? What exchange rates are used? How easy is the bank to do business with? Do you need credit cards? How are bank accounts reconciled with your accounts? What loan/overdraft facilities are available ?
Market research. What market research do you need to pay for? What information can you get for free? What can the information be used for? How does it affect your strategy/plan/approach?
Analyst reports. What analysts are important to your business? What do you need to do to get on their radar? What reports do you need to pay for and what is available for free?
Trade and industry bodies. What institutions, societies, associations and other bodies should you be members of? What benefits do they provide? How much time is involved? What are the costs? What are the networking opportunities? What facilities do they provide? What do your customers and partners expect?
Trade shows. What trade shows are there? Which ones should you attend? How much will it cost to attend? How much will it cost to exhibit? How much will an exhibition stand cost? What extra costs (e.g. accommodation, staff, marketing materials) are involved? What benefit can be expected?
Advertising. Should you pay for advertising? If so, where? What will it cost? What is your message and where do you get the content? How will you track and follow up leads?
Training. What training do you need (technical, commercial, legal, marketing, management)? How much time will it take? How much will it cost? How effective will it be?
Consultants. Do you know everything you need to know? Can you utilise experts in fields where your knowledge is limited? Should you employ staff instead? What would it cost? What results can be expected? How will results be measured?
These are just examples and there will be other suppliers specific to your solution; I recommend seeking professional advice if in any doubt.
Premises
Fixed premises are no longer mandatory for a Minimum Viable Company. Many startups nowadays are virtual and have no fixed premises. Staff work from home, from shared workspaces, from coffee shops, on the road, in the air and from customers’, suppliers’ or partners’ premises. Working at home is popular with staff since they can control their own environment and avoid wasted commute time. As an employer you need to think about the implications of home workers regarding staff interaction, productivity, liability and the impression on customers and partners but that's another article.
At some point however, even if not on day one, you will need to think about premises for your business. Shared workspaces are a good place to start because you can start with minimum commitment and minimum expenses but still get the added credibility of a fixed address, fixed phone number, additional facilities and potentially administration assistance.
Working with local agents is another way to expand into new areas (logical and geographical) with minimum commitment. You can leverage their existing contacts, facilities and presence to expand your own.
In the event that you need to take on the commitment of premises there are a great many costs to consider (too many to consider here) and, needless to say, you should tread carefully, and ideally work with someone experienced in this area.
Employees
Most startup companies have no employees except for their founders and directors. When extra resources are required, startups often work with contractors in their specialist fields (such as software development, testing, documentation, consultancy, training etc.) This provides access to expertise and avoids the commitment and obligations of full time employees.
A common means of obtaining sales and marketing resource is through the use of agents (sometimes called introductory or referral agents) who work independently and are contracted via their own business entities. Terms and conditions vary but typically, you might expect to make less investment up front in return for offering a greater share of the rewards when revenue is achieved.
Accounting and finance resources can often be outsourced to companies specialised in these areas such as accountancy practices and payroll companies. Likewise, administration resource can be outsourced or obtained from shared workspace providers.
When the time comes for your company to employ full time staff, there are a great many considerations and obligations to take into account and which are beyond the scope of this article. Needless to say, you should seek advice from people familiar with this area; it is not a matter to be entered into lightly or without due consideration.
Processes
As discussed above, your business plan will provide an overview of how your company will operate but you will need defined processes to actually operate your business and work with customers and channel partners.
Here are some examples that you should consider; there will doubtless be more that are relevant to your particular circumstances.
Marketing process. Do you have sufficient market knowledge? Where can you obtain more? What are your buyer personas? What are your goals? What is your timescale? How will you measure performance? What key performance indicators (KPIs) will be used? What are you motivating customers to do exactly? What is the route to a purchase? How will you research markets and opportunities? How will you adapt your process? What collateral do you need? Who will contribute to it? Who will produce it? Who will approve it? How will you promote your offerings? How will you use social media? Do we need a video and, if so, who will make it and how? How do you win attention span? How will you obtain and act on feedback? Where can you get objective feedback and validation for your offering and its competitive position?
