Blog/Why aren’t all software developing companies growing if market demand is so big?

High demand for software development services in virtually all industries has been launching many companies into existence. There’s strong competition, but there’s also an unthinkable number of opportunities for dominating niche markets. How come that business isn’t growing quickly for every software company if so many industries demand them?

Few software companies seem to have the ability to significantly outperform the rest of the market. Most reach a plateau where earnings are good enough to operate, but too small to level up. How does it happen? Not every founder wants growth – they opt for stability instead. The plateau is a good place for them (however this article is probably not for you if you’re such a founder).

But for people in software companies built from the start with the idea that they will get big someday, the plateau is a place where even coffee stops tasting good. Why does growth of software companies stop without warning? What can you do to keep drinking your morning coffee with inner satisfaction, and not disappointment?

Sticking to customers from immediate network for too long. Avoiding implementation of a sales process to get customers from beyond personal network.

If you know enough people then it’s possible to acquire customers through your network. But there are several potential problems here. For one thing, they aren’t always ideal clients. And when your network fails, you’ll have little new opportunities to choose from.

What can you do to improve?

  • Learn how to do sales – you must be good at sales to keep the company growing, so read up and learn from experienced salespeople and entrepreneurs
  • Keep selling – customers want you to understand them and to provide simple solutions to their problems, maintaining close contact with active customers is just as big a part of sales as talking to new ones
  • Specialize – define ideal customers and find your niche market (which of your customers have been the easiest to work with, appreciative of your business and paid the best?) and look for more of them beyond your network
  • Strategize and invest – at some point you need to change your game plan to expand faster, so strategize your approach, invest in solid marketing and optimize your sales process.

Read more about how to expand beyond your network in this article – Definitive path to sales success for programmers.

Lack of business experience. Falling into harmful business habits.

There are mistakes that can kill any software company, yet are still being made because they’re hard to catch. Avoiding them will spare you a lot of stress and reduce the risk of losing the stability of your business.

Some of them are:

  • Dependence on a large client – young companies can get traction through one project for a huge brand, but it’s impossible to build a stable business if 90% of your revenue depends on one enterprise contract. Diversify client, don’t expect them to work with you forever.
  • Team burning time between projects – if you’re paying developers for free time in-between projects, it’s not always a retainer for their time. At some point it just becomes unnecessarily burnt money. Find profitable activities for your team between projects, maintain a steady deal flow to keep your team busy.

Read more about the mistakes that kill software companies – What kills software dev companies most often.

Lackluster approach to cash flow management. Unhealthy cash flow.

Service companies have problems with cash flow and software development isn’t different. It’s even harder to maintain healthy cash flow here, as it’s tricky to correctly price services and budget for all possible obstacles in delivering complex software projects.

Luckily there are plenty of ways to optimize your cash flow:

  • Advance payments and (when possible) upfront payments – ask for them and offer them, they’re good business habits
  • Quarterly (instead of monthly) bonuses – give your team bonuses less often (make sure to make them bigger), to reduce regular increase in spending
  • Full sales pipeline – keep generating sales leads and organize a repeatable process to stabilize sales
  • Factoring – sell your unpaid invoices to a company that will immediately give you up to 90% of the unpaid amount, and return the rest (minus factoring fee) after it’s been paid>
  • Customer payment deadlines – ask customers to shorten payment deadline so that you can fix up your cash flow
  • Supplier payment deadlines – correspondingly, ask suppliers to prolong your payment deadlines
  • Evergreen loan – get a loan that allows you to take and repay money over and over until the arrangement expires, it can be a lifesaver

Read more about fixing your cash flow in this article – 8 Solid Cash Flow Fixes for IT Service Companies

Summary

It’s definitely not magic, or uncanny skills that allow some founders to grow their company high beyond the plateau where many businesses reside. You can’t control the element of luck which is always necessary, but you can increase your chances for success greatly by knowing what to avoid. Hopefully this article has helped you realise that there is a better path towards growth for your software company.