Tooting our own horn...

One of our recent engagements was to develop a Green custom application for Alvarez and Marsal that would lower costs by allowing them to send expense reports to a Microsoft Exchange mailbox, and have the system automatically map the report to an expense ID number in their SAP system. The software works as a windows service that monitors a dropbox and automatically processes the information and creates an XML-Gram to deliver the data to SAP. Since the original project, A&M has engaged us to add additional features to the developed code. Jordan Hadas - our primary contact on the project had this to say about our performance:

" When we engaged OS-Cubed and discussed our requirements for a custom application, OS-Cubed delivered sound guidance and a well-organized proposal focused on meeting our needs and fitting our budget. They were timely through the development process; patient with our testing; and quick to resolve issues or add features. The solution delivered fully addressed the scope of the project in a clean, functional package without feeling inflated or delicate. Working with OS-Cubed was a very positive experience. -- Jordan Hadas, SQL Server Administrator, Alvarez & Marsal Holdings, LLC "

A&M found OS-Cubed through the Microsoft Partners site, an online repository of partner skills.

Are you running a Windows Operating system?

If so you need to run windows update NOW not LATER:
http://viruswarn.blogspot.com/2008/10/microsoft-releases-out-of-band.html

Cheers,
Lee

How to limit scope to funding

One of the biggest challenges in your early stage development will be limiting the scope of your project to the budget you have. In this stage you're using your money, your friends, your acquaintences, or maybe you have a first round SBIR grant and have a few 10's of thousands to invest. While you may be able to build some types of software with a budget that size - realistically to build something scalable you should be thinking bigger in terms of budget.

As we pointed out in our second post, when entrepreneurs come to us and say "I have $10,000" and in the same breath they say "and I want to develop something just like ebay only better" we just cringe. We know that there's going to need to be some education going on before we get to someplace that will satisfy their need to get real funding to grow their concept, within the budget they have.

Like it or not, the days of having programmers around who will sack out with friends, eat ramen noodles and put in 80 hour weeks for no pay and the promise of "stock options" at some unknown later date is just plain gone. Programmers have to eat, and at least for the moment demand for developers is quite high - so they can make money doing other things. Sure you may find one or two passionate gurus, but building a team is a different matter. After programmers got burned in the 2001-2003 dot com implosion, most want a real salary.

So when someone has a giant bag full of cool tricks that they believe will revolutionize the web universe we usually work closely with them to try to identify the core unique part of their business model that makes them special. Is it some trick or gimmick, a unique view on a market, an interesting model for monetization, a new approach to real estate, or a great educational paradigm? Then we try to work out a budget for a limited demo version of that core idea that can be used to attract new investors, test the idea out on real users, and provide a demo portal for the entrepreneur to use.

We just keep dumping features out of the product bag until we have it's core at our heart. We build that core, and then we add the features into it incrementally as funding becomes available. Got round one for $50K? Ok we'll build out the base site and the most interesting and unique part of your app. Got SBIR Round 2 for $100K? Perfect, we'll rebuild the core to support more users or traffic and we'll add some additional features. To make that work of course and move on to each round, the software has to be built to meet the milestone requirements set forth in the grant or by the funders. We help achieve that by working closely on the proposals and presentations with you to be sure you set expectations that can be met within budget.

That's not all there is to it, but that's the core. We'll build the features out in a later post :)

The master at work....

Want to see how a real pro (Steve Jobs) pitches a startup. Check out this excellent post at VentureHacks.com.

Startup funding in a down economy...

I've so far resisted the urge to post polemic statements about the death of startup funding, or the alternative "perfect environment" to build a startup. My opinion doesn't much matter in the grand scheme of things, but I've been reading various blogs with a lot of interest, as they cover how economic down times may affect funding - which of course affects entrepreneurial software development. One of the most respected bloggers I read in the VC/Angel world is Brad Feld. Brad had an awesome, short post recently that featured an article that I feel really gets to the heart of the matter: in turbulent times are both the greatest threats, and the greatest opportunities. The wonderful thing about early stage startups is they already run lean. There is a tremendous amount of sweat equity, smart spending of your dollars, and concentration on getting to cash as quickly as possible already. That means that entrepreneurs are UNIQUELY positioned to achieve in a tough environment. This article by Paul Graham (pointed out by Brad) explains in great detail why - economy or not technology marches on.

