6 Steps to Profitable Software (Part 1)
More than 90% of software projects fail in scope, budget, or timeline, while only 60% of commercial construction projects do so…
More than half of software projects are never released and need to be re-built from scratch, while less than 20% of commercial construction projects don’t get shipped…
House can be built only by following strictly ordered steps.
But software can be built almost in any random order. Yes, that’s the truth.
Some time ago, there was no standard process to build houses too…
Raw materials were of low quality and could not sustain a few years. There was no single proven recipe for building a house step by step and getting the same result each time.
But with ongoing technology improvements and scientific approaches, these days, we build skyscrapers in a matter of months.
With software, we’re still in that kind of crazy wild west era, where developers pick own method, technology, programming language, and invent their ways to build the software.
Even if you aks the same developer to do the same project twice, the project would be done two times wholly different.
With a massive set of different technologies, there is a big temptation for software developers to try something new each time. Each time getting unique experience and skills and not re-using everything learned from previous projects.
So there is no specific process, and every new project is a big experiment — each time.
And with software, it’s much worse than with house development.
In the construction industry, we have human lives on the table.
So there are many regulations and quality checks that make sure our houses comply with a set of well-known rules.
30% of steps in Residential Construction instruction are about getting permission and approval from regulatory services.
With software, we don’t have any regulatory services. All we got – recommendations and guidelines that are optional, and rarely followed.
So, what is the solution here?
Enter Our 6 Steps Formula to Profitable Software:
Since 2011, our agency completed over 100 software projects, and this is how we polished the whole tech startup process into these six steps:
- Setting Your Foundations
- Product Strategy
- Project Roadmap
- MSP Build
- MSP Launch
- Software Logistics
Every step deserves a standalone guide, and we dedicated a full module to each of these steps within our software acceleration program.
But in this article, I’ll try to summarise it all with quick lists, examples, and insights.
Oh, I almost forgot:
I find the process of building a profitable software product very similar to building a house for rent. So, to make it easier for you to learn profitable software formula and to explain to you the reasons behind each step, I’ll draw parallels between those two processes on each level down the road. I bet you’ll enjoy it 😉
Okay, we’re ready to go to Step #1:
Step 1: Setting Your Foundations
In 2016, I bought two rooms apartment to put into work a bit of available cash. I didn’t have any specific goal and thought I’d re-sell it or rent it out, or maybe even move to it myself.
A year later, the real estate market went down by 30%.
I realised renting out would barely give me 3% profitability. Re-selling would be an apparent immediate loss.
So I had to hire a designer, do some lovely repair and try to sell it higher with some added value.
Two years after the purchase, I sold $5k higher than all the costs I had. Yes, I avoided the loss, but I’d profit more just from putting these $90k into bank deposit and doing nothing.
That was a good lesson for me:
Don’t step into a new venture without clear GOALs and market research.
Whenever you want to put money into building a new house or commercial building, these would be the minimum necessary steps to Set Your Foundations:
- Set Your Goals. Do you want to re-sell it, rent out, or use it for your own purpose? Based on these goals, the next steps would completely differ.
- Shortlist Locations. On this step, you shortlist viable options based on several market criteria. You compare different areas, neighborhoods, and do quick market research. Also, you want to find out about local laws and regulations.
- Technical Filtration. Here you further shortlist based on technical criteria: soil state, area size, networks, etc. You don’t want to buy an area which is suitable for two floors house if you need five floors building.
- Funding. Here you do a quick assessment on ballpark numbers and budgets. Also, you consider possible ways to raise money. Different states provide different policies for land/house buyers. E.g., if you want it for your family, you might get better loan terms than for commercial usage.
- Quick Business Plan. How much can you make if you rent it out? What would be the costs, margin, and profitability?
With software products, it’s all the same when coming to Foundations.
Let me put quick parallels:
- Setting Your Goals. Do you want to build an internal software tool or create a new income stream? Do you want to grow and sell it, or work on this new business for the long-term? Think about an exit strategy before you enter.
- Shortlist Software Ideas. Generate and “soft-prove” a few different software product ideas. There are multiple ways to do this, and we teach it all within our software acceleration program. Here you also want to research your competitors. If there is nothing similar on the market, chances are nobody needs it or willing to pay for it.
- Technical Filtration. You don’t want to start a software product, which is too challenging from a technical standpoint. There is a list of specific software ideas that are not good and will only make your journey harder and delay your profit day. Here you might need expert advice from someone who did it multiple times.
- Funding. Find people that built something similar to your idea and get quick ballpark numbers. Is it going to cost you $10k, $100k, or $500k+ to build? Based on these numbers, consider a few different options on how you can fund the development and initial marketing campaigns. There are a bunch of different ways from bootstrapping to prepayments and to raising funds.
- Quick Business Plan. Don’t overthink it yet. Spend no more than one hour on it. We usually use the LeanCanvas here. This exercise will add more clarity during the next steps in your software journey
After you’re set with Foundations, you’re ready to get deeper into STRATEGY.
Step 2: Product Strategy
Back when we didn’t do software startup workshops with our clients, we had a curious story:
Four months into the development of niche email marketing SaaS and we ready to launch. Started paid ads and successfully pushing new trial signups.
Two weeks later and no single free trial to paid conversion… What a bummer!
