How to fund start up through a one off project and turn it into a product rather than a contract piece of work?


4

Background:

I have been asked by a company to put together a proposal to build a highly specialised piece of software. The company is a new player in the financial sector who needs to have this system to operate effetively. There are very few if any off-the-shelf solutions to their problem, but I happen to have worked in the exact same problem space before and would bring in-depth knowledge of a similar in-house system as well as the business processes to the table.

While there are a small number of financial companies in the same space, they all seem to build their own systems from scratch rather than going for a vendor solution. This appears to be due to market/country-specific variations.

I think I have a good shot at landing the deal with the firm, but also believe that it may be possible to make the software modular enough to turn it into a product. The variations, from what I can see right now, are confined to one or two particular modules.

What I would like to do is to build the system for the client as per their specific requirements, whilst keeping the modular approach in mind and then try to re-sell the software to other firms without the 'specialised' modules. The client will therefore effectively fund my start up.

This implies that I will need to retain the intellectual property and this will have to be made very clear right from the beginning. Also, to be clear, if I sold the software to other similar firms, they would not gain a competitive advantage as the original client works in a very specific market where they have a monopoly.

Has anyone else done something along these lines before? I'm wondering how to structure the deal and create incentives for the client to be supportive. Because it is not 100% certain whether I will be able to market the product to other clients in the future, I effectively need to ensure I price this into the cost of the project so that if it was a one off project, I still make a profit on the project and am able to pay a number of developers and a BA.

Any advice on this would be highly appreciated.

Pricing Legal

asked May 24 '11 at 01:23
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Patrick
123 points

2 Answers


3

It is all in how you frame the offering. You can structure this in a number of ways. Here are a few key points that should help:

  1. Frame it as if you are selling them either a license to the software (renewed annually, so they continue providing income for you), or they buy the license outright.
  2. Insert in the terms of your agreement that since a lot of the finished product will be derived from your previous IP, you will retain ownership rights to that. However, the exact version of their software will not be marketed. Thus they have an exclusive right to the variation of the software they purchased. The fact you are selling a particular variant matters, since you can change the software in the key parts later on and not infringe your agreement with them.
answered May 24 '11 at 08:34
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Oddieis
31 points
  • +1 for noting that they reason you are likely to get this job is because of the value of your preexisting IP. – Kenneth Vogt 9 years ago
  • Good points @oddieis – Patrick 9 years ago

2

Congratulations on the identification of a specific problem, solution and course of action for meeting the need. It sounds like a fantastic project.

Our team has clients working in similarly discreet and specific financial service space. We ran into a very similar situation, where our production and development team was contracted to build an application which we believe would have broader market implications.

This is what we chose to do, and why:

We delivered on the initial contract. Before complicating and confusing, before counting chickens from unhatched eggs we focused on making one happy client. We kept in mind the design to scale, and document the necessary changes that would need to be made along the way - -but we did not spend any dime of the client's money on functionality outside of the scope of what they paid us to do.

We approached the client with a business proposition: When we were done, we approached the client with the business proposition. We proposed that we would provide them a royalty on the sale of the software platform which we had started building for them. They let us build from the foundation that we developed with them -- and let us leverage their story for marketing -- and in exchange they get a royalty on all future sales.

We partnered with the client: They felt honored and agreed. Once we developed the systems to ensure that their IP would not be compromised, and that revenue transparency could be ensures -- we were able to signed MOUs and launch the new endeavor.

We featured the client: We wrote a case study about them and their use of the tool. We leveraged their experience to launch the product into the target market. We spent considerable resources on industry press as well, which really gave them kudos and their leadership some pats on the back.

Based on current projections, they will be able to use the tool for free within 6 months, and within about a year will have their initial investment paid back.

These are my pull aways:

  • Transparency matters
  • Communications is essential
  • Value them as the premier customer of the product
  • Value them as a partner in the project
answered May 25 '11 at 07:18
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Joseph Barisonzi
12,141 points

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