October 19, 2023
Wondering how to start a tech company? In this step-by-step guide we'll talk about the basics for starting a tech company and include ways you can do it without losing your shorts or getting heartburn. Our article focuses on the specifics of what it takes to start a tech company today. For details on writing a solid business plan and other generic business topics check out this great resource from the SBA.
If I were to say the word "tech startup" what would you envision? An open-floor office with Mac computers all over the place and fully-stocked snack bars with expensive yogurt and kombucha? Or would you think back to the dotcom bubble when everyone had $1,000+ Herman Miller Aeron chairs?
Believe it or not, you don't need any of these things (including gobs of outside funding) to start an early stage tech company. Many founders have successfully bootstrapped tech companies (including our own co-founder Praveen). You don't need multiple venture capital firms backing your idea in order to be successful.
In this guide we'll show you how to bootstrap a tech company from start to finish without raising a ton of funds, since $1,000 chairs don't actually produce better products or services.
"If you want to go fast go alone, if you want to go far go together". It's easy to fall into the trap of wanting to be the only person at the top - I mean if you get a partner, you just gave up 50% of the company, ouch! The honest truth is though, it takes two very different skillsets to start and grow a successful tech company: sales and coding. And (this probably won't surprise you) most people who are excellent at coding are not excellent at sales and vice versa.
The Two Primary Roles
Sales (Non-Technical Founder) - Don't think that if you build the world's next best app the whole world is going to beat a path to your tech company. You're going to have to work extremely hard to sell and market it - especially if it's an expensive B2B SaaS product! Many startups fail not necessarily because they don't have a good product or idea but because they don't sell enough! One of your founders will need the skillset to be able to generate leads and sell. Period.
Coding (Technical Founder) - You're going to need someone to write your code (and that's not cheap!). Sure you can hire someone - and we recommend hiring fractionally, but if you're just starting out consider finding a technical founder who is able to start by putting in a lot of coding sweat equity. They'll also be able to weigh in on technical issues that arise as you grow.
But what if I'm a sales powerhouse AND a coding phenom?
I'd love to meet you! But in reality even if you can do both of these roles you do need to sleep at least 4 hours a night. Selling, like coding, is an extremely time-intensive task. It requires talking to thousands of people, cultivating numerous relationships and always putting the word out there about your product or service. It's almost impossible to do both as a single person - even if you sleep 4 hours a night and have no life.
Divvying up the company
Keep in mind, a 50/50 equity split down the middle usually isn't right for everyone. Some founder's contributions are worth more than half the company, while others may be worth less. Praveen does a great job at breaking down the different roles and estimating each role's worth with regard to equity compensation in this article.
Alright, so now you've got your founder and you're ready to get your tech company rolling! But it's not that simple is it? Where are you going to get your new business idea? We recommend starting with a problem.
All businesses and all products exist to serve one function - to solve problems. Wherever you are right now, look around at any of the products around you that you use on a daily basis. Be they physical or digital, they're solving problems. Keyboard? Yeah that solves the problem of getting input into your computer. That little switch on the side of your phone? That solves the problem of everyone in a meeting not hearing your R. Kelly Remix to Ignition Ringtone. Even your pets solve (and probably create) problems - they can solve your problem of loneliness or even of needing protection when you're running in the early mornings.
The most successful products are designed from the ground up to solve problems. Rather than focusing on what you want to build, focus on the problem you're trying to solve. If you can accurately define the problem, then the product development process will be much easier and guide itself. The problem will also dictate what features you need to build.
Example Problem: Let's say we're super into exercise. We run, lift weights, go hiking, you name it. But we like to use different technology to track our exercises. We're super into gear so some days we love to use Garmin fitness-tracking/GPS products, other days we use Coros (Garmin's competitor) products.
Here's our problem though: Garmin aggregates data into the Garmin Connect app and Coros uses the Coros Training hub app. We can't see all of our activities in one place, the apps don't talk to each other! Additionally, Coros and Garmin use different metrics and calculations, so we can never do an apples to apples comparison, and we may prefer one metric over the other. If only we could have all of our data in one place and run our favorite metrics on it!
Now it's time to ask yourself how can technology solve my problem? It's at this point that your app or service begins to take shape. How will it solve the problem you're addressing - what features will it have that will make solving your problem even faster?
Example: What if we built an app that automatically connects with Garmin and Coros products and aggregates the data into one place! Then we could run our own metrics on it and have superb-quality data for analysis.
If you've been around the tech industry long enough you've learned by now that you need a solid value proposition. By solving the problem above, you've already created your value proposition! The solution is your value proposition.
At this step you can also check to make sure you have product market fit. This means that your solution meets the needs of your intended market. This step is typically automatic if you've started your product ideation process on a problem (above).
I agree, we just came up with the most incredible idea ever, but if it's already out there, we'll just be recreating the wheel. It's time to dig deep and see who our competitors would be, what they offer and how we could differentiate.
You may find that there is almost no competition out there - no one's solving the problem you're focused on. Wow! But you may find that there is (a lot) of competition already out there. At this point you'll need to consider if it's viable to compete and how you could do it. There are typically three primary ways to compete:
In the world of software an MVP is a minimum viable product. An MVP is the most basic version of a product that still embodies what the product stands for, but does not have a ton of ancillary features that are big and expensive to build. The purpose of an MVP is to test your idea. It may go up in flames and be a total flop or it may be the next Facebook; however, you don't want to spend a ton of money developing every possible feature because it may fail. And when it comes to failing you want to fail fast. The faster you can fail, the less money you'll waste on the way.