Sales process. How will you identify target markets, customers, partners and influencers? What is the profile of the ideal customer? What are their critical business issues? What are their specific pain points? What are their preferences? What is their buying process? How do they evaluate and purchase? How are opportunities qualified? How does your company address the customers’ pain points? What difference does this make to the customer’s business? How do you position yourself in relation to alternatives (not just competitors)? What questions do customers typically ask and how should they be addressed? What objections do customer typically raise and how should they be addressed? What is the typical sales cycle? What is the compelling event for a purchase? What value does the customer derive from your offering? What is their return on investment? What best practices can be adopted from your experiences? How should the product be presented? How should the product be demonstrated? Do we need a recorded demo and, if so, who will make it and how? How is feedback collected and how is this incorporated into the process?
Channel partner process. What is the profile of your ideal channel partner? How will your company work with channel partners? How will you qualify channel partners? How do channel partners choose suppliers? How will you find and develop a win-win-win position with your channel partners? How will you grow your business with channel partners? How will you expand the number of channel partners while still maintaining a win-win-win position? How will you deal with channel conflict? How will you on-board channel partners? What value will channel partners contribute? What value will your company contribute? How will you manage channel partners? How will you train channel partners? How will you support channel partners? How is feedback collected and how is this incorporated into the process?
New customer process. What checks (for example credit checks, money laundering, denied parties listings) are carried out on new customers? How much credit is granted to a new customer (if any) and how is this monitored? What information (commercial, logistical, technical) is gathered regarding new customers? What information is gathered regarding customer personnel? How is this information stored and accessed? And by whom? Who are the key contacts the within the organisation? What are your obligations to the customer? What are their obligations to your company? How does the customer approve your company as a supplier? Who approves and how long does this take? How is feedback collected and how is this incorporated into the process?
Order process. What information is required to produce a quotation? How is the quotation produced? How is it validated? How is it approved? How does the customer accept the quotation? What information is required from the customer? What contract / licences / terms are used? How does contract or price negotiation take place? Who is involved and who approves? How is an order placed? Who is eligible to place an order? What paperwork (e.g. purchase order, contract amendment) is required? Who validates the order? Who accepts the order? How is the order recorded on which systems? Who has access to these systems and for what purpose? If an order is rejected, how is this done? How is an order modified or cancelled? How is feedback collected and how is this incorporated into the process?
Deployment process. What is your deployment process? What is the customer’s deployment process and who is involved? How does your company manage the deployment and who is involved? How does the customer manage the deployment and who is involved? What services are provided and by whom? How are channel partners involved? How are other third parties involved? What training is required? What consultancy services are required? What arrangements (if any) are required for on-site access? What are the health, safety and security considerations? What are the timescales for the deployment? What happens if the timescales are not met? How are changes communicated? How is the deployment tested and accepted? How does the software transition into production? Who is responsible for acceptance? How is the software updated? How is the software patched? How is the software decommissioned? How is feedback collected and how is this incorporated into the process?
Service Request process. What services are provided and by whom? Who defines the service request process? Who approves it? How is a service request submitted by a customer (for example, by portal, by email, telephone)? Who is involved in vetting, recording and assigning service requests? What information is required for each service request type? How and where is the request information recorded? Who has access to this information and for what purpose? How do we build a knowledge base? How are service requests categorised and prioritised? What is the timescale for responding, scheduling, implementing and completing the service request? How is the service request fulfilled and by whom? How are changes to the schedule advised and agreed? How is the service completed and approved? How is feedback collected and how is this incorporated into the process?
Incident Management process. Who defines the incident management process? Who approves it? How is an incident reported by a customer? What information is required for each incident type? How and where is incident information recorded? Who has access to this information and for what purpose? How do we update the knowledge base? How, and by whom, is the incident recorded, acknowledged, investigated, categorised, prioritised, scheduled, resolved, verified and closed? What is the timescale for each? What communication takes place during this process and between whom? What is the escalation process and who is involved? How is feedback collected and how is this incorporated into the process?
Problem Management process. Who defines the problem management process? Who approves it? How are problems identified? How are recurring incidents prevented? How is the impact of incidents minimised? How is problem and incident information stored and shared? What information is stored? Who has access to this information and for what purpose? How do we update the knowledge base? How, and by whom, is the root cause investigated, identified, categorised, prioritised, scheduled, addressed, verified and closed? What is the timescale for each? What communication takes place during this process and between whom? What is the escalation process and who is involved? How is feedback collected and how is this incorporated into the process?
Change Management process. Who defines the change management process? Who approves it? How is a change request created? Who is involved in vetting, recording and assigning change requests? What information is required for each change request type? How and where is the request information recorded? Who has access to this information and for what purpose? How are change requests categorised and prioritised? What is the timescale for acknowledging, scheduling, implementing and completing the change request? How is the change request fulfilled and by whom? How are changes to the schedule advised and agreed? How is the change completed and approved? How is feedback collected and how is this incorporated into the process?
