The Deal that Defined 2011

After some consulting for a former company dried up, the end of 2010 was looking a little worrisome.  Without a long runway of funds, I needed to find paying work quickly.  When you're plugging along on a hourly contract, it's easy to slip back into the salary mentality:  "Focus on what you need to do today."  Problem is, you can suddenly find yourself without income.

Earlier in the year, I happened to make a connection with an old coworker of mine.  Turns out his firm needed a guy like me to help them out.  I made a pitch back in May and we had off and on conversations over email for months with little results.  Time was bleeding into December, and things were getting desperate.  At this point I was even contacted to do "generic" java development on web stuff.  None of that is my forte.  It also paid about 1/3 of what I was used to making.  It was a very sad time.  I didn't want to end up being an average tech contractor for average pay, working on any application in any business vertical.  I worked way too hard to become somewhat of an expert in the financial space to toss that knowledge away.  But I was going to be broke, which can easily trump pride in my world.

Then it happened.  A call any entrepreneur would welcome.  Something like this "Listen, we need you and your product as soon as possible.  We have a budget for this.  Can you start immediately?"  Turns out keeping in touch with the lead from May finally paid off.  Suddenly it was a race to write up contracts and protect my I.P.  I sold a product & services.  I've never done this before.  It was a crazy time, but finally, my company had a true customer.

So agreeing to a hourly rate for consulting is not terribly difficult.  Pricing a product for monthly use is far more complicated.  In the end I negotiated a variable rate monthly fee, which on it's own wouldn't feed the family, but it started my firm out with REAL product revenue.  Looking back, I'm sure it's worth more than I charge, but that's for the next client!

So the Holiday season of 2010 was begun with cheery outlook.  I learned a lesson that I suspected, but got to experience it first hand:  Enterprise software has a very long sales cycle!!  Taking that knowledge, 2011 started with making a handful of new leads, with the thought that any work coming from them can be at least 12 months.  In the meantime, I was off building up my product while implementing it at a client.  Things were on the right path.

Fading summer of comfort, plus one!

The Summer of 2010 I spent working out of my home office, with a steady stream of work from my ex-employer.  It's not uncommon for those striking off on their own to be contacted by the last employer to perform some emergency work.  It's a short term win-win situation.  If you have a huge depth of experience and knowledge on a product, your former employer can hire you temporarily (for a larger sum) while they try to staff and train a replacement or two.  They key word there is: temporarily.  Naturally, you should be charging more for your services as you no longer enjoy any benefits.  The employer wins by getting the job done quicker than hiring and training a new staff.

While contracting, I continued with the sales and marketing process for my new firm.  Primarily, this involved seeking out connections I made from my last job on LinkedIn and attending and speaking at trade shows.  I can't imagined how well I would fare in a pre-Internet world where I would have to locate business cards and cold call people.  I received a lot of encouragement over LinkedIn and other means, but to find a committed client  remained elusive.  I dabbled in developing a product, but wanted to refrain from all out coding without a proven market for it.  I started to learn that no matter how good a lead felt, the odds of it leading to a paying gig was about 1 in 100.  I also had one eye on my "Non-compete" contract, even thought I wasn't violating a thing.

Being based in Massachussets, my state heavily favors corporations when it comes to Intellectual Property (IP).  I'm stunned when I read about how people in California will freely walk between Google and Facebook with little fear.  Here in MA, the going timeframe is 1 year:  Don't talk to our clients/employees, stay away from our competitors, and don't work on what you worked on here.  What a way to stifle innovation and entrepreneurship!!  I don't condone the outright theft of ideas, but there are already laws protecting that.  In no way was I looking to infringe on my ex-employer, but those documents are design to make you so scared you won't attempt a thing.

So I kept working on contracts.  Then I got some welcomed and life changing news.  My wife was pregnant with our first child!  We were both happy and typically nervous as to how our lives would change.  He was to be born in March 2011.  I had better start planning on the personal budget being increased.  Oh yeah, my wife's healthcare from her teaching job would expire too.  Hmm.  I better look for a family plan that ...OH MY GOD IT'S HOW MUCH PER MONTH?!?!.  Ok.  We'll ride that train when the insurance actually runs out.

