How to Start a Software Publishing Business

Some of today’s most well-known and lucrative technology companies were first hatched in humble garages. So it’s no surprise that plenty of would-be entrepreneurs are interested in launching their own software publishing companies.

Software publishers market and distribute software, typically licensing it to end-users who can then operate it on their own devices. Publishers may also design the software and provide support services.

The industry has demonstrated enticing profit potential. The market for software publishing (including application software and custom application design and development) in the United States expanded at a 3.2% compound annual growth rate from 2019 to 2024, with revenue expected to reach $541.3 billion in 2025. By 2029, revenue is projected to reach $896.17 billion.

Even better, there’s ample room for new innovators who identify a problem without a solution, target an existing market with strong, unsatiated demand, or develop a novel idea. Software publishing founders don’t necessarily require a degree in computer science, software engineering, or any other background in technology. With good business judgment, you can hire the technical people you need and learn as you go.

The information below will help guide you on the critical first steps for starting a software publishing business.

Choosing your business model

A key early decision is choosing the right model for your software publishing company: B2B or B2C. With B2B, you’ll market your company to businesses and organizations. B2B publishers often sell their products through contracts that run for at least a year, at a higher price than typical B2C products. The software typically includes numerous features, is customizable, and can be integrated with other software. B2B software publishing is generally more complicated than B2C and requires working closely with your customers, but you can find success with fewer customers.

B2C software is a more standardized product intended for individuals. Customers typically make a lower-priced, one-time purchase or subscribe for a relatively small fee. The publisher’s interaction with customers is more hands-off than with B2B software, but you need to draw a broad audience to drive profits. The right product, however, can become a part of its users’ regular daily habits, opening the door to the possibility of additional revenue from advertising.

Bear in mind that you aren’t bound by your initial choice between B2B and B2C. As you grow and have access to greater resources, you can take a hybrid approach, offering products for both businesses and individuals, whether in different versions of the same product or as unique offerings. 

Planning your software publishing business

Market research is a critical early step for all new businesses. You may think you’ve recognized an untapped or underserved market, but you need research to back up your hunch, especially if you plan on seeking outside funding (see below for more on funding).

Begin by soliciting input from people in your target audience. Is the problem or gap you’ve identified in the market a problem for them? Are they satisfied with existing solutions? Would they pay for a better solution? How much? You can gather this information from in-person interviews or focus groups, or online with surveys. You can also gauge interest by launching a Kickstarter crowdfunding drive or posting teasers on social media.

Widespread engagement from the start is the dream, but you should probably avoid the temptation to immediately try to reach the largest possible market. Follow the lead of companies like Facebook, which began with a narrow focus (Harvard students only) and gradually expanded to other schools and eventually to anyone aged 13 or older with an email address.

Your market research should also include a thorough competitive analysis, examining your competitors’ strengths and weaknesses, funding and other resources, and profitability, as well as their market positioning. Your target audience research can provide insight into how your competitors are perceived. Check online reviews for their products and services, too, from both tech journalists and end users.

The competitive analysis will help when you’re determining your pricing—you’ll want to know the highest, lowest, and average prices offered by the competition. Your competitors also might shed some light on the optimal revenue model to pursue. Some publishers rely solely on their software product, generating revenue through:

• Licensing,
• Subscriptions,
• Pay-as-you-go access,
• Freemium pricing (making the basic version available for free, with fees for the premium version), or
• Commissions (e.g., Airbnb).

Others also earn revenues by selling software support, customization, or similar services.

