Ask HN: I'm considering taking over my family's business and need advice
In 1996 my dad sold his shares of a software product and used the money to bootstrap the development of a business software application in a field that barely existed at the time, but has exploded since then. Here are some relevant facts about the business 15 years later:
- Enterprise SaaS application - Annual revenue in the mid to high 6 figures. - Five employees counting both of my parents (my mom is the other co-founder of the business) - Located in a small city in a rural state - Global clientele - 80% of revenue comes from one client
The company was able to quickly attract a large international client as their first customer. This was mainly because at the time they were probably one of only two or three companies doing what they do (now there probably at least 20 companies in the same market, and there is still huge room for growth). However, the company has never been able to scale, and while they have had dozens of small clients over the past 10 years they have not been able to attract another large client like their first one. I believe this happened for two reasons:
1. The company lacks a dedicated sales force. My parents, who are two of the busiest people I know (for reasons unrelated to the business), have managed all clients and sales. Also the company had no active marketing efforts until the last year (most new customers were referrals or obtained by being a subcontractor on larger bids).
2. The software serves a very specific need, and solves a very real problem very well. However, as the company has progressed the software has suffered from bloat and code rot. With only two part-time developers this has meant it has been very difficult to actually improve upon the core product, move it to one platform (currently strung out between .NET and some custom stuff written back in the late 90’s.), and build the new features that customers have expressed interest in. This is partially an engineering failure, and partially a question of where to allocate resources. For example, both of the developers spend a significant portion of their time writing custom code for clients who want things done slightly differently. This is great for revenue, but means the core product suffers.
Now a few relevant facts about me:
- Late 20’s - Bachelor of science, but didn’t start coding until about two years ago - Founded a start-up that has about 12,000 active users, but has never made the leap to anything beyond ramen profitable. - Extremely passionate about entrepreneurship and determined to run my own company - Never built B2B software, but have more of an interest in B2B than B2C - Live in Seattle
I’m in a bit of a transition phase right now and one of my options is to start working for the company full-time with a plan to transition to running the company in the next 3-5 years. I should also mention that I have sat on the company’s BoD since turning 21 and have worked for the company off and on since high school (before the company sold their software as a web-service they we used to order dozens of servers at a time, and I would install the software and run a few tests and then package the servers up to ship them to clients). However, I’ve never worked on developing the core software product.
If I were to join the company the immediate focus would be on significantly upgrading their application, which probably means rewriting the vast majority of it. However, as I mentioned before I am a junior developer and harbor no illusions about the complexity of this software. Ideally we would like to hire an additional full-time developer to really lead the rebuild. Personally, I would even like to explore going one step further and make this hire a CTO (offering them equity in the company).
The company has been profitable from the very beginning, but does not generate the revenue necessary to bring on two extra full time employees (myself and another developer), plus the extra costs associated with having a second office (ideally just a co-working space) and redesigning the software package. My back-of-the-napkin estimates are that the company needs an extra $150,000/year over three years to fund the transition (the idea is that over 3-5 years the company would transition to being entirely based in Seattle).
My parents are understandably risk averse at this point and don’t want to put too much of their own money back into the company at this point. So my questions for you HN are:
1. First and foremost I’d love to hear opinions - great opportunity or a recipe for disaster?
2. Is it naive to think that rebuilding this software package would make it more attractive to the sort of audience that buys software for $X00,000 dollars? Spending time with our current customers and really understanding how they use our software, what features they absolutely need, and which they could do without would be a key part of the rebuild. But, how do I turn that into a “guarantee” that new customers will be attracted to the end product?
3. How would one raise money for a company at this stage? It’s not a startup, but it needs the sort of early stage investment that a startup needs.
4. Are there incubators for companies that are at this stage? Any other suggestions for finding mentoring and guidance?
Thank you HN I sincerely value your feedback.