

Ask HN: I'm considering taking over my family's business and need advice - throwaway1445

HN, I need some advice, but first I must give a bit of a back story. Apologies if it is a bit long.  I’m also posting this from a throwaway account for privacy reasons, but I am an avid HNer and greatly respect the advice that so many people give freely within the community. If anyone thinks they have particularly good insights into this situation and would be willing to take some time to chat please send me a message at throwaway1445@gmail.com<p>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:<p>- 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<p>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:<p>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).<p>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.<p>Now a few relevant facts about me:<p>- 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<p>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.<p>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).<p>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).<p>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:<p>1. First and foremost I’d love to hear opinions - great opportunity or a recipe for disaster?<p>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?<p>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.<p>4. Are there incubators for companies that are at this stage? Any other suggestions for finding mentoring and guidance?<p>Thank you HN I sincerely value your feedback.
======
triviatise
Cool, congratulations!!

1) For existing software a total rewrite is extremely risky and will most
likely fail or cost significantly more than you are prepared to spend. Rewrite
portions of it instead and modularize it.

2) The biggest problem you have is that large companies have very different
needs than small companies. As a small company you simply cant have both.
Enterprise clients need things done exactly how they need them done. Small
clients dont want to pay for features they dont need.

3) marketing generates leads - you may not have a sales problem it may be a
marketing problem. Do you go to shows? Mailing list? advertising? etc You have
a sales problem if you are not able to convert leads to sales.

4) I sell exclusively to fortune 1000 clients and I can tell you they are a
pain in the ass and will suck your morale dry. We recently have gotten two mid
market companies (500M revenue) and they are simply a pleasure to work with.
The elephants are great because they can dependably generate > 2M in business
for us each year, but they will steal your soul.

5) 80% of your revenue in a single client is probably the single biggest risk
you have. You need to get under 25%.

\--------- We do strategic planning each year and we decide on the major
initiatives based on that.

It goes something like this ---> What are the biggest business objectives for
the company -->what are the problems keeping us from achieving those -->what
are the specific changes we need to implement --> how do we tell if we were
successful?

In your case it might look something like 80% of or revenue comes from a
single client (huge red flag)-> what is preventing us from increasing our
revenue?

Above you had said a few different things as being possible problems. You may
want it to be that the code is bad, but if that really isnt the issue, then
fixing the code wont get you more revenue. I think it is probably a lack of
understanding of who your customer really is and what they need. Once you
decide, then you can implement specific changes to make it happen. Those
changes most likely will include determining how to reach those people then
running campaigns to reach them. Once you reach them you can find out why they
arent buying, then you can begin making changes to the code.

~~~
throwaway1445
Thanks for the feedback! I really appreciate this.

1) I totally hear you on this. I was wondering what sort of response this
would get. The goal is definitely to rewrite in portions. However, we've been
trying to do exactly this for the past couple of years and it has been really
slow going (because of the reasons I listed in the post). It seems to me that
at least one more full time developer is really needed right now to make this
happen.

2) Yup. That's one of the biggest challenges. Every customer needs something
slightly different. I have few ideas in mind that would make the software more
flexible so that custom work would eat up less development time. Again
though...this means a big investment in the software.

3) That's a good question. Marketing has been pretty non-existent in the
company. That said, we probably respond to 10 or so RFPs per year. We usually
win a couple of those, but the bigger companies (Fortune 10000) have been
passing us over. The questions this raises are 1) is this because of the
software, or 2) is it because no one has hopped on a plane and flown out to
meet with them and held their hand through the process (i.e. sales). I'm not
sure what the answer to these questions are, but it's prob a good place to
start.

5) Yes. Everyone is 100% agreed on this one.

------
ankeshk
1\. So the business already does mid to high 6 figures. But is there scope to
increase it to a 50 million or even a 500 million $ company? Without knowing
more about the industry, we can't answer that. But you need to find that out.

2\. The 2 problems you are facing right now is: the code need major revamping.
A dedicated sales person is needed.

Because of your background, you seem to be putting emphasis on fixing the code
first. Forget that. Make sales the priority. Join as a salesman and try
drumming up new sales for the next 3 months. Without putting effort in
revamping the code. This will show you:

i. If the demand is actually there in the market

ii. What features are essential and what are not

iii. And if you can drum up new sales, this will give you the money that can
be used to fix the code.

3\. One client is invoiced about half a million $ a year. This client is an
awesome company to bring on board as a partner. Get this client to fund future
expansions. Either by pre-paying you for getting discount in price for the
next year or 3. Or by giving you a loan. Or by taking an equity stake in the
company itself.