If you wait - your idea will still be snatched up by someone else. And that idea will land in a market with less competition. So when the market and the economy DOES uptick - they'll be in a perfect position to capitalize on that growth. Where would you rather be - playing catchup? Or running with the bulls...

Usability testing in entrepreneurial software

Jeremy Liew of Lightspeed Venture Partners has an excellent blog post on Usability Testing and how it applies to building entrepreneurial software. In his post he mentions that it's not just about rapid prototyping and turnaround (which he approves of) but also says that at some point you have to step back and do surveys, and psychological profiles of users and see exactly HOW they used the site. This is a critical step in building software, and obviously (since Jeremy commented on it) important to getting venture funding as well.

At OS-Cubed, we believe that usability testing should be scoped into the project itself, and the amount invested in it should be scaled according to the entrepreneur's budget, but it should be conducted throughout the development process as you're building your demo or proof of concept and rolling out your RAD prototype. In the early stages usability testing does not need to be either expensive or costly. You can do much of the testing yourself with the demo as it's rolled out. Noah Kagan of Mint lays out the steps for you in his excellent post. They involve basically: determining what to test, finding a representative user base, and then testing by observing. Noah recommends using Webex products, so far we've been lucky enough to have user bases that are representative right here in Rochester.

As Noah points out - doing this can be frustrating for the observer. The observer needs to sit back and let the user do it - without intervening or showing them how.

In our experience most of the user testing we've done with KaJour our product for Knowledge Athletes has shown up issues in the scalability section - which you'd expect in demo software. We'd actually anticipated these issues but didn't have the budget to build production level. We consciously chose with the entrepreneur to build more features, rather than make the features we had more robust. The users have also come up with unique and interesting ways of using the product that we didn't anticipate and neither did the Knowledge Athletes staff. Through our user testing we've found new markets, new ways of thinking about what we're doing and developed new teaching paradigms for the community we're serving (at the moment mostly high school and college students with this product).

Although Jeremy points out the obvious benefits of using usability testing to be sure your software is stable and simple to use, he doesn't mention that really listening to your users can allow you to create new and better uses for your software, and take your product in an entirely new direction. To do that you need to truly listen to your users and find out what it is they need - what pain you are solving - and how you could do it better.

So what about grant funding?

SBIR or Grant funding can be a valid way to finance software proof-of-concept or demo costs. SBIR stands for Small Business Innovative Research grant. Each year the government earmarks almost 2 billion dollars towards SBIR and STTR (Small Business Technology Transfer) grant funding. This money is given (with very few strings attached) to businesses with an idea that meets the requirements of one of the government funding agents. This means that SBIR money may not be available for you if you're not doing something truly innovative and research oriented in the field your application addresses.

For instance, it would probably be difficult to find grant money to create an MLM-based affiliate advertising program - it's just not innovative enough, nor would it be likely one of the agencies would have a similar requirement. On the other hand, if you have a great idea and want to build a proof of concept and the requirements DO fit the ask - then you have a great possiblity on your hands.

Not every grant application gets funded however. Grant writing is a precise science. Most grant requests that don't meet the rules are simply tossed. For instance if they ask for a grant with 1.5" margins of no more than 200 pages including appendices an you write one with one inch margins or that is 201 pages - they don't even read it. In this case it's a very good idea to hire a grant consultant to help you write (or write for you) the grant application. A good consultant will also look at your idea and help you find the right agency to approach and introduce you to the right people.

If you're doing STTR funding, then the best approach is to use your college connections (The STTR program is primarily targetted at commercializing college based research projects). Most colleges have full time grant writers on staff and this sort of thing would be right up their alley.

