Forums: Discussions for entrepreneurs and small business.

I have been employed for several years at one organization. In my spare time, I developed software which is starting to get some traction in this industry. I entered an exclusive agreement with the largest provider of educational products to distribute the software.

I have an idea for other software titles, but simply cannot do it along with my present 60++ hour/week employment. I would like to approach the distributor to see if they would be interested in offering an advance, comparable to a year’s salary, which would support me during the creation of this new title. (They have a contractual right of first offer.)

Is software distribution anything like the publishing industry? There, the publisher may give an advance, but it`s based on expected sales of the title.

Another option would be to go part-time with your current emloyer. If you`re very good at what you do, which seems the case, they`d hate to lose you. Yes, they could get some other developer, but why bet on a mystery when they already know what you can do?

How about letting the current title get out into the market through the distributor, then rack up some market numbers. At that point, you might also be able to interest some capital investor(s) in a company, where you`ve got a track record.

What`s bothersome about an advance is that you have to pay it back, and the money takes first priority over all other money. So if you were to get $125K, you`d get nothing at all until that was paid back at the release of the second title.

If the second title doesn`t start selling well, right away, you end up with nothing. Worse, if the first title lingers, you`re paying back the second title advance out of the remains of what would have been profit from the first. It`s a lot like giving away equity in the company.

Sure, at the start when you have nothing, equity seems a simple thing. But when you`re a success, suddenly there`s a lot of money flying around, control issues, buy-out concerns, and so forth.

I agree with letting the first hit the market for a bit. With a "proven" track record, you are much more likely to get a VC to look your way.

Is the distibutor also marketing your product? Craig made a reference to the publishing industry ... and like publishing, sometimes you have to do the marketing on your own product. If that is the case, I would start thinking up every available blitz now, in advance of the release and WELL in advance of the holiday season.

Who is your target market? Is it an educational title that will go directly to consumers? Or is it an educational title that schools would buy? I ask because the time to purchase for these 2 markets are very different.

So that would be my suggestion ... regardless of the distributor, get your own marketing buzz on, sell these things like hotcakes, and then once you have people talking about you and a track record for selling ... hit the VCs up and hire yourself a whole team of developers.

Thank you for the thoughtful responses.  

I am in the legal profession and the software is for attorneys.  The distributor is also marketing the software and has lots of experience doing so, which is why I partnered with them.   

I wish I could wait to see how the first titles do, unfortunately, it took me close to three years to create the existing software while working at night and on weekends.  I am afraid if I approach the new titles in the same way, I will not be the first to market, which I am now.   Also, my current employment situation has become pretty intolerable --- which is why I was thinking along the lines of an advance.   I don`t have enough tech business experience to know whether there are some other strategies apart from getting an advance, which is something the distributor offered when I first contacted them.  

I guess at this point, I should consider a part-time job (which is not offered by my current employer) to work on development of the other titles.

Thanks again for your thoughts.

I`d go with the part-time job. Although today, it may seem like a great idea to have an advance, live perfectly, develop your software, and "have it all," that`s almost never the way it turns out.

Suddenly you come to the deadline, where you have to release the new application. You`ve used up most of the advance, and you STILL have no new income or job. You notice that you`re getting some sales on the first title, but lo and behold, you`re not getting any checks. So you`re basically back in exactly the same situation as today, only now with *two* titles on the market, and no money.

We went back and forth on this, when it came time to release the second edition of our book. Ultimately, we saw the above logic, and chose to take as small as possible an advance. The publishers needed to give us an advance for legal reasons, but we got it down to something like $1,000.

When the second edition hit the market, we paid back that advance almost immediately, then started getting money from sales. It was a whole lot nicer having money then, after being sidelined during the writing process, than back when we could`ve generated a bit of income with part-time work.