By John Boruvka
Not to be negative, but startups fail. And, it happens even more frequently than you might think. However, startups also have some of the best technology capabilities due to their innovative and competitive solutions. So how do you find a balance between wanting the best solutions, but not wanting the risk of investing in a startup?
The article, 167 of the Biggest, Costliest Startup Failures of All Time published by CB Insights, looks at some of the most well-funded startup companies that ultimately failed or had an undesirable exit – many of them are software companies.
As this listing will attest, running out of money, the inability to generate sustainable revenue, or a poor product-marketing fit are all common reasons for failure. It’s easy to be dazzled by a software developer that seems to have just the right product for your needs. But, a company needs more than a great product.
How can software startups prove themselves?
So, how can you protect yourself if you are a new software startup? You have a great product, yet customers may be hesitant to buy from you because you haven’t been in business long enough to prove yourself.
A blog post from Quartz on Why Startups Fail analyzed post-mortems from 200 founders. It explains that “software company founders concluded their problems stemmed from focusing too much on the technical aspects of their products and ignoring what customers actually wanted.”
In addition to creating an excellent product at the right price, with the right promotion and distribution, you need to acknowledge that your customers are genuinely worried about your business failing. If your business is small or doesn’t have a proven track record, there will certainly be doubts. How can you assure your customers that you have what it takes, and they can be confident investing in your software?
Developers should proactively address their customers’ concerns and can do that by proposing software escrow and verification services as part of their product offering. This gives customers the peace of mind that if something unexpected happens, they’ll still be OK and will be able to keep their business up and running.
Here’s how two of our developer customers assure their customers:
“The fact that we have an escrow arrangement with Iron Mountain in many cases enables us to do business with some customers that wouldn’t otherwise do business with us [unless] they were assured that we had the means and the capability to protect our software and make it available to them.” (Read the complete Stratus case study.)
“Buyer Persona Institute licensed the software that delivers the peer-advice audio clips from SlapFive, an emerging company that powers customer voice programs. Before the company launched the new product, it wanted to make sure that the service would be reliable, consistent and disaster-proof. BPI reached out to Iron Mountain to set up a technology escrow agreement with verification.” (Read the complete Buyer Persona Institute/SlapFive case study.)
If you let your customers know that you’ve got their back – it will go a long way.
For both software developers and software licensees, setting up a technology escrow agreement is a good idea. Yes, some startups fail, but that should not be a reason for customers to eliminate a startup company’s software solution from consideration. With the right safeguards in place, both the seller and buyer of software can gain benefits, including assurances that the software source code will still be available in the case of unforeseen circumstances.
Want to learn more?
Read our eBook: A Technology Licensee’s Guide to Technology Escrow
Read our eBook: A Technology Developer’s Guide to Intellectual Property Management
John Boruvka is the vice president for Iron Mountain’s Intellectual Property Management (IPM) group. He has been involved in the technology escrow and intellectual property management field for more than 25 years. His focus is helping companies create solutions relating to protecting intellectual property assets. To contact an Iron Mountain escrow advisor directly, please call 800-962-0652 or email firstname.lastname@example.org.
Oct2019, Software Magazine