How to start a software company in 9 simple steps: An in-depth guide

As an entrepreneur, you've no doubt had some brilliant ideas find you at the most unexpected of times. Heck, you might have even woken up in the middle of the night with an idea for your next big business venture. And this time, you've got your eyes on the prize and want to know how to start a software company.

With your great ideas safely logged, you'll also know that it's crucial to have a plan in place before getting stuck in. If you've ever dreamed of running your own software company, you've come to the right place.

Below, we'll take you through the steps needed to kickstart your software company, and some things to look out for along the way. 

How to start a software company in 9 steps

There's no denying that there's plenty of revenue to achieve in the world of technology. But of course, not every software company is built for success.

Thankfully for you, we're here to detail how to start your own software business, with a roadmap that'll lead to some incredible achievements.

1. Do market research and analyze your target audience

Knowing how to start a software company isn't just about knowing what type of software you plan to sell. Instead, it's crucial to get into the right mindset of this industry. But how can you do that?

Well, it all starts with market research. After all, without carefully examining the software market, how do you know that there's space for your idea? Overall, your market research needs to cover the following:

• Your target audience and their needs, pain points, current software limitations, budget, and industries
• Competition, including what they do (well and badly!), how successful they are, and what they bring to the market

Before you even contemplate your branding or your exact software product, you're going to need to gain an understanding of what's out there already.

For example, are you planning on offering something nobody else currently does? Or are you looking to develop a software product that is better than your competitors?

If the latter, think about why (and how) your software product is better than current solutions. For example:

• Are you saving the customer time?
• Are you saving them money?
• Or could it be a case of saving resources and stress?

You'll likely know by now what type of software company you'd like to start, but before you dive in at the deep end, it's imperative to have a plan.

2. Create a business plan

Although some of these steps are interchangeable, creating a business plan is certainly a step you don't want to miss. This is your opportunity to piece together what you aim to achieve into a document you can use to guide your new software company — or, later pass on to potential investors.

In simple terms, a business plan is a document that outlines the purpose of your software company. It's entirely up to you whether you take the steps to create your business plan first or carry out your market research ready for your plan later on.

Any strong software business plan should include the following:

• A description of your company and the type of software you aim to develop
• Where your software company will be based
• Key targets (consumers, clients, and market)
• List of competitors
• An overview of the market and analysis
• Plan of operations
• A financial plan, including budget and funding
• What equipment you will require, as well as costs and expenses
• List of legal requirements, including any permits or licenses

Depending on the type of software company you plan to start, some of these details may differ. But the key takeaway here is that by the end of your business plan, you should feel prepared to enter your target market.

Plus, with a strong business plan behind you, you'll be in a strong position to seek funding from potential investors, if needed.

What is customer behavior analysis? Find out what is it, how to conduct it, and why you should in the first place in our guide.

3. Create your software company

While it's easy to get carried away with a fancy website and flashy branding, there are some more serious elements needed to start a software company.

Before you get caught up on how your software company looks, think about the name, identity, and values of your new brand. Then, it's time to determine the legal structure of your new software business.

This necessary step will help you to understand how your taxes work and how much you will be paying — a crucial part of your overall business and required funds. There are several legal structures to choose from, including:

Sole proprietorship

A sole proprietorship is often considered the most common and simple type of business. This type of software company would be owned and operated by one person, with no legal structure separating the business from the individual owning it.

If you opt for this setup, you will be responsible for the profit, losses, and any debts associated with the business.

Partnership

For this type of legal structure, a partnership would mean that your business is shared between two or more individuals. The partners involved would negotiate an agreement to form the partnership, agreeing on how they would be responsible for their share of the profits, losses, and liabilities.

Limited liability company

A limited liability company is often one of the go-to structures of any new business since its purpose is to protect business owners from personal liability for any decision-making and actions of the business. LLC business owners have to pay tax on their portion of profits via individual income tax returns, as well as self-employment tax.