Product Management processes. What is the product planning process and who is involved? Who approves the product plan? How is your product defined? Who creates your product or service definition? What does it contain and who approves it? How does your product evolve? What is your product roadmap? Who has input to the roadmap? Who owns the roadmap? How is customer or channel partner feedback incorporated in the roadmap? What features are essential, and which are desirable? Which features no longer required? What is the cost of these new features (to develop and maintain)? What extra revenue will result? How is the product retired? What is the timescale for doing so? How is feedback collected and how is this incorporated into the process?
Billing process. Who defines the billing process? Who approves it? How is billing and payment information collected and where is it stored? Who has access to this information and for what purpose? How are invoices created, approved and transmitted, and by whom? How is cash collection monitored and forecast, and by whom? How are billing queries raised, who addresses them, how are they resolved and what communication takes place? How are payments collected and who is responsible for doing so? What happens when payment is not received, how is this escalated and to whom? At what point is the service terminated, who approves this and how is it communicated? How is the impact of service termination assessed and by whom? How is the service reactivated? How is feedback collected and how is this incorporated into the process?
Complaint process. Who defines the complaint handling process? Who approves it? How are complaints registered and where are they stored? Who has access to this information and for what purpose? How is a complaint reported by a customer? What information is required for each complaint type? How do we update the knowledge base? How, and by whom, is the complaint acknowledged, investigated, categorised, prioritised, scheduled, resolved, verified and closed? What is the timescale for each? What communication takes place during this process and between whom? What is the escalation process and who is involved? How is feedback collected and how is this incorporated into the process?
As a startup, you may think that many, if not all, of these processes need not be defined until a sale is imminent. Experience shows, however, that once a paying customer is on the horizon, all efforts go into winning that sale. And once you’ve won the sale, all efforts go into delivering the solution. This is precisely the wrong time to be thinking of creating processes. It’s too late by then.
Also, the lack of pre-defined processes can be self-defeating. Professional customers will want to see that you have professional processes in place before they will consider your company and its offering seriously.
Contracts
Before you even start to think about selling your product, there are contracts required to successfully operate your company. We've mentioned the memorandum and articles of association (which are legally binding documents and need to be reviewed carefully). In addition, here are some examples of the extra agreements you are likely to need:
A shareholders agreement which defines the relationship between the shareholders, how decisions are made and how disputes are resolved. It also defines how shares can be issued, transferred, sold and recovered. If it is your intention to ever transfer your shares, perhaps to a family member or by way of a sale, you will need to pay close attention to the shareholders agreement. Likewise, if new shares are to be issued (for example, for investors), you need to understand how this affects you and your shareholding.
Directors service agreements (one for each director) which defines the relationship between your company and the director. It defines each director’s role and responsibilities (which need to be carefully considered, especially if the individual is not a full time employee of your company), their length of contract, their relationship with other group companies (which may or may not yet exist) , their conditions of employment and arrangements for termination. It defines compliance requirements, financial obligations and duty to report wrongdoing or misconduct. As a company director, you need to be well aware of the terms of your service agreement. All directorships come to an end one way or another so it's better to understand your options and responsibilities for when that time comes.
An agreement on intellectual property rights (IPR). Imagine your friend is a wizard software developer; has come up with a great idea and maybe shows you a prototype. You agree to form a company to develop and sell the product and it goes brilliantly. You receive a lucrative offer to acquire your company and you're thinking how to spend the proceeds. Then, under the due diligence, it transpires there is nothing to show your company owns the IPR of the product. So who owns it? It might be your company; or it might be your friend, especially if he/she can show they personally had the idea and contributed the prototype. Now where does that leave you and the company? Agreeing and signing a contract for intellectual property rights makes the situation clear for all concerned.
Confidentiality agreements between the parties are often included in one or more of the above. It is important to define expectations and obligations for all parties in unambiguous terms. What happens if they're no longer a shareholder? Or no longer a director? Who can and can't they talk to about their work and their inventions? What happens if they breach the agreement? What exactly is to be kept confidential? How long do these obligations go on for?