So for a software developers - what are the advantages and disadvantages of applying for and using SBIR/STTR grant funding for your development:

Advantages

• Grant money is the cheapest money out there. You don't have to pay it back, worry about your relatives, pay interest, or give up equity.
• Grant money allows you to pay yourself. We all like to eat. You can pay yourself out of the grant money so you make at least a nominal living.
• Once you get the grant, as long as you meet the grant requirements the money should flow fairly quickly into your coffers after invoicing, and allow you to pay yourself, your subcontractors, and your employees.

Disadvantages

• There are limitations for how much of your grant dollars may be spent with independent contractors, and on what specific activities.
• You have to build a grant that has achievements you can actually create within the budget specified. You need to periodically report to the government what your progress has been, and your payment is held accountable to how well you perform to the grant requirements.
• Each grant costs application requires a reasonable investment in grant-writing which you may not recover as part of the grant payments. There is no particular guarantee a grant will be accepted and you may have to wait several months until you find out.
• Grant funding comes in dribs and drabs, released by your grant liason. As such it's difficult to use it for things like ongoing salaries or pre-pays, unless you have a cash stash that you're just replenishing from the grant.
• The government expects you to give them pretty detailed reports on your progress, and on how their money was spent. Grant accounting and writing up results is essential to getting the second round of grant funding, which is usually the ultimate targets as it can be in the hundreds of thousands or millions range (rather than in the tens of thousands range).

Once you've succesfully written and delivered a first stage grant, it's an easier process to apply for a second stage grant - especially if you did a bang-up job on the first one. In addition, once you've received approval for any grant, you can reference your work when you apply for additional funding or grants. Successfully completing SBIR funding can be a plus when talking to other funding sources - it shows you've put work into building out the funding yourself without resorting to capital investments.

Here are some good links to get you started:

• SBIR main website
• Grants.gov website - find and apply for grants
• It's all about networking - attending a local SBIR event can get you the connections you need for a successful grant application.
• A list of agencies that participate in SBIR and STTR
• Look at past SBIR recipients to see what has been successful
• Procurement Technical Assistance Centers are tasked with assisting small business in getting government funding and/or grants. Contact your local assistance center for guidance and advise. They can also help you get set up with a government contracting account which you will need to manage your grant funding.
• SBIR news and announcements from ZYN

What is the typical funding cycle of a startup software entrepreneur?

More often than not when I get a question from a budding software entrepreneur the question is about funding: How to get it? What are the next steps? How can I be sure I'm getting the best dollar for my investment?

At OS-Cubed we only work with companies that have at least some funding. Not necessarily angel or venture funding - but FFA (Friends, Family or Acquaintences), self funded bootstraps, SBIR or STTR grant funded, or some other sort of funding mechanism. In today's Web 2.0 world, most of the "big funders" - the angels or ventures of the world - expect that you will have some "skin in the game" and already spent some dollars or sweat equity building the demo or proof of concept of your site.

Web entrepreneur and funding expert Brad Feld says that a typical Venture or Angel firm might see 2000 applications for funding in a year, and 15-25% of those will be for software development projects. If we take the 20% median that means 400 of those applications are for software projects. He also said that of those 400, 1/2 of them had already spent between $25,000 and $1M on building a demo or proof of concept for their site - before they applied for funding! That's 200 demos or proofs of concept per year - all funded by FFA, Grant or bootstrap dollars - and that's just for one firm.

So how does that funding actually work? We've worked with a number of entrepreneurs and here are a few models that can be successful:

• Grant funding - public or private grants from interested parties that can assist you in startup. The most obvious of these is SBIR, but there are others.
• Bootstrap funding - create a small app using FFA/Self funding, convince people to use it, use the revenue from the small app to pour back into the app itself, convince more people to invest, and build it bigger and bigger until you have a provable model that you can get funded for.
• Sweat equity - give yourself and/or others a portion of your equity to build the first versions for free. Use that result to apply for other funding sources.

Each of these has it's upsides and downsides. We'll address each one in a future post.