~~~
throwaway1445
Thanks for all the input.

1\. Yes, there is a ton of room for the company to grow (market is young and
expanding rapidly).

2\. I definitely can see the logic in making sales a priority. I have
absolutely no experience selling to businesses, and would be happy to jump in
the deep end. However, I don't know how you actually sell to large
corporations. In the past we have just waited for RFPs to come to us. Any
suggestions on how to actually pound the concrete looking for clients?

3\. Good suggestion. Unfortunately not applicable in this situation.

~~~
triviatise
We really dislike RFPs. Usually RFPs are a procurement requirement and the
team has already decided on a solution. Typically they will be worded to favor
the incumbent. We have never won an RFP, but that may be because we suck :)

Im not that good with inbound marketing, but we have been improving over the
last few years. To get sales, people who are looking have to be able to find
you. These days that means email campaigns, blog, SEO, adwords and
conferences. Go to conferences and use them to start building a mailing list,
before the conference identify who you want to meet and try to setup meetings
beforehand.

Personally I hate all that and in my startup Im trying to do pure inbound
marketing via SEO, blog etc.

Selling to large corps is hard, read spin selling and getting to yes for once
you get in. The getting in is hard and the sales cycles are long. Basically
you have to find someone that acts as a toehold to get you in and keep get
referrals to eventually find the person who wants what you sell within the
company.

If there is one thing I would recommend, that is go after small to medium
businesses instead. they have their own issues, but you will have small
dollars from a large number of companies.

------
G2789
I've worked for a brief period with family before and it can quickly become a
complicated situation.

A few words of wisdom from my experience:

1) Establish what your role is and what aspects of the company you control:

Just because it's your family, doesn't mean you'll suddenly get a lot of
control. When I was brought on as a Operations Manager I thought I had a lot
of freedom to control how things operated. However, I quickly realized that my
parents and their business partners still saw me as an employee rather than a
strategic partner. Making this clear up front and observe how they react when
you offer strategic solutions. Do they brush you off or do they act on it?

2) What are realistic contributions you can make to the company and do they
align with your goals?

Your comments about your parent's hesitancy to put additional money into the
company means you'll have to fight to hire a developer and update the core
product. If you lose this fight, what other opportunities do you see in the
company? If you don't see any, then it's probably better to move on and find a
project where you have either more control, or more options.

Hope this helps.

------
wmboy
Just my 2 cents (not meant to be an 'answer' at all...).

If you're passionate about business & entrepreneurship I'd say you'd be the
perfect person to take your parents' business to the next level. Look at what
Gary Vaynerchuk did with his parents' wine business...

Are your parents both taking full time salaries? Are they willing to
transition out of the business to allow for increased salary expenses?

Also, if you have any ambitions to become wealthy DON'T give away share
options/ownership of the company unless you absolutely have to. I'd suggest
working for nothing if it meant you could retain ownership and survive off
your ramen profitable start up...

------
aquark
Conventional wisdom says that complete code rewrites are almost always a bad
idea. Joel has some great essays on this from several years back.

Developers that have not tackled a big rewrite tend to believe they are the
exception to this rule (I believed I was).

After tackling a major rewrite most discover why it is called 'conventional'
wisdom. I won't volunteer for it again (on a several hundred thousand line
code base).

However bad your code appears, and if it is generating significant revenue
then it probably isn't _that_ bad, you almost certainly can refactor it step
by step. Yes, it may take a while, but it is manageable!

------
petervandijck
Are your parents going to be ok with letting you do things differently? Are
you ok with the transition not taking 5 years but 10 years? What do your
parents expect from you? What do you expect?

