3 pitfalls to creating your internal software company 

Many companies have launched their own internal software companies tasked with developing new products for the market. While an excellent idea, there are significant risks and pitfalls for what is ultimately entering a new business. 

Your company may be one of the hundreds that have added a software element to its strategy to create software products that can be sold to existing or perhaps new customers. The motivation for this strategy is usually sound. Digital products and software can provide consistent, recurring revenue with minimal incremental cost. While there’s a fixed incremental cost to sell another product, machine or hour of your people’s time, adding another user to your software platform usually requires little additional cost.

SEE: Hiring kit: Data scientist (TechRepublic Premium)

However, as companies further down this path can attest, adding software to your portfolio isn’t an easy job. Here are three pitfalls that many companies have encountered and how to avoid them as you start your journey.

Software still has rules

Many companies incorrectly assume that software is unconstrained by old-fashioned rules about bringing products to market, like having a product owner, managing a thoughtful release schedule and following a consistent approach to building the digital product.
Suppose you assume that all you need are some great technical resources. In that case, you’ll soon find your product is a mess of cool features at various stages of functionality, bundled together in an unconnected and incoherent mess.

Just because you’re operating in the digital realm, you still need a strong product owner who can determine which features and functionality are built when and can manage the integration points between them. Similarly, you’ll need thoughtful schedules on when and who will perform testing, how the product will be rolled out and how you’ll manage customer service, billing and product support.

If you’re working for a company that doesn’t have a history of launching physical products, you might lack these basic disciplines and find that launching software is even more challenging than a company used to that world. In this case, proceeding slowly and thoughtfully and communicating that your organization will require significant learning and growing pains will temper expectations and give you time to develop digital and product-related abilities to build software.

Identify and mitigate structural conflicts

Software product development is mature enough to have right and wrong ways of building and launching products. You can attempt to implement these in your organization, work with a partner to build an internal software company or hire outside expertise to fill some of the roles.

However, many organizations are configured in a way that’s incompatible with successfully building and launching software. For example, if all your technical resources are encouraged to bill hours to client projects, you will struggle to find and retain resources for your internal software organization. Similarly, if you use your internal tech help desk to support your software products, service levels and expectations internally, it will likely conflict with what’s expected on the external market, creating a situation that could cost customers and put your product at risk.

SEE: The COVID-19 gender gap: Why women are leaving their jobs and how to get them back to work (free PDF) (TechRepublic)

Before you write your first line of code, investigate who, where and how your software products will be built and maintained. How will these individuals be managed, and what will their metrics look like?

It might be more exciting to get that first proof of concept demo done for the executive team, but a few weeks spent determining how to properly configure your organization as a software company will pay off significantly in the longer run.

Figure out the supporting actors

While it may be evident that you’ll need technical support for your software products, you’ll also likely need various support back-office systems, from billing to tech support to new accounting and revenue tracking approaches.

Aside from the back office, you’ll also need a different approach to marketing and selling. Too many companies fall victim to the “Field of Dreams” approach to selling their software, assuming that, like the movie’s tagline, “if you build it, they will come.” Even if you successfully sell services or physical products to a well-understood set of customers, adding software to your portfolio doesn’t guarantee immediate success.

Test your assumptions around how you’ll sell, support and service your software products, and make sure you at least have an initial version of the supporting actors you’ll need in place before you launch.

Software products are undoubtedly worthwhile and potentially lucrative pursuits. The ability of an organization to add customers at little cost while creating durable new revenue streams should be on the table for every organization. However, like most worthwhile pursuits, adding software to your portfolio isn’t easy or a one-size-fits-all proposition. Embark on the journey thoughtfully and realize that success is more than just shipping some cool new app out the door and hoping for the best.