Lowdown

Founding Members: 3
Scale: Large
Capital: ~$20,000
Hustle: Lots
Break-even: 4 Months
Cash-flow positive: 3 Months
Risk: Low-medium
Ceiling: Unlimited
Geographics: High-touch; Office and on-sites required regularly

Overview

As I discussed in Cashing in on iPhone with Apple’s AppStore, the market potential for new iPhone software development is simply massive and will continue to be. I’ll leave the market research for the AppStore market to that article. In looking at what it would take to develop and launch an AppStore application for public sale we discovered a huge opportunity that is as-yet unexploited. There is pretty much no experienced talent for hire. Have a look at a couple of the usual suspects like eLance and Craigslist and see for yourself. Google for iPhone software consultants and you will find a handlful of independents and that’s about it. Clearly the immense demand for iPhone development will fill in this gap, and now is a great time to strike.

The Opportunity

There have been many truly astounding fortunes created through software consulting—it is by no means limited to small-time independents.

Most medium to large companies will only work with proper consulting firms versus independents. Doing so gives them a team of engineers, managers, artists, and whatever other support is needed. In return they pay a substantial premium for this structure believing that it will, in the end, save money through efficiency. Billing out hours, a firm can expect to bring in $120-250 per hour for this segment. Ongoing retainers after the initial creation can provide a steady source of income at minimal cost.

Even as the skills become less unique, such a company would be well positioned (strategically and financially) to lead the market segment and expand horizontally into similar platforms (if any remain after iPhone). Like all Startup Ideas the market analysis is largely a leap of faith, predicated on the belief that companies will buy-up iPhones for enterprise use and want to train staffers and built out internal and public products.

How It’s Made

To build a company that does this in bulk you’re going to need to figure out how to recruit, train, and retain talented developers in this bleeding-edge technology.

Experienced managers and developers know that talented coders can pick up and excel at just about any platform given proper time, training, and practice. If you can recruit excellent Mac OS developers you’re in luck–the learning curve is minimal. For this project though, we assume we cannot find suitable numbers of skilled and available workers with experience in Mac. Plus, in true TrendGrinder fashion, we expect you will want to break out of the current office with a couple of friends as cofounders who also don’t know iPhone.

In order to train a Unix or Windows app developer (web scripters only may not work) on iPhone, the entrepreneur must be very creative. Get everyone books. Hire a Mac OS consultant to get them producing anything in Xcode. If you can find someone who does know anything about iPhone bring them in. Send them to developers conferences. Basically pay them to learn and give them very simple assignments to build—a clock, a flashlight—anything.

Startup Plan

As with all TrendGrinder concepts the idea here is to grow as organically as possible, bootstrapping when reasonable. For this reason, we recommend the founder or founding team handle initial sales and/or development directly for a couple of months rather than hiring a very expensive salesman. Learn everything you can about the mobile apps marketplace and enterprise consulting. During and immediately after engineer training, develop an AppStore app. Or two, or three. Get them up there and use them as free marketing for your firm. This is instant and undeniable credibility.

We assume a solid month of training and group self-teaching before any hours can be billed. As is the case with all firms, much of the real training will happen on the job under a contract. This is a known and accepted practice at all major firms. As long as it is limited and the highest quality and time standards are met, it is not assumed that a firm is expert in 100% of areas.

Recommended Team: 3 initial founders

• Two coders (at least one senior level).
• One to handle sales/business.

Hustle Required: Lots

• Training engineers will require some resourcefulness to provide a good learning environment and catalyze progress.
• Initial sales and marketing (before you have a proper salesman) is going to be a major project.
• Constant networking, press, and cold calls are the name of the game.

Startup Costs (one month):

• You need somewhere to bring your engineers together for training. Use a small Regus office, a garage, your living room, a park, whatever! You need them around each-other with at least a couple of computers (pair programming at least for training highly recommended). $1100
• 2 x Senior Engineer salaries, benefits, etc: $0 – hire founders!
• 2 x Developer computers - $2500
• Books, training consultants, conferences, etc. Do not skimp here. $5000+
• Market Plan. You need to figure out how you’re going to start making sales. Identify target customers. Maybe pay for an existing mobile apps market analysis. Figure out where and how. Network, hire a consultant, whatever. This time is for you to be making your first sales. $1000
• Incorporation, boilerplate contracts, software, etc. $2000
• To operate a total of three months this way, all founders should be allocated a basic living stipend. 3 x $2000 = $6000

Total Startup: $17,600

Now that they’re trained and you have a few apps in the AppStore, you will begin bringing in contracts. For dead time, develop AppStore apps! Make yourself tools, further training, etc. Keep these engineers busy at all times! This is what consulting firms do.

A few months after founding, when those contracts start rolling in, here’s what you can expect (California premium rates):

Mid-development Costs (Yearly)

• 2 Senior Fulltime Coders – 2 x $125,000
• 2 Junior-Mid Fulltime Coders – 2 x $75,000
• 1 Assistant/Office Manager – 1 x $35,000
• 1 Account Rep/Project Manager – 1 x $100,000
• 1 Fancy Salesman – 1 x $125,000
• 1 General Manager – $0 at this point this should still be a multitasking founder.
• Office space, phone systems, etc — $2500/mo (order of magnitude)

Monthly Costs: ~$65,000 (including benefits, taxes, etc)

Revenue (Monthly)

• Billable coder hours (sane) – 4 x 120 @ $150 = $60,000
• Unallocated Retainer income — $1,000-2,000/mo
• AppStore Income — $2,000/mo
• Monthly Revenue: ~$76,000

Profit: $11,000/mo (that’s about 5 Gallardo leases per month)

Conclusion

This is an unprecedented time to enter an exploding new sector. Steve Jobs himself told the WSJ he has “never seen anything like this in my career for software.” This is a guy who was around before there was a PC in every home. All a clever entrepreneur needs to do is recruit a couple of like minded founders, and he can be in business by the end of the week!