Thursday, January 29, 2009 9:10 AM
Bootstrapping A New Product in a Recession
2008 was a very uncertain year for startup and early stage technology companies. First there were warnings about a faltering economy with the real estate bust, then the credit crisis, then Sequoia’s infamous “R.I.P. Good Times” presentation, then finally, proof that the US and the entire world was entering what might be the worst recession in our lifetime. 2009 isn’t off to a great start. In just the first few weeks in 2009, we’ve seen thousands layoffs and cutbacks from well respected software companies like Microsoft and EMC. This is unknown territory for many of us running a software business.
I started Atalasoft during the economic slowdown in 2002 after the dot com bust. While today’s downturn is affecting more than just the tech industry, there are many similarities. It’s not easy to find funding being one. In 2002, it was just me trying to get a business off the ground. After looking briefly into external financing I decided to bootstrap my company and grow it organically. Bootstrapping seemed to be the way to go then, and I’m sure glad I did. I talk more about how I started Atalasoft in my post, From Nothing to Something.
I now can confidently say Atalasoft is a success. We now have 25 full time employees in our local Western Mass office, we’re profitable, and we’re growing. Despite the fact that last year we had a lot of customers with cancelled or stalled IT projects, our revenue grew 25% in 2008 (after 57% growth in 2007). Considering our competitors reports that revenue was flat or declining in 2008, we see our 25% growth to be a great accomplishment.
We have been bootstrapping it again – but this time not a new company, but a new product. In late 2007 we decided to build a product that can measurably save organizations money and leverages our existing zero-footprint document viewing IP. This product is called Vizit SP, Document Image Viewing for Microsoft SharePoint Server 2007 (MOSS). It will be released in a few days after over a year of market research, development, and testing. We were able to achieve this goal by using profits from our cash cow, DotImage to fund the development of Vizit. We researched the market, talked to potential customers, built relationships with industry recognized players, and are now in the midst of turning Atalasoft from a one product company to a two product company – all without any external financing, and during a recession.
Raising VC money isn’t for every business, and bank financing is never easy for a software company with limited tangible assets. The recession just makes it even harder. I believe that now IS a good time to start a new company, or launch a new product. This is the year for small agile companies to innovate while larger companies cut back and wait it out. If you can, use your profits to spin off a new product or new idea. I’ve leave you with a few suggestions to bootstrap a new product on a limited budget.
- Hire a dedicated product manager good at both marketing and product development. You have all you can do to keep your cash cow operating and moving forward. You need to fund at least one person to be exclusively thinking about this new product. If you can’t afford to hire a new person, pull one of your key developers or product managers off your core product.
- Understand the market. Don’t just whip out a product because you think its a good idea. Talk to some potential customers. If the target market is different than your existing product’s market, find new people to talk to.
- While market research is critically important, don’t overdo it. There is a point of diminishing returns. At some point you need to bite the bullet and build a prototype to test the market test before someone beats you to it.
- Build a simple prototype before committing to a full development team. Get feedback from the target audience, make sure the product idea “sticks” and if it does, start designing the real thing. Now is the time to quit or go back to the drawing board if you didn’t get it right. Things get a LOT more expensive from this point forward.
- While it might be tempting, don’t use contractors or offshore companies to build your product. You’re banking on this product being a success which means you’ll need your own employees to be the product experts.
- Use the SCRUM product development methodology, or a variant of it. Be agile.
- Make sure you have a budget for the new product, and track all activities related to the project separately from the core business. Even though you’re likely to have developers and marketers working on both products, you’ll need to track the % of time to analyze how much was spent on new product development, and how profitable you would have been if you didn’t invest in this new product.
I will humbly admit that we made a few mistakes when building Vizit SP that cost both time and money. An expensive way to learn a lesson, but the lessons were learned and at the end of the day, we followed the above steps and ended up with an awesome product that is being released at just the right time.