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Starting a Software Company from Scratch

When I reflect back on my free agent career, it strikes me that I more or less did everything wrong.  I mean, I don’t actually believe that when I look at it analytically.  But it does feel that way, knowing what I know now.  Starting a software company from scratch invites plenty of missteps.

In the lead into last Friday’s reader question post, I talked about starting this blog as a journal of sorts.  That’s a good example of what I’m talking about.  In the end, I built an audience, established a brand, and wound up in a good place.  But if I could go back in time 7 years and give myself advice, my path would have been more direct.

It goes beyond blogging, of course.  That was one example, but it applies generally to my entire approach to starting my software development/consulting company.  I did things that worked out, but it hardly seems optimized in retrospect.

You’re probably thinking that this applies to everyone.  Hindsight is 20/20 and all that.  And you’re right, which is exactly my point.  I dove in with severely imperfect knowledge, made a lot of mistakes, and it still worked out pretty well.

If you pursue the free agent life, you’ll flail, make mistakes, and have some false starts.  But you’ll recover, figure it out, and do fine, even if it sometimes seems like you’re drowning in the moment.

Flat Squirrels and Driving Directions

Perhaps you’ve heard an expression.  “Be decisive. The road of life is paved with flat squirrels who couldn’t make a decision.”  Don’t blame me for the macabre nature —  I didn’t make it up.

I like part of the sentiment, but I think it misses the mark slightly.  If you picture a terrified squirrel in the road, its biggest problem is thousands of tons of steel and plastic death bearing down on it.  It starts left, then moves right, then freezes and then… well, you get it.  Indecision costs it dearly, but only once it has a large problem already.

When starting a software company from scratch, indecision won't flatten you, but it will impede your progress.

This probably doesn’t describe you in most situations that call for more decisiveness.  We face paralysis by analysis, rather than paralysis by mortal terror.  Have you ever sat in your car, debating whether to take the highway or side roads during rush hour?  Have you ever sat there debating this for so long that you get to your destination later than if you had simply picked either option and started immediately?  (Come on, I bet you have.)

This makes for a better analogy for our lives, especially when it comes to starting something new.  We put off action out of fear of taking a sub-optimal path.  But, at some point, even a sub-optimal path beats sitting in your car fretting.

Starting a Software Company from Scratch: Fret No More

Few things present as much opportunity for sitting in your metaphorical car, fretting, as starting your own business.  The sheer weight of the unknowns combine with legal concerns, a healthy fear of the tax man, and the reality of expenses incurred.  All of it comes together and encourages you to remain stationary.

I remember that feeling.  I sat immobilized by the weight of it for a while.  But then I just said, “meh, screw it” and did my best.  As I mentioned earlier, it feels like I did everything pretty sub-optimally.  And yet, I still did it and it worked.

And, perhaps most importantly, I discovered that you can always course correct and change your mind later.  If you pick the “wrong” style of incorporation, tax status, or anything else, you can fix it.  It matters a lot less than you think whether you take the highway or the side roads.  Just start driving, and you’ll be having dinner at your favorite restaurant before you know it.

Do As I Did, If You Want

Since the release of Developer Hegemony, I took a break, started giving reader advice on Fridays, and talked in vague terms about starting to offer content about developer empowerment.  Well, today, I’m going to make those vague terms a little less vague.

I uploaded a video to Youtube the other night.  In this particular video, I talked about the process for creating an EIN with the IRS.  If you’re wondering, that’s basically a social security number for businesses.

But I have a broader point.  When I added this video, I created a Developer Hegemony playlist, and will continue to upload videos to that channel.  What I’ll do here is show you the actual things that I have done and do on an ongoing basis to create, maintain, and manage businesses.  Caveat emptor.  I’m not showing you the optimal way to do things, nor am I offering you legal advice, nor am I claiming to be an expert, exactly.

Rather, I’m just a guy that’s done this stuff before.  I invite you to watch how I’ve managed to figure it out and make it work.  Hopefully it helps you along your own path, but it’d be great if it gets you out of the parking lot and planning mode and just driving somewhere.

How I’ve Done It: The Basics

Just as you might face indecision for free agent activities, I faced indecision in thinking about how to share what I’ve learned.  Should I do Youtube videos?  Should I start a master class of some kind with paywall content?  Or should I make video courses?  Write books?  And what if I give advice that doesn’t work for everyone?  What if I advice you to incorporate when acting as a sole proprietor would have sufficed?

Ultimately, I decided to start driving.  And I did that in the lowest friction way I could think of.  I’d start making videos explaining my path and operations, and see if people find them helpful.  I can always iterate from there, packaging them into more polished courses or taking a more advisory tone.  So, stay tuned for that.

But to start with, I’ll make it simple.  If you do what I did, you’ll get going sooner than later, and you can update your LinkedIn profile to reflect your entrepreneurial ventures.

So go start an LLC.  This involves filling articles of incorporation in your home state, paying the fee required to file, and the aforementioned creation of an EIN.  (Sorry, non-US folks.)  Don’t screw around with incorporating in Delaware or Nevada or anything like that (I can explain my reasoning for that in a video/post if you want.)  This will give you a business entity and status with the US federal government that will let you do things like opening business bank accounts, opening Paypal business accounts, and taking business expense tax deductions.  It’s enough to get started.

Is It Worth It?

I’ve incorporated two LLCs in Illinois and one in Michigan.  In Illinois, it’ll set you back $500 to file and $300 per year to renew.  In Michigan, you’re looking at only $50.  YMMV by state.

That’s a decent outlay in Illinois, but it probably rivals your annual movie watching budget in the scheme of things.  But if you want budget neutral, you don’t even need $500 in revenue — you can take a number of tax deductions through your business that you can’t as an individual, assuming those expenses relate to your business (and you can deduct the filing fee itself, too).  After the tax savings, you won’t be out much money in exchange for your ownership of a business.

I’d do it (and did it), even if I had a full time salaried job.  It’s an interesting life experience and you can leverage the sunk cost effect to nudge you toward starting to moonlight/freelance.  You might find yourself wondering if you should go with an S-Corp, C-Corp or a simple sole proprietorship.  I wouldn’t and didn’t, but then again, I’ve never gone that route, so I can only speak based on my experience.  I can tell you that a corporation requires more formalism, but you might find it a better bet if you have imminent plans to start hiring employees and looking for investors.

Stay Tuned and Subscribe!

I’ll leave it there for today.  This isn’t going to be like the ChessTDD video series, where I make a blog post for each video.  If you want to keep up with the Developer Hegemony videos, I invite you to subscribe to the Youtube channel.  I may feature some of the things I cover on the blog, but not necessarily.

So that’s it.  If you think you might have any entrepreneurial or moonlighting interests, I encourage you to get moving.  There’s no semi truck coming at you, threatening to flatten you.  But there is the paralysis of indecision as you sit in your car pondering your route choices.  Fight that.  Put your foot on the gas and go.  Even as I reflect on how it feels like I stumbled through all of this getting stuff wrong, I don’t for a second regret my own decision to hit the gas.  I doubt you will either.