I received the following email this morning, which I’ve edited to protect the sender’s identity and to cover the salient points:
I sell a software product that is under development. My problem is I can’t finish the work with the money on hand, my customers are beginning to notice, and I can’t find the path to finishing the product. The cost of the project does leave any margin for error.
We have made some good sales but we are lagging in development times. I have more sales lined up, and one customer liked us so much that he wants to invest in our company, but I told him first let me finish his project.
This project has a lot of potential, but we can’t even finish simpler things.
What would you recommend?
This is a common situation with many businesses, and especially software development projects. I’ve been in similar situations myself, which is why my first response to this entrepreneur was “Wow, this sounds so much like experiences I’ve had. I feel your pain!”
Software development always takes a lot longer and costs a lot more than you think it will. Companies developing software usually don’t go out of business because they have a bad idea or don’t know how to sell their software, but because they run out of money before they can bring in enough revenue to pay the bills. This gentleman is right in the middle of that. What’s my advice? Here’s what I told him:
It might sound simplistic, but you don’t have many choices, and that’s a good thing. It makes things easier. The hard part is making the decision, because none of the options is fun. Here’s what I see as your potential paths to success:
- Get people to work for you for free (or for delayed compensation, with the risk it may never come)
- Get a loan
- Get an investor
- Get customers to pre-pay for the product
#1 is probably difficult and unrealistic. Even if you can convince developers to work for free today, which isn’t easy, they might change their mind tomorrow.
#2 I’m not sure how feasible this would be for you, and it might take a lot of time you don’t have.
#3 Sounds like you already have one. It also sounds like you’re trying to do the right thing and finish the product first, but perhaps it’s time to have an open dialogue with this customer and seriously consider him as an investor. Before doing so, I would read the book The Founder’s Dilemmas by Noam Wasserman. Bringing on an investor is never as easy or as fun as you might think, but it may be the only thing that can save your company and it’s worthy of consideration if you’re company is worth saving.
#4 Can you sign up more customers than you already have and get more funding that way? Enough to finish the project and then some? You may be surprised how willing customers are to share the risk with you, especially if you have a credible plan. When you’re successful they can then become your biggest advocates.
One more option:
5. Do less. Are you taking on too much with the first release of your software? What are the core components that will be the most valuable to your customers? Can you roll out a single key feature next week, start making money, and then add features as you’re able? If you haven’t already, read The Lean Startup by Eric Ries.
Hope this helps, let me know if I can answer any other questions.
Of course the other option is to go out of business. Sometimes it’s best to pack things up, learn some lessons, and start over with something else.
The fatal mistake in this situation is to ignore the problem. The choices are simple, but not easy. Ignoring the problem is to choose to go out of business, and to do it in the most expensive, painful way possible. Hopefully this entrepreneur makes one of the other choices, and I hope it works out for him.Liked it? Share it!