Contracting treated me well, and then it suddenly stopped.  In reality it wasn't "suddenly" or a surprise, but when it happens....it's still a shock.  No more work was need by me.  By October I was back to full time searching for the next big thing.  Lots and lots of leads, but no income.  Not so fun to see months of bank transactions all going one way with expenses soon to be on the rise.

With a little one on the way, and no sure jobs on the horizon, I started to get nervous.  But somehow I tried to remain optimistic.  In order to survive in this game, you need a heart of steel.

Let's get started...on what?

After a brush with validating my ideas with a panel of outsiders, I decided to focus more on development and communications within my contact list.  Ever been to a family gathering or a party and someone inquires into exactly the business you are in?  It can be difficult to explain and not take an hour to do so and bore them to death.  This is totally understandable.  There are a lot more areas of employment since we've evolved from butcher, baker, or candlestick maker.  Trying to explain to those judges about opportunities deep in the institutional trading market was not possible in a 5 minute pitch.  They were looking for young companies that claimed to make the world's first combustible engine based on dishwater.  This is something an investor could understand quickly and would be interested in.  They could brag to their friends about their investments at dinner parties with an immediate understanding.  If they were looking at software, it had to be "Cloud" or "Mobile" or "Social Networking". 

Now that I was employer free, where to start?  While I had ideas for various products/improvements, I also needed to think about revenue.  I could not afford for my wife and I to live long without myself bringing in some income.  There's always that struggle to "build before you sell."  Do you hole up and code for months and hope to bring a product to market?  I found that extremely dangerous and personally witnessed another entrepreneur struggle with this.  Developers typically think this way, especially when they are employed by a firm with an R&D budget and they're not worried about the next paycheck.  Building the best product does not predict the winner.  To make a successful business, there's more to it than a killer product.

I spent a few weeks prototyping an idea I had.  It was so refreshing to be able to focus on exactly what I wanted to work on, however my bank account predictably kept going down.  A saving grace for income came from consulting opportunities.  I was asked to help out on a product I used to work on from the old employer.  It was steady work, but knew it wouldn't last long.  If you haven't consulted before, you might be surprised by how high a rate you need.  Remember, no benefits, sick/vacation...you need a lot more than you think.  Once I negotiated a fair rate it felt refreshing to receive an occasional check.  And that's the seduction of consulting...

Consulting can be very rewarding.  If you manage to land a good client or two and they are willing to fund you for long periods, financially it can be stabilizing.  Typically, all the work you do for them is theirs.  When you are done, you own nothing.  If you have plans to create a product and move forward, consulting can also lure you into a comfort zone that you will never get out of.  I have tried to keep that balance of consulting income but also invest in a productized solution.  I try to question myself occasionally "Am I moving the company forward, or just reaping some consulting revenue?"  It's a balancing act.

Even if I had a production ready product, enterprise sales cycles are so incredibly long.  So here it was the end June and I was 2 months into it.  I made some sales calls that mostly fell flat.  Around this time I received a call to inquire about my products/services.  This was almost July and it wouldn't be until January before anything came of it.  In the meantime I consulted and tried to learn how to work salesforce, quickbooks, and learn about healthcare plans.  I could no longer just code, there was way more non-developer stuff to learn.  And hovering over everything was the floating date where money would run out.

“There are so many doing what you do already...”

After I made the decision to strike out on my own, I needed to figure out all the "non software" stuff I had to do.  This included hiring a lawyer, an accountant, a website designer (not the same as software development!!), registering my company with the proper government officials, etc.  I knew I would have to spend some time learning new things that were out of my technology and sales comfort zone.  I could not afford to hole up in an office and just start coding.  I made a conscious decision early on that I would not just start developing software without a customer or at the very least a solid prospect that could help guide me as to what was truly needed.

It was gut-wrenching to be burning through what little capital I had saved to hire professionals and start the infrastructure.  My account and lawyer were charging more than my going consulting rates, if I could find consulting work!  Trying to decide between incorporating or an LLC was confusing, but I opted for an LLC for reasons my high priced accountant explained to me as I was daydreaming of ways to make more money to pay him.  There are times when you must trust the people you hire.

This is why many people start off with more than one person and form a partnership.  Having 2 or more people to help with the internals would have been so helpful.  At the time it was too difficult to find more souls to join in on such a risky venture.  I certainly knew that it might take a long time before I could actually afford to pay someone, so to bring someone in meant to have them work for pure equity.  If the company was to fail, I could only live with myself if I was the only victim.

