Software Destinations

Here is the second deadly sin of a software company CEO - running out of money. In fact, there is another deadly sin related to financing, but lets cut to the quick of it and talk about a software company’s money supply for meeting goals. As simple as this sin may sound (and you think, avoid), it happens because of very common misconceptions.

First, lets remove a little denial: an accountant manages and dispurses, but an accountant is not a software industry executive — you are. As a software company CEO, one of your jobs is to ensure that the project of building, releasing, marketing and supporting is the result of professional analysis. Barring earthshaking shifts in the market (you should estimate the impact of the “reasonably possible”), getting from zero or less to profitability must have the proper financing plus enough left over to cover undesirable but potential costs, such as development delays. Even the most well respected and powerful players in the software industry have delays that can increase costs. The one with all the answers regarding software industry specifics is the CEO, not the accountant.

Have contingency plans for both money and resources. Here is a lesson straight from J. Michael Straczynski, a well known television screenwriter. As a screenwriter for tv series, he knew that budgets could be cut at any time and, actors can suddenly quit, have impeding accidents, die or otherwise get knocked out of the show on short notice. So JMS creates contingency plans to write out actors in a way that does the least amount of damage to the continuity to the show. In the same respect, a CEO has to have at least a rudimentary plan for budget impacting contingencies – what to do prior to running out of money to stop the bleeding. One of the most common situations I see this occuring is when the development dramatically overshoots the schedule and eats up necessary funds to become self sustaining. Treat nothing as a sacred cow, including engineering.

For example, Ive seen small software vendors experience six month development delays and consequently change from having a $500,000 war chest to being $100,000 in debt by the time they ship. The initial $100,000 gets burned off in the initial release month, however, there is no budget left to market and promote. That is, to create a sustained, healthy revenue stream. They simply sputter and run out of money. This is foreseeable and responsibility rests squarely on the shoulders of the CEO.

Two methods of making burgers from the engineering sacred cow is to have a contingency plan to ship earlier rather than later and to make use of outsourcing.

Ship Earlier Rather Than Later. There needs to be an equivalent to the salesman’s ABC (”always be closing”) for engineering. Always be shipping? For example, modularize so that either you can ship a cut down but sellable version earlier or, components could be easily adapted to licensing to other developers. If the final product looks like it may slip, you have a short term out. Of course, you have to pad that cut down release so that it doesn’t hurt your long term viability.

Outsource What You Can. This is the first you have heard from me on outsourcing, but it will not be the last. Engineers get very emotional when it comes to the topic of outsourcing. The best case is that your entire engineering team is down the hall, so you can find clever ways to maximize their contribution. On the other hand, software components can be outsourced to order, according to specifications provided by whomever is leading development. There is no reason not to, provided you have a good relationship with an outsourcer.

Even with the best laid plans, you should be prepared for engineering cost expansions of 20-50% before the first line of code is written.

This article now updated and revised on The Technology Tribe.

This entry was posted on Saturday, August 20th, 2005 at 11:42 pm and is filed under New Vendor, Outsourcing, Offshoring. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.