In this blog post, for which a more comprehensive title might have been ‘The most commonly suggested business model for software development projects’, we’d like to have a look back into some discussions with our potential clients over the last years and highlight a common cause why their SW development ideas had not gone through the development stage.
As a part of our business, we’ve always been contacted by many entrepreneurs and companies, who were excited about their business ideas which are based on and/or which involves software development. After certain discussions about the idea and technical details, the discussions come to the cost of software development project, and sooner or later, we receive the inevitable question: “So, OK, how much would the software development cost us?”
No matter if the discussion with the potential client has been on a fixed price or an daily rate, the best reaction we’d like to receive at this stage, obviously, is a go ahead such as “OK, we agree with the price let’s start the project as discussed”. The next best answer which puts the ball in our court could be something like, “The figure you’ve mentioned is a higher than what we’ve budgeted for, if you consider X% of discount, we may work together”. Another, less pleasant to hear feedback would be “Thanks for your offer but we decided not to work with you.” – which, in deed, could be due to price level or another reason the client does not wish to share.
Still, there is by far one worse feedback that might be received from the client’s side, and unfortunately this happens probably more often than others: “Thanks for sharing the cost of software development for this project, what would you say if we share the costs by 50%, realize the project, and then in the future we can share the revenue by 50% as well? After all, we came up with the idea, and believe this is a fair deal, what would you say?”
The last reaction is even worse than a simple “No, thanks.”, because this means that we’ve absolutely wasted our time on trying to create a solution and putting together an offer for the so called business idea. In such cases, we try to explain the following:
– We are an outsourcing company which focuses on software development rather than running a business that depends on software. We do not have the strategy of making investment on a business.
– The approach of cost & revenue sharing shows the fact that even the owner of the business idea does not have full confidence in it, i.e. why to share 50% of the revenue forever instead of bearing a one-time software development cost?
– We of course do not go into this path due to business ethics, but in case we believe the idea is a super astonishing, why would we need a partner to share revenue while we can deal with the software development ourselves?
– Last but not least, as we highlighted in our blog post here, software development cost is only a component in the budget of a business. If we agree to share costs & revenue, this means that we shall be sharing all of the other costs required for running the business after completion of software development phase – which, again, is far not relevant to our strategy.