Corporation

A corporation is a legally independent entity owned by shareholders. Corporations file taxes separately from business owners, which can mean a disadvantage of double taxation. This is generally the first option for new software company owners that have plans to scale fast.

4. Work out your financials

A crucial step in any business venture is working out your finances. If you need capital to get started, you'll need to look at available options for funding. There are often grants available for new start-ups, as well as private investors.

You could even approach investment groups to help get your software company off the ground. The U.S. Small Business Administration offers plenty of advice on getting more funding for your business, including loans, investment capital, and grants.

Aside from how you'll fund the beginning of your new software company, you'll also need to decide on how to sell your product and relevant payment methods. You could offer the product in various subscription tiers rather than a one-off payment.

Used by many different businesses, one example of a subscription model with different tiers is Slack. As you can see, Slack offers its tool on several plans, which is a great idea for predicting revenue.

A part of your research needs to include how your customers pay for your software. Let's say you offer a basic version of your software, this might be available to download for free from your website, with opportunities to upgrade.

Or, if you prefer to lock in new customers, you might want to offer a free trial, followed by a monthly subscription.

Or maybe you provide your product to other businesses.

How would it be best used by other companies? With software developers in your corner, you could even branch into providing bespoke functionality, allowing you to sell directly to SMEs and larger businesses at a premium.

SaaS business model

If you're heading into software development, you might want to consider forming a SaaS (software as a service) business. The appeal here is that this type of software business is based on recurring monthly or annual subscriptions, making it easier to make financial forecasts.

With enough subscribers behind you, you'll soon be able to see your regular income and potential growth, as well as secure cash flow for your business.

Find helpful insights in our ultimate guide to SaaS billing.

5. Assess the key costs and expenses involved

As a new business owner, it's important to gain an understanding of the costs involved in starting your software development company.

Here are a few costs and expenses to take into account:

• Employee wages
• Research and development costs
• Marketing and promotion
• Renting of office space
• Office equipment, supplies, and furniture
• Software development costs (such as applications, data storage, and servers)

Considering these costs will give you a clearer picture of your new software company and help you to gain insight into the necessary tools and funds required.

Now's the time to consider how much initial investment you might need to kickstart your new business and how much revenue and growth you can expect to keep running at a profit.

6. Hire the right people

If you're a software developer, you could even start a software company alone. But there will come a time when you need help from others to get your product off the ground.

As you grow your business, you'll no doubt need employees for multiple areas of expertise, such as project management, UX, business analysis, and even someone to manage your office space.

Many software development companies work fully remotely, so you might not even require office space in the first place! Nevertheless, you should certainly consider having a hiring strategy in place to cover all bases.

If you're not ready to hire developers right away, you could even look to freelance websites for help, such as Upwork, Bark, or Fiverr.

7. Test, promote, & market your software company

Before you even consider taking your software product to market, it's vital to carry out crucial tests. Once past the development stage, you'll want to thoroughly test your software product to fix any bugs and carry out essential fixes before it hits the market.

This will ensure that your software product is set up for the greatest success, so you can deliver a high-quality product from the very beginning. Of course, there may be some hiccups throughout testing or bugs that go unidentified — however, it's crucial to handle these quickly to rectify any issues.

If you were to enter the market too fast, you risk delivering a low-standard software product that may result in damage to your company's reputation and affect customer loyalty. As a new business, getting loyal customers on board is crucial.

For any business entering the software industry, it's important to have a quality control and assurance plan in place. This can often be a dedicated team of software developers who will test every feature to check if it functions as intended.

As a new software company, having a whole team may not be as financially viable at the beginning — but this is something you can potentially outsource.

The importance of a marketing plan

Once your software product has gone through testing and has reached the best possible standard for release, it's time to start promoting and marketing your software.

Primarily, software promotion is carried out online. Before marketing your software product directly, you can start to build a brand for your business overall. This can include:

• Having a user-friendly website
• Building a strong social media presence
• Running promotional campaigns
• Offering beta testing

Need a helping hand with your marketing? Check out our ultimate guide to software marketing strategies and learn how to grow big.

