Bootstrapping and the business model

by oneafrikan on December 15, 2005

The great thing about developing software is that it gives you the satisfaction of knowing that you’re building something that people take joy in using… The tough part is monetizing it so that you don’t lose money and time. Seems simple enough, but it’s a lot harder than you think if you don’t do the math and the modelling up front.

I’ve got a financial meeting coming up soon, and these are some questions I’ve put together to get us asking the right questions before we totally and completely commit ourselves to something that could otherwise be doomed to failure from the beginning. They too may help you to ask the right questions

Decide on various elements involved in bootstrapping:
once off hardware setup costs
once off software costs
once off development costs
once off design, branding and printing costs
once off merchant account costs
once off legal fees
once off marketing costs
once off translation services

Decide on various elements involved in monthly running costs:
perpetual hardware and support costs
perpetual marketing costs
perpetual support costs
perpetual office and infrastructure costs

Decide on pricing model for introductory three tiered model, using current similiar services as a benchmark:
beginner: $x
intermediate: $x
advanced: $x

Develop a matrix in a spreadsheet to test various qualifying questions:
what income do we need each month to breakeven on costs without salaries?
how many accounts is that?
what growth rate will we need to pay back initial investment costs within a year / 18 months / 2 years?
what revenue do we need to start paying salaries to take this full time?
what revenue do we need monthly to start hiring another 2 employees?

Unless you can answer these simple questions confidently and without exaggerating the numbers, you don’t have a sustainable business. Anyone who says “we need 1% of a billion dollar a year market to make money” is both foolish and needs a wake up slap. It doesn’t work like that…

Anyone got anything else they can add? Comments from experience? Further insights?

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