What about raising capital?  I will write more about that later.  However, I was informed by an acquaintance of a state sponsored contest for startups.  The way it worked was you presented your business plan to a panel of industry veterans.  The top 10 companies would receive grants and free office space.  Sounded perfect for me!!  I submitted my form, described what I was doing, and put myself out to be judged.  I made it through the first of 3 rounds!  How encouraging!!

I was called in to present in front of a panel of judges.   Contrary to a common fear of public speaking over death, I thrive on it.  My experience on panels at large trade shows always gave me the pre-show jitters, but I always felt the adrenaline rush once things got underway.  At this event I presented to 3 judges in a closed room.  None of them had a background in the financial industry and only one in software, and my business revolved heavily around enterprise software.  I had 10 minutes to show my presentation.  Very difficult to explain what it is that I do, but I broke it down simply and promoted my industry experience, publications, a pending patent, etc.  I left feeling content about the presentation and waited for an email result.

A week later the email came and stated that I was not chosen for the next round.  Ok that stinks, but I wasn’t too upset over that.  I knew it would be tough.  There was a link to read the judges’ comments.  I figured I might learn something.  “I don’t believe there aren’t already hundreds of people on Wall Street and Fleet Street that are doing what he’s trying to do.”  I still feel the twinge of rage when being “criticized” by a so called veteran about the business I’m in.  Of course others are in this space!!  So began my thinly veiled contempt for Angel Investors / VC’s who are involved in this crazy investment bubble, only looking for the next Facebook/Twitter/FourSquare mass market social software.  Sounds simple, but I’ve learned to not look for outside encouragement, especially outside of my domain. 

It’s been over a year now since that contest, and I’ve made sustainable income from consulting and product sales.  I have a large client licensing my software, and I have a healthy sales pipeline.  I’m happy I’m not in the zero income, capital burning, social media business.  “There are hundreds of thousands trying to do that.”  Quote me on that.

Starting out

"What am I doing?"  Those 4 words I repeated to myself for some time leading up to actually putting in my 2 week notice.  For as many times as I spoke those words to another person, I internalized the question 50 times more.  I was willfully leaving a job I've had for over 12 years that provided a comfortable living wage with full healthcare, dental, and vision benefits.  It was in the middle of the "great recession".  I recently got married.  I had a mortgage on a house plus many other debts, just gotten married and had an expensive honeymoon in New Zealand and Fiji.  The housing market was at a 20 year low.  We also wanted to start a family.  I had very little liquid assets.  Perfect timing!  (Myself from a few years ago would have sucker punched my face and gracefully offered the advice:  "Idiot!  Don't be stupid.").

It was on April Fool's Day, 2010 that I submitted my notice.  Surely it was a strange coincidence, but I informed a skeptical boss that I was indeed serious.  The time had come.  Why did I do it?  Money couldn't be the only reason, could it?  It certainly was/is a driving force to have financial freedom, and an extremely powerful one.  I started off working at my last employer as a "Software Engineer" with only a couple of years experience out of college and a large debt load.  I knew nothing of the industry I was involved with.  During those twelve years I vastly improved my engineering knowledge, but more importantly actually learned the industry I was writing software for!  I steadily morphed from being known as a pure utility engineer/developer to more of a focused product role, eventually becoming a spokesman at trade shows around the world.  I wasn't at trade shows arguing about garbage collection routines, object oriented designs, or CISC vs. RISC architecture.  It was my knowledge of business level problems and solutions where I found my path.

So, why start a blog about this, and why now?  I always had the thought to share some of the experiences, joys, and frustrations of starting a software business.  It's been about 15 months since that April Fools day, and surely a lot has happened.  It was a bit too chaotic to write/blog when I first went solo.  A little perspective since then has put things together in my brain.

I hope to share the challenges, joys, and disappointments with anyone who might be going through this or is thinking of trying it for themselves.  No experience will be the same, but there are a lot of shared hurdles.  As the title of this blog hints, I'm on the East coast!  I'm not in social media!!  The software I produce is of little interest to your Aunt or your 15 year old son.  I have no doubt Justin Timerberlake will not star in a movie adaption of this story.