How To Build A Product Based Software Company

Are you all set to start a software business? If yes, then are you going to start a product-based software company or a service-based software company? The basic difference between a product based software company and a service based software company is that for the former you create a particular software first and then try to find a buyer, and for the second, you create a software according to the requirements of the client. With product based software company, the company can sell the same software to multiple users whereas in the service based software, the company would have to make modifications so it can be bought by another buyer and then more modifications so yet a third buyer can buy it. But, there are still some restrictions to that. Here are some of them:

Codes are often client-specified

When you write a code, it is often client-specific, you cannot just sell it off to another client without making any modifications. Even if you make the modifications, your client will not allow it because he owns the code; there will be contracting agreements which you will have to sign so you cannot change the code and give it anywhere else.

Different sets of choice for products and services

The choices that a software development team makes while creating a software is quite different from the choices the product development team makes. The product development team is more focused on long term results while the services development team thinks short-term.

Lower capitalization

When you are in the product based software company, you have to be careful about creating a software that will have great demand in the market. That is probably the only real challenge they have to take. It is a bit risky, but if you follow the market trends, you can get it done.

Getting ready to start your own product-based software company

While it is extremely easy to start a service-based software, you have to keep a few things in mind, when you are focusing on product-based company.

To start a product-based software company, you need to have money to invest. Because you have to make the product first and then sell it for profit. Study the figures and make sure you have enough capital to get the product/software out into the public. You need money to

  • Set-up the company
  • Conduct research and development
  • Marketing, both traditional and online
  • Social media interaction
  • Money for other things, big and small, including office administration, salary, pension

Whom are you targeting your product to?

Software products are a set of applications made by a development team for the purpose of doing a particular task. It could be games, information, entertainment, business, payment, e-commerce or education.

To decide whether you want to hire your own technical team or outsourcing

When you are building your own products-software company, you have to make this crucial decision of whether to hire the people to develop your software or to outsource the project. Many entrepreneurs decide to outsource as it saves them capital. The outsourced team would be hired on contract basis, and they will be paid at the end of the project.

If your intention is to hire your technical team, then you have to get a multi-talented team so they can work on different aspects of the project at a time. Once you start making more money, you can hire more people and expand your expertise.

Raise capital when the time is right

How about raising customers before raising capital? You can start by building a small startup with a product or two, customers and cash flow before thinking about getting Venture Capital. You can wait a little before raising capital and try bootstrapping till then. When you raise VC when the time is right, you can do it on more attractive consigns and enjoy better control of your company.

Choosing customer/location

When you build your product-based software company, your launch product should be something unique and useful. That’s how you can enter the market with a bang. Take for example, the case of Tableau, a software company that managed to grow its business to a million dollar business. They managed to grow capital in different stages, once in 2004 and then in 2008, and eventually they came up with software products that were new in the market, but had several bugs as well. The company was however able to sell these prototypes to early customers by offering discounts and excellent customer support. Customers were able to customize the product according to their requirements. The Seattle Times bought their software and used to build their editorial driven data visualizations.

Start with the simple product or perhaps, better still, solve a problem

Your aim while developing a new product for launch is to make it simple. And it should solve a problem as well. Some experts say that before you make a product, you have to focus on a problem and then find a solution for it. The solution should be your software. And make the product as simple as possible. Take the case of Verisign for instance. When the e-commerce authentication company was first launched, it didn’t have any takers because people didn’t understand what it could do. The company struggled to come up with a slogan that made people understand what they do and eventually, with a new marketing strategy, the company became a huge success and well, you know the rest.


At the long and short of it, it is not very difficult to build a product based software company and make it successful. Play it by the ear, and you will be successful.

Interesting links about the topic:
How to build a software company?
How To Build A Outstanding Software Company
10 Tips for Building a Successful Software Company

Pictures: / PRORobert Couse-Baker / Jacob Edward

The author: Reema Oamkumar is engaged as a thought leader at which is a part of the YUHIRO Group. YUHIRO is a German-Indian enterprise which provides programmers to IT companies, agencies and IT departments.

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