Your pricing and revenue model are among the elements you should cover when drafting a formal business plan. These plans are essential when exploring a new business and should include these components:

• Executive summary (the introduction to your software publishing business)
• Company description (greater detail on your business’s set-up and history)
• Market analysis (data and research on the viability and profitability of your business)
• Financials (budgets, expense and cash flow projections, funding sources, revenue sources, etc.)
• Products and services (descriptions of your offerings and explanations of how they provide value)
• Marketing strategy (how you will build a customer base and sell your products and services)

Ensure your financial plans are specific and fact-based, rather than what you hope for in an ideal world. You should budget for both your startup and ongoing costs, including:

• Business registration, license, and/or permit fees
• Equipment and office supplies
• Computers, servers, and data storage
• Insurance
• Marketing expenses
• Technology (for example, accounting and payroll software)

Depending on your circumstances, the budget might also include:

• Research and development costs
• Software development costs
• Wages and benefits
• Office space, furniture, and utilities

Track your costs closely in the first year to more accurately budget for ongoing expenses. Your budgets should also include a salary for yourself, a profit to reinvest in the business, and taxes.

It’s not uncommon for new entrepreneurs to underestimate their tax obligations. Consult with a professional to reduce the risk of unexpectedly high tax bills, as well as penalties and interest for noncompliance with the numerous tax rules for businesses, such as the mandatory quarterly payment of estimated taxes and withholding requirements for payroll and sales taxes.

Finding funding

Software publishing founders have several options for securing the necessary financing.

Of course, you might not need outside funding. Founders who take the so-called “bootstrapping” approach use their personal finances, money from a previous or existing business, or revenue from the new company to sustain it. Bootstrapping brings a lot of financial pressure, though, and may make growth a slow process (which isn’t always a bad thing!)—but you retain complete control over the business and, if you eventually sell, you alone select the buyer and reap all of the profits. In other words, it’s all the risk and all the reward.

Founders who lack the personal resources may turn to their network for investments. Friends, family, and business contacts might want to get on board. You could need to forfeit some equity in the company, though, and mixing business and pleasure comes with risks.

Grants and loans are also worth considering. The U.S. Small Business Administration has several loan programs, and you could qualify for grants from universities, federal or state governmental agencies, nonprofits, or corporations. The U.S. Chamber of Commerce has compiled a list of grants, loans, and other programs for small businesses.

Some tech founders pursue venture capital (VC). If you go this route, focus on VC firms

that have funded and profited from similar companies in the past. You’ll need to learn what those firms prioritize and how to develop and deliver a pitch. Understand that accepting venture capital (VC) will require giving up a stake in the business, possibly a significant one, and losing some control over important decisions.

Accelerators are another potential source of funding. They generally provide valuable guidance, support, and some funding for startups in exchange for some equity. But they can also give you credibility and help you connect with other investors. 

Satisfying the legal requirements

Another crucial decision is choosing a business structure—or business entity. A software publishing business is typically formed as a sole proprietorship, partnership, C corporation, limited liability company (LLC), or S corporation.

The entity choice is no small issue. It has significant implications in terms of legal and tax liability. For example, a sole proprietorship is usually easiest, but you’ll be personally liable for all business debts and liabilities, and you’ll have to pay self-employment taxes. With an LLC, you can separate yourself from personal liability for the business and pay less in taxes, but it’s more complicated, and you must maintain certain formalities.

Depending on your entity choice, you may also be required to register your business with the local government, city, and/or state. These jurisdictions may also require specific licenses or permits. You may also need to obtain a “doing business as” (DBA) if you conduct business under a name other than your own.

When you hire your first employee, you must obtain an Employer Identification Number from the IRS. You may also need to register with your state department of revenue. You’ll be required to withhold and deposit income tax withholding and each employee’s share of Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA). FICA is a federal tax that employers and employees split. You’re also on the hook for unemployment insurance taxes and must fulfill a range of federal and state reporting obligations.

Additionally, tech companies must comply with federal, state, and international data privacy laws. As artificial intelligence evolves, so too do the regulations. You need to understand all applicable requirements early on and develop ongoing compliance plans to avoid hefty penalties and costly, time-consuming litigation.

