2. Supporting Development

A parable in the Bible talks about counting the cost of something before you start to build. That truth is ancient and obvious, yet I’ve seen too many companies ignore it. Once you know what you want to do, you have to figure out how to do it — and particularly how much it’s going to cost. Resources required include people,money, time, mind share, technology, and information. They are all expended as development proceeds, and not all are renewable.

Sun Tzu talks in his second chapter about the resource issues of mobilizing troops and waging war. What’s important, he says, is to succeed as soon as possible; the longer things drag out, the worse the results, regardless of how much “better”the product. If you don’t believe me just ask anyone (else) who has shipped a product a year late.

Product development requires

— sufficient computers and devices

— high-speed communications to connect them

— the employees to make use of them

— and the funds to provide all these until and beyond product release.

It is still possible for an outstanding concept, technology, or product to be designed and developed by a few people working in a garage or cheap office. What is almost impossible is for those same few people to get visibility and traction in the market on their own, or to support their product(s) if they do get lucky. Customer expectations of quality —functionality, reliability, performance, ease of use — are at a very high level, and there are a lot of fiercely competitive companies that can provide that level of quality.

The cost of supporting these employees for 18 to 24 months, including salary, training, travel, marketing, and money spent on equipment, office space, utilities, and supplies, will amount to roughly $10,000 per month per person. Such is the price of new product development.

This is just a broad rule of thumb and will vary according to various factors (location, etc.). Also, this can be and often is done more cheaply by startups, as it should be, though it is unlikely to be less than half the cited rate. On the other hand, in large or more established businesses, the true burn rate is often less visible and less considered (except by the CFO). What is important is not the actual monthly figure, but that you determine what that figure is and realize its implications.

When you develop a new product, if product completion and launch drags on too long, your developers will become less effective and less interested.

It is a challenge to sustain energy and excitement through the process of actually getting the product out the door, particularly if the schedule slips due to feature expansion or changing directions. 

If your product is going up against successful, entrenched competition, your developers will become weary and discouraged.

Likewise, once the product is released, if returns are small and the product can’t get traction against existing solutions, developers can get discouraged and start looking for the door.

If your product development effort takes a long time in coming to market, you will deplete your financial reserves.

If production completion drags out or if market share is slow in coming, you may run out of funds or, at best, continue to dilute your ownership by seeking more investment.

When your technology is aging, your developers are burned out, your market position undermined, and your resources diminished, then others will take advantage of your weaknesses and cut into your market. Even expensive consultants and brilliant CEOs won’t be able to turn things around.

Few technology companies manage to keep themselves in a lead position for more than five years. At that point, they usually become victims of their own success. The visionaries who founded the company are either gone or given emeritus status. Market focus is on adding yet more features to old, bloated products. No one with authority is willing to risk coming up with new products and technologies that might cannibalize existing ones.

And so the companies start on the long (or, sometimes, not so long) glide downwards, shedding products and people, sometimes merging with other firms on the downward slope. Some companies manage to level off, or at least to slow the rate of descent, but they rarely regain their former status; their place in the market has been filled by other companies with newer products and technologies.

There have been some successful product releases that were rushed and premature, but there have been few that were well executed yet took a long time to come to market. No company has benefited from dragged-out development and tedious competition.

Developers can typically sustain a high level of energy for 18 to 36 months, depending on how hard they’re being pressed. After that, they start looking around for something new to work on. A project that takes too long getting out the door runs the danger of never shipping, because key developers keep leaving to go work on something else, either within the company or outside of it.

There are other significant internal and external problems caused by prolonged development. People within the company begin to lose heart, bicker, and find fault with each other. Customers question the company’s ability to deliver products in a timely fashion. Competitors use your delays against you to win customers and sow doubt about you. Even allies begin to doubt and may seek to distance themselves from you.

Those who don’t understand all the risks and dangers in product development and release cannot understand the best techniques to be used.

Many books have been written about these issues and risks. The single best summary remains The Mythical Man-Month, written by Frederick P. Brooks, originally published in 1974 and updated in 1995. It is dead-on its explanations about why projects fail or, at least, are late and over budget. It should be mandatory reading for every single employee in a technology venture, as well as any associated investors and directors.

Those who handle product development skillfully do not build engineering teams twice, nor raise capital three times.

Building product development teams twice means having to replace the original engineers with new ones in the order to complete the product. There can be any number of reasons for having to do this: the engineers get burned out; the engineers get disgusted with upper management and leave; the engineers lose faith in the company and its directions, particularly if they view the product as being “hijacked” and taken in a different direction by latecomers to the company, or the engineers are replaced and/or fired, either because of insubordination or because they weren’t the right ones for the job in the first place.

Raising capital three times before product release indicates that development and launch have taken too long.The first round, often private or even ‘sweat’ equity, is usually essential to get the company off the ground. The second round may be necessary to ramp up for release, or because of changes in product direction and/or the all-too-common delays in production development. But you’re in trouble if you raise a third round of capital for anything but product launch, and possibly even then. Not only does that mean that you’re late in shipping, it also means that you’re surrendering equity — thus reducing equity incentives for existing employees — and that you do not have sufficient cash reserves to keep the company going once the product does finally ship.

Focus on creating outstanding development resources, while recruiting the best developers from your competition. This way, you can excel in both tools and personnel.

Invest in development resources, that is, the equipment, software, and resources used to actually create the product. All the money you can think of possibly spending on those resources probably won’t equal what you’ll lose each and every month if your product is late. Likewise, be willing to devote people to creating custom in-house development resources. It’s easy to choose not to do this, because you can often “get by” without such tools and you maybe concerned about the return on investment. But the right tools can make significant difference in product quality and time to completion.

Some of the best people to do your product development are at other companies and are probably at your competitors. Recruit aggressively and hire the best, strengthening yourself and weakening your competition.

Outsourcing product development to other firms may in the end cost the company more through communications difficulties, lack of ownership, and loss of expertise.

Using outside developers is often appealing and may appear to make economic sense, but unless the quality of the resulting code is outstanding and there is extensive knowledge transfer back into your firm, this approach usually costs more in the long run.

On the other hand, local salaries, support expenses, and cost of living may be quite high, particularly if there is competition.

This, of course, is the dilemma in location like the Bay Area, where it can be very expensive to hire, support, and hold onto good personnel.

If product development expenses are high, you may burn through your money too quickly. Investors may be reluctant or unable to provide more funds.