8. Protect your software from intellectual property theft

Now, this step could be carried out a little sooner, especially if you have third parties working on your software product with you. Whether you're working with other start-up companies or freelancers, it's super important to protect your software.

Intellectual property theft can be detrimental to any new software company. Having effective protection methods in place can protect your software and company overall. Some of those measures include:

• Creating non-disclosure agreements (NDAs) for employees and individuals who may have access to privileged information about your software products
• Obtaining the necessary patents and trademarks for your software. You will need to speak to a relevant lawyer to help you navigate this
• Registering the copyright to your products to prove that your software company invented them

It's also worth looking into intellectual property liability insurance. This can serve two purposes:

• To help companies cover litigation costs related to the enforcement or defense of patents, trademarks, or copyrights
• To protect policyholders from patent infringement claims brought against them

9. Consider finding relevant insurance coverage

As well as protecting your business from intellectual property theft, it's important to assess any other risks associated with starting a software company.

In order to protect your new tech company, it's important to have an effective risk management strategy in place. Here are some of the other insurances to consider:

• Cyber liability insurance, an essential insurance to protect your software company against cyber crimes, including data breaches
• Technology errors and omissions insurance to protect against liability risks
• General liability insurance
• Commercial property insurance
• Business interruption insurance
• Workers compensation insurance for employees
• Employment practices liability insurance

Grow your software company with Whop

Once you've taken all the necessary steps to start a software company, such as creating your company name, deciding on company values, and analyzing your market — it's time to start selling.

With Whop, you can get started right away selling software and building a brand around your new business. Just add the relevant Whop apps to host your products.

Whop has all the features you could need to start a software business, giving you a place to sell web applications, digital files, and even source code.

With seamless payment processing and customer support, your members will always have the best possible experience with your brand.

Sign up to Whop today in just a matter of minutes and take your software company to the next level.

How to start a software company FAQs

Still unsure how to start a software company? If you've got further questions, we've got the answers.

Is there any way to start a software company without investment?

Yes, if you want to know how to start a software company on a budget, you might want to consider joining a white-label reseller program. This will enable you to get access to the required software so that you can rebrand and sell it under your own name.

This could be a potential route to take as you start a software company and begin building your brand.

Can I start a software company on my own?

You definitely can. If you have coding skills and access to development tools, there is no reason why you can't get into the software industry solo. If you're looking to create a very complex software product, you may need the help of others, though.

How do I choose between a B2B and B2C software model?

Although we detailed above the importance of researching and analyzing your target market, there is always more to consider between the two routes of B2B and B2C software development.

For any successful business, having the ability to pivot in the software industry is crucial. While you may have expectations of your first product release, learning from the market itself may enable you to find gaps quicker for greater profit.

Many software development companies create a variety of software products, fit for both B2B and B2C in different capacities. But you might not want to get carried away at the start of your new business venture.

How do I choose the right market?

When establishing your business strategy and target market, it's important to consider your strengths and interests. If you're a skilled developer and can build complex solutions, you might want to enter a specific B2B market.

On the other hand, if you prefer to create software products that are dedicated to solving an everyday problem for consumers, you might want to opt for a subscription-based B2C model.

The best way to establish the ideal route to take is to analyze the software market overall to uncover any gaps. Plus, by examining existing software in the market and speaking to consumers, you can also uncover their pain points and rectify these issues in your own product.

How can I identify gaps in the market?

While there might be some gaps in the market, it's important to also identify a profitable niche within these gaps. Here are our top tips for identifying these gaps:

• Research industry trends to find emerging technologies and market demands
• Analyze competitors to see what's already available and find out where existing solutions fall short
• Listen to customer feedback to understand pain points and needs

Do I have to do A/B testing?

A/B testing is a crucial step in software development. This can help you to determine the best version of a new feature and measure its performance. If you have developers of your own, they should be able to carry this out for you.

However, you can seek the help of third parties to help test your software. We would highly recommend getting non-disclosure agreements in place, though, to protect your products and software company overall.