How to Start a Software Company: A Step-by-Step Guide

Software development is a land of almost limitless possibilities. If you can identify a problem, chances are there’s some way you can tackle it with software, at least in theory. Of course, converting your brilliant software idea into a viable business and starting a software company is a whole other process, one that involves both careful financial planning as well as legal considerations.

All companies are different, and there’s not necessarily a blueprint or magic formula for business success. With that said, there are a few basic in the process to develop a software company that we would recommend for anyone looking to succeed as a software entrepreneur.

Creating a Software Company in 10 Steps

1) Ensure You’re Meeting a Market Need

First and foremost, you’ll need a software product (or a line of products) that meets a market need.

As the part of your market analysis for software development company strategy, include researching a specific pressure point or gap in the market that you believe your software can address. In doing so, gain an understanding of the target audience you’re trying to reach, whether that’s direct consumers or B2B clients. Validate your idea through surveys, focus groups, one-on-one interviews, or analysis of existing products. 

Basically, you’re simply trying to start from the standpoint of identifying a problem and formulating a sound plan for addressing it.

2) Develop a Business Plan

A business plan is not a legally binding document, but it can nevertheless serve as a helpful map for where you’re headed.

A good plan for starting a software development company may include elements such as:

• An executive summary of your business
• A list and description of your products
• A summary of your sales and marketing outlets
• Some basic financial forecasts and an approximate budget

Having a business plan not only helps you to set and pursue goals, but it may also be needed for winning the confidence of lenders or investors.

3) Register Your Company as an LLC

While some small businesses may benefit from incorporation, a majority of software companies will thrive in the LLC format. Simply put, LLCs offer robust personal liability protections without a ton of regulatory overhead.

The specifics for starting a software business that is an LLC can vary by state, but generally:

• Choose a name that isn’t claimed by another LLC in your state
• Get a Registered Agent who must have a physical mailing address in the state where you register, e.g., an LLC in Texas is required to have an Agent who maintains a Texas address
• File Articles of Organization in your state, paying the state registration fee

4) Create an Operating Agreement

Another document you’ll want to create is the Operating Agreement. Like your Software Development Business Plan, this document is not legally mandatory but can come in handy once you are done with building a software company, and it’s ready to function in the real world.

Your Operating Agreement is a document that serves as a charter for how you run the business, specifically with respect to business partners. It might outline:

• How you and your partners split duties and responsibilities
• How you and your partners allocate shares of profit
• How do you handle the departure of a partner or bring a new partner on board

Simply put, this document can defuse any tension or legal tumult later in the life of your business.

5) Claim an Employer Identification Number

Your EIN is needed before you can administer payroll, or before you can file your taxes. Think of it as a Social Security Number, only instead of being for an individual, it’s for your software LLC.

If you’re a resident of the United States, you can request a free EIN from the IRS. The timeline for EIN approval can vary, but usually takes no more than a week or two.

6) Assemble Your Team

While some software businesses can be run by a “solo-preneur,” these businesses usually require a very modest scale. While you are starting a software company, look for its growth strategies, you’ll eventually need to recruit some team members.

Specific hiring requirements can vary by business; your business plan should provide some direction, helping you understand the goals that must be met through your staffing decisions. You’ll always want to hire in light of the necessary skills and expertise, which might encompass software developers, designers, marketers, and business development professionals.

Note: Having your Operating Agreement and your EIN in place can make the hiring process go much more smoothly.

7) Develop a Minimum Viable Product (MVP)

Before you take a product to market, you’ll need to develop an MVP.

While starting a software company and planning the actual product, create a prototype or MVP of your software that includes the core features necessary to solve the problem; basically, a bare-bones version of your software. This allows you to test and validate your idea with real users, and to iterate and refine it before going to market. Your MVP can also provide some early ideas about how you’ll market and sell your software. Finally, it can be something you show off to potential investors as you look to secure funding.

8) Secure Funding 

Speaking of which, there are three main ways to seek capital funding for your software business. Note that the legal structure you choose for your business can have a direct impact on the funding options available to you.

• One option is to self-fund, though this is only available to you if you have a nice little nest egg tucked away (or if you have wealthy friends or family).
• You might also consider seeking a business loan or line of credit; the professional credibility of the LLC format can be meaningful here.
• You may also seek outside investors, though to sell shares you’ll have to be a Corporation, which comes with a whole host of regulatory requirements.

9) Build a Brand

Software companies rise and fall by the appeal of their digital branding. Be intentional in how you establish your company’s brand identity, including your logo, website, and social media profiles. Create content and engage with your audience to build awareness and credibility.

Some additional ideas for building a strong brand include fostering thought leadership via an email newsletter; providing product demonstrations via online video; and interacting with your target audience on social media.

10) Monitor Your Metrics

Finally, one of the most important ways to keep your software business on track is to keep an eye on key analytics, which can provide you with a sense of progression toward your goals.

There is much data available to today’s entrepreneurs, and some of the most consequential metrics include:

• Total website traffic
• Dwell time (e.g., time consumers spend engaging your content)
• Conversions and total sales
• Customer acquisition costs
• Other engagement numbers, such as the number of email subscribers

Beyond these quantitative metrics, it’s equally important to listen to qualitative feedback from your customers, including any comments or queries that come up repeatedly on customer service calls or on social media. This feedback can be invaluable for refining and improving your product offerings.

Achieve Success Post Creating a Software Company 

Starting a software company requires careful planning, from identifying market needs to developing a strong team and an appealing product. By executing a well-defined strategy and remaining adaptable, you can turn your dreams into a successful, scalable enterprise.

By Amanda E. Clark

Writer, LLC University

Amanda E. Clark is a contributing writer to LLC University. She has appeared as a subject matter expert on panels about content and social media marketing, as well as entrepreneurship.