Building an MVP
In order to build an MVP you'll need to take what you learned from the previous steps and write out product features you'll need. At this step make sure to include your findings from your market research to ensure you're competitive as possible.
Here's some features from our example above:
In this phase we'll also need to figure out what we don't need for the MVP. For our example, we won't make our app available on the web yet - we'll spend our time focusing on mobile development since 90% of the users we surveyed only use their phone to look at their exercise data. If the app takes off and we want to develop a web app later we can, but MVP time is not the time for that.
In other words, it's important to decide what's really necessary and what's not. Your problem from step one will help you determine what's mission-critical and what's a nice to have.
We're in a good place now, we know what we want to build we know how to make it different and we're ready to go. But what we don't know is what it's going to take to actually develop such a product. For example, what if the APIs we'll be using for Garmin put GPS data out in a different format than Coros and we'll have to incorporate that into our build? What database hierarchy will we use, what tech stack do we want?
How hard are each of these features going to be to build? Should we change some features to save money? If something is going to be way more work to build than we thought we may want to consider leaving out for later. Let's say we have a performance metric that we really like but find it'll triple our software development costs! We don't need it that bad for the MVP, so we decide to forgo it for now.
To answer all of these questions you'll either need to have a technical background, get a partner who has a technical background or hire a developer. We know a really good place that hires developers fractionally.
Ask your developer all of these questions. Try to get an estimate as to what it's going to cost before you pull the trigger and start spending a ton of money.
When you're ready and feel like you know what you want to build and what it's going to take, it's time to go! Get it built!
If you're not sure how to run the software development life cycle or build a product we also hire product managers fractionally to help you get your software built efficiently and effectively (aka Agile).
It's also at this stage that you'll need to determine what you want your business model to be. Do you want to use a subscription-based business model, or a one-time fee business model? Or are you going to charge for people to advertise on your product or service? Keep in mind as well, there are a lot of tech startups that change their models over time.
Get your marketing team (i.e. you) ready to go for launch. Tell everyone you know and get the word out. Listen to everyone who tries your product. The better you can listen, the better you can determine whether you've really got something, or if you should kill your product.
Keep in mind, everyone and their dog will have an opinion about how to improve your product, but it's important to understand from them if it's meeting their core needs. If you consistently hear that it's missing the mark it may be time to evaluate what it would take to actually meet your users needs, or determine if you should stop the project altogether.
After launch, see how your product is doing. Are people buying it? Are you able to keep the lights on? Is it meeting your MVR (see below)? Is there growth potential? Is it priced right?
There are a tremendous number of things to evaluate at this step. Ultimately what you need to decide is whether or not your MVP is viable. If you hired a fractional product manager, they can help you determine this, but ultimately the question you need to make sure you know the answer to is: do people like your product enough to pay your asking price?
If the people who bought your product stay loyal customers and absolutely love it, but your sales are static, then you may have a sales problem. In this article our co-founder Praveen discusses shelfware - software that will never see the light of day because no one is marketing or evangelizing it.
The whole adage of building a better mousetrap isn't true. If you build a better mousetrap people will not beat a path to your door unless they know where your door is!
Let's say you've made it this far. People love your product, you're earning (at least some) revenue and your MVP is a hit. But are you OK? Can you keep this up? Should you quit your job (if you haven't already)?
The first goal of your tech startup should be hitting MVR - minimum viable revenue. In our other article we treat this subject in detail, but in a nutshell "MVR is the level at which your company is breaking even after you and your cofounders are taking home enough income to live a long-term sustainable lifestyle."
MVR includes taking into account the expenses required to keep your product functioning and incorporates your (and other founders') paychecks. One could argue that once you reach MVR you've got a successful business (and you're not burning any of your own money to stay afloat).
If you can get to MVR, then you're in a great place, you've made it! You can support yourself and you can take any additional profits and reinvest them into the business if you want it to grow, or take them yourself if you're looking to use this venture to support your lifestyle only. All of this depends on your business goals.
While it may seem obvious, establishing MVR is really important, because if you're not there, or even close to getting there, you may want to reconsider your options.
Let's say you're at MVR and you want to grow the business. You're turning enough profits to build out your app further and want to add new features. We recommend hiring fractional developers at first. This will allow you to get new features built out, without the large cost of a full-time developer.
Now that your product is rolling right along, you have levers at your disposal. From their analysis, the team at Hidden Levers discovered that lower prices drove growth, while higher prices drove greater revenue. It'll be up to you to decide which option is best.
If you're happy with what you're making and want to maximize revenues, consider increasing prices. If you're looking for greater growth, consider the option to lower prices.
If your enterprise is growing and you have employees, ask around! Most people are not one dimensional. Who knows, your accounts payable person might have closet graphic design skills you can leverage to boost your social media campaigns! Quite often the people and talent we need for specific problems are already around us.
Starting a business is hard. It takes grit, patience and sometimes (a lot of) luck. But it's important to know when to give up and when not to. Praveen shared an excellent example when starting HiddenLevers of not quitting until he found the right buyer and of knowing when to quit.
The takeaway is this: it's important to not give up when the going gets tough, but it's also important to know when enough is enough. Go, no-go deadlines are a good way to determine this. For example, give yourself one year to hit your MVR, and if it hasn't caught by that point, it may be time to try something different.
We hope you've gained a lot from this step by step guide on how to start a tech startup company. We wish you the best of luck in starting your tech business and hope you'll reach out to us if you could leverage some fractional help!
