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why now is a great time to start a software company

September 29, 2008

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.

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