We seat together with our client (SaaS founder), and just after 30 minutes reviewing the user cabinet, we found a big hole in our user onboarding process. People literally had no opportunity to switch to a paid account after seven days trial.
Within two days, we put a new onboarding flow on production and started getting payments.
Lesson learned 1. Don’t skip the Product Strategy step before talking tech.
Lesson learned 2. Product Strategy is not something you do on your own. Product Strategy needs to be prepared together with the development team.
Now, let’s get back to our construction project 🙂
Before investing your hard-earned money into developing a house, you want to find the answers on the next questions:
- Positioning. Are you going to build a low-cost rental house on a budget or luxury apartment for premium prices? Are there similar options in your area? How are you going to win tenants?
- Money. How much can you charge? Are rental prices rising in this area over time?
- Clients. How tenants find you? How do you make them happy and keep them for the longterm? Do they recommend your apartments to their friends?
With software, again, it’s very similar.
Software Product Strategy starts from the LeanCanvas we prepared on the previous step and dives deeper into the next questions:
- Market Positioning. What is your Unique Value Proposition, and how do you stand out from the crowd? Why users switch from existing software to yours?
- Software Economics (Money). How do you make money? What’s your revenue model? Free Trials vs. Freemium? What’s your Unit Economics Ratio, KPIs, and pricing strategy?
- Prelaunch Strategy (aka Users Acquisition). How users find you?
- Activation (aka Onboarding). Do users have a great first experience?
- Users Retention. Do users come back?
- Referral (or Affiliate) Strategy: Do users tell others?
And it’s essential to get all these answers before you jump to the technical Project Roadmap step.
It’ll directly influence initial product version scope, budget, and timeline.
Step #3: Project Roadmap
At the moment of writing this article, our agency works on 11 software products.
Three of them, our team started from scratch. Other 8 (more than 70%) came to us from other devs with delayed deadlines, broken functions, and overflowing budgets.
The funny thing is that previous developers were not that worse than our programmers. Also, our management process isn’t that much better.
But there is one small difference that makes a huge difference…
It’s not what those previous teams did during the software development stage that led to failure, but what they did the wrong at the very BEGINNING of the process.
>>> They skipped the detailed Project Roadmap phase. <<<
The adequately executed road-mapping stage allows just a good enough tech team to complete a software project on agreed terms.
And in this section, I’ll share with you how we do it in our agency.
But first, let’s check what does it take to compile proper Roadmap for house development project:
- Extract Requirements. What kind of house do you want to build? Size, number of floors… How many people to fit in? How many bedrooms and bathrooms? What kind of tenants would it serve? What are their needs?
- Technical Oversight. Is selected area and soil suitable for your house size? How would you connect your future house to the water, gas, and electricity? Are there any environmental or law regulations you need to conform to?
- Define Scope. Compose a list of all floors, rooms, and specific features you want to see as a part of your house.
- Floor Plan. 2D plan for each floor.
- Interior Design. The final look of your walls and floors. It includes furniture, lights, decoration, etc.
- Raw Materials. List of raw materials and tools you’ll need to cover everything from the basement and walls to furniture and decoration.
- Costs & Timeline. Calculate budget based on raw materials and development services. Project date of completion based on team size vs. hours involved.
In software, Project Roadmap deliverables and steps are very similar:
- Extract Requirements. List of requirements and features to cover those requirements. At this point, we are interested in WHAT and not HOW. User Stories format is perfect here.
- Technical Oversight. On this step, you need a developer to deep dive into your software idea and identify possible technical risks. External 3rd party dependencies and APIs, sophisticated UI widgets, machine learning, and virtual reality… All these are high-risk grey areas that need attention.
- MSP Scope. You don’t need to spend a fortune on your software to start selling it. Here you define a scope for the Minimum Sellable Product (MSP) version. The smallest acceptable amount of functions that you can sell. Push everything else for later releases.
- Wireframes (Floor Plan). Low-fidelity user interface sketches for most important unique 3-5-10 software screens. It is a kind of skeleton of software visual representation. It can be done with pen and paper or with an app like Balsamiq.
- Design (Interior Design). Here we turn wireframes into colorful mockups. Are we building a custom design, or re-using a purchased theme will be enough? Some software needs custom branding, while other types of ideas are okay with a predefined theme for MSP release.
- Technical Stack (Raw Materials). Technical stack to use on back-end and front-end. Databases, programming languages, and frameworks. Hosting options and any external tools to cover the necessary features.
- Costs & Timeline. Here we prepare a detailed work breakdown structure and iterations timeline. Also, on this step, we might need to adjust the MSP scope to fit the project budget and timing limitations.
Project Roadmap is the most important technical step before you start building it. It takes time and money, but it’ll pay off in full.
Bonus Tip. When hiring a development team for the Project Roadmap stage, make sure the deliverables are in the format transferrable to another service provider. So you can hand over results to any other team if needed. You don’t want to bind yourself to the wrong team for the full development project just because you paid them for smaller engagement like Project Roadmap.
Now, after you went over these three software idea preparation stages and got your Software Blueprint in place, you deserve to step into actual development.
And that is Part 2 of our software journey, which you can find here.
There, I also give you a nice freebie with all six steps summarised on one PDF page.
Have you got any questions regarding these three steps? Post it in the comments below!