While many types of business insurance coverage isn’t required by law, it’s certainly advisable to carry appropriate coverage. You take on extensive risk in software publishing, from inadvertent infringement of others’ intellectual property (IP) rights to costly data breaches, as well as all the typical risks associated with running a business. Policies to consider include:

• Cyber liability: This insurance covers a wide range of cyber incidents, including data breaches, loss of data or code due to a natural disaster, hacking, ransomware, and other cyber crimes. It also might provide coverage if a third party, such as a customer, sues your business.
• Technology Errors & Omissions (Tech E&O): Tech E&O insurance coverage protects you from damages caused by mistakes in your product or service.
• Directors and Officers (D&O): Directors and officers insurance protects your directors and officers from personal losses if they’re sued for allegedly wrongful acts committed in their capacity as directors or officers. It also might cover the company’s related expenses.
•  General liability: This provides coverage if someone sues your business for bodily injury, property damage, or personal injury for things like defamation or invasion of privacy.
•  Commercial property: Property insurance applies to losses to your owned or rented building, tools, furniture, and equipment that result from fire, burglary, theft, wind, or lightning.
•  Workers’ compensation: Workers’ compensation is likely required by your state if you have employees. It covers expenses stemming from work-related illnesses or injuries, including medical expenses, lost wages, disability, rehabilitation, and job retraining.
•  Business owners’ policy: This policy bundles general liability, commercial property, and business interruption insurance into a single policy.
• Employment practices liability (EPLI) insurance: This applies if you’re sued for unlawful employment practices, such as discrimination, wrongful termination, or sexual harassment.

Your specific insurance needs will change as your company grows. A qualified insurance professional can help you assemble the right coverage for your business. 

Setting up operations

At some point, even a garage-based founder must bring on staff. Common positions include:

• Customer service manager
• Technical writer
• Finance manager
•  Accountants
• Human resources
• Marketing
• Sales

If your company will develop the software it publishes, you’ll likely hire developers and engineers, UI/UX designers, testers, QA, and project managers.

Don’t take hiring lightly. The culture at tech startups is usually different from that of most corporate settings. For example, it may require an ability to jump between roles in the startup phase.

While you should be involved in the hiring process, try not to strictly hire people who remind you of yourself. Successful companies need diverse perspectives, as you may also encounter unlawful discrimination claims.

If you choose to rely on independent contractors or outsource to foreign workers, put in place the legal protections required to maintain confidentiality and prevent Intellectual Property (IP) misappropriation. 

Protecting your intellectual property

Intellectual Property (IP) protection is vital to your company’s value. You must develop nondisclosure agreements and service agreements for employees, vendors, and any others who have access to your confidential information. You’ll also need licensing agreements for outside software developers and end users. You should also obtain patents, trademarks, and copyrights in a timely manner as appropriate.

The initial cost might seem daunting, but retaining a qualified attorney for these tasks is non-negotiable. The attorney can draft agreements and guide you through the complex yet crucial processes. 

Marketing your offering(s)

Software marketing is primarily done digitally—after all, that’s where the customers are, whether B2B (for example, LinkedIn) or B2C (for example, TikTok or YouTube). You can leverage social media, paid search engine ads, email marketing, or affiliate or influencer marketing.

The bare minimum is a comprehensive but easily navigated website and an established social media presence. Social media makes it easy to locate and reach specific market segments.

Content marketing has been shown to be a cost-effective strategy for many tech companies. Post regularly—and include items that aren’t just obvious marketing materials. Use your digital channels to share SEO-optimized content that’s relevant and useful, including videos or live events where you demonstrate your software and answer questions, as well as case studies and testimonials. Engage with followers and respond thoughtfully, even to criticism.

You can even use your most engaged followers or satisfied customers to create user-generated content. This often comes across as more authentic and can provide “social proof” about your products.

Regardless of the marketing tools you employ, it is essential to regularly review the metrics to determine which ones are most effective and adjust your marketing plan accordingly.

One thing is for sure: when you start a new software publishing business, you’re going to have a lot on your plate. Check out Gusto’s affordable payroll, employee benefits, and HR solutions.