Starting a Tech Business: A Practical Guide for Anyone Creating or Designing Applications or Software

Beta Customers

We've reviewed options on financing the venture. Every financier will tell you that the best money you can acquire as a new venture is a customer's money. You may hear stories from the late 1990s and early 2000s in which a large company gave a startup a million dollars to solve a big problem for it. Though that kind of situation is rare now, many customers commonly commission a small company to build a piece of software on a custom basis. In those situations, the company (seller) sometimes arranges in its contract to provide the software on a royalty-free, nonexclusive basis. Basically, this means that once you provide the software to your buyers, they can do with it whatever they want and so can you.

On the surface, the customer may have a reaction such as “We're paying for this. Why should you own it?” The answer has a couple of facets. First, if you've won this business as a small company and it's strategic to your growth, you probably have some specialty expertise. This expertise in the customers' industry allows you to build better software at a much lower cost than a generalist the customer would hire off the street. Second, your retaining ownership means that you may take what you've done and create a product out of it. Your creating a product out of your custom software delivery almost always accrues to your customer's benefit. If you deliver them a one-off piece of software, they will have to pay you for every change and bug fix (after any warranty period). ...