Licence agreements set out the arrangements between your company and licensees of your software. Who is the licensee? Is it the end customer, their parent company, any subsidiaries, their service provider? Or a channel parter, reseller or distributor? What exactly is being licensed? Is your company authorised to offer that licence (e.g. if it includes embedded third party software)? What warranties are included? What are the restrictions on use (e.g. is it restricted to a particular number of users, on a particular device, in a particular location)? How long does the licence last? How can it be terminated and in what circumstances? How is the agreement policed? Can it be transferred?
Escrow agreements are often insisted on by early customers of a new software company; it means they can access the software source code in the event that the supplier ceases trading with a view to continue using and maintaining it. Do you want to offer such a facility? Will customers insist on it? What triggers release of the source code? How much will it cost and who will pay? What are the risks? How will it be policed?
Maintenance agreements set out how bug fixes, new releases, updates, support issues are dealt with. What services are provided? What constitutes a fault? When are updates issued? How are support issues dealt with? What service level agreements are offered? What do customers expect? What hours of cover are provided? What happens outside these hours? How will service be provided? Who will provide the service? How are issues categorised and prioritised? Which languages is support provided in? How is service paid for? What is the duration of cover? What happens if payment isn't received? How is the agreement terminated?
Consultancy agreements determine how any associated consultancy services are contracted. These could include, for example, project management, project scoping, installation, configuration, training and any other professional services provided by the supplier. Who will provide the services? Can they be sub-contracted? What are the suppliers’ obligations? What are the customers’ obligations? How will customer data be handled and protected? What is the extent of your liability? How are the services defined? How are changes in scope accommodated? How are services charged and paid for? What happens if payment is not received? How will the work be tested and approved?
Agency agreements are often used by software suppliers working with third parties who provide customer introductions, referrals and leads. What constitutes a referral, lead or introduction? How much commission is payable and when? How well qualified must an opportunity be before it can be considered an opportunity? How quickly must the opportunity be converted to a sale? For how long is commission payable? What is the scope (e.g. geographically or logically) of the agreement? How long does the agreement last? How is the agreement terminated and what happens at that time?
Channel agreements set out the arrangements between the supplier and any third parties that sell your software on to customers. What are their obligations? What are the suppliers obligations? What is their territory (logically or geographically)? What services should they provide? How will your software be represented? Will it be rebadged or rebranded? How will the ordering process work? How will the delivery process work? Who will be responsible for which aspect of the delivery and service? How will the software and services be paid for? What happens if they are not paid for? How long does the contract last for? How is it terminated and what happens then?
Sub-licensing agreements (if applicable) set out your relationship with the supplier of any software that is embedded in yours. This could include software that is paid for, open source or free; but in each case, you need to have an agreement. What are the implications of each license type? How does this scale as your business grows? What are the restrictions (e.g. geographical, logical) on use? How is it supported and maintained? Can licenses be transferred? What are the implications for your Intellectual Property? What would a potential acquirer think of these arrangements? What exposure do you have if the embedded software is no longer available? Or becomes too expensive? How easy would it be to switch provider?
Service Provider agreements (if applicable) set out your relationship with other parties engaged with delivering your service, for example hosting companies that are used to deliver your Software as a Service (SaaS). How reliable is the service? What is the Service Level Agreement (SLA)? What happens if it is breached? Where is the application hosted? Where is the data stored? How is customer data protected? What security is provided and how is it maintained? How does the service scale? How does the pricing scale? How easy is it to switch provider? What would a potential acquirer think?
Mandatory Policies. At a minimum, your company will need policies for each of the following: Modern Slavery and Human Trafficking; Corporate and Social Responsibility; Anti-bribery and Anti-corruption; Ethics; Data and Privacy; Expenses. Most customers and channel partners plus all potential acquirers and investors will want to see these policies, or at least know that they exist.
There are contracts available off-the-shelf for each of the above (for example, from professional bodies such as the Institute of Directors if you're a member) but unless you have legal expertise, these should be used with extreme caution. Even modest changes can have unforeseen implications when the agreements come under scrutiny, for example when there's money at stake. Cutting corners on legal expenses at start-up stage can result in unpleasant and expensive surprises when it is time to sell.
Conclusion
As you can see from the above, there's quite a lot involved in setting up a business and getting it off the ground. Hopefully, this article has provided a foundation to get you started on your mission. Good luck and don't hesitate to seek advice from experts.
You might also like to check out my personal recommendations in the blog post "Ash's Business Startup Words of Wisdom"
Ash Madden is Founder and Director of Madden Associates Limited, the Specialist Channel Sales & Partnering Consultancy
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