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How to secure funding for software development

Nov 20, 2020 12:18:11 PM

A ROIal Pain: Securing Software Project Funding

Blue Icon of Money in the Hand on Dark Digital Background.

You probably don’t pay attention to every advertisement you see or hear. (There is so much advertising in modern, First-World life that if you did, you would never have time to do anything else.) But take a moment and consider some of the advertisements you come across.

In any medium (print, web, mobile app, television, radio, outdoor…), an effective advertisement must do two things, in this order:

  1. Attract your attention
  2. Provide you with the minimum information you need to respond

Attracting attention is usually the easy part. Bright colors, interesting images, and text in big letters often do the trick. Some ads draw you in with humor—consider the TV commercials from Progressive and Geico. Some just shout at you; local car dealerships are notorious for this tactic.

The harder part is giving you enough information to respond. Most advertisements have at most a few seconds to convey their messages. If it takes too long to convince you that you need what someone is selling, you will move on and forget about it.

Marketing people understand this intuitively. People outside marketing; not so much. But there’s nothing magical about it: It’s all about conveying the benefits in bite-sized chunks.

In this article we’re talking about selling: in particular, selling a proposed software project to company management in order to persuade them to fund the project. In this era of high-risk digital transformation projects, it’s of vital importance that companies invest in the right software projects, so management needs good information with which to make their decisions.

The good news is you have more than a few seconds to present your case. The bad news is it’s still tricky to convey all the information they need to get to “yes.”

All About the Benefits

Securing funding for a software project is not fundamentally different from selling a hamburger: It’s all about the benefits. This is true whether the project is developing software for external customers or for use within the business. The benefits manifest themselves in a somewhat different way in each case, but they still must be conveyed in a clear and convincing manner.

The main benefits company management is interested in are about money: How much additional revenue will the software generate, and how much will it reduce costs?

Quantifying these benefits can be difficult, but it’s the only reliable way to get the funding you need. Below are some ideas:

Increasing Revenue

The revenue benefit is easier to quantify for external software. You need to research your proposed market and determine what they need, how much they want it, how many people want it, and how much they’re willing to pay for it.

Another important factor in external software is the proposed monetization model: Will the revenues come from in-app sales or advertising, or will customers pay for the software itself? If it’s the latter, will they pay one time for a perpetual license, or will they pay an annual maintenance charge? For enterprise software, is the software licensed on a per-user basis, or some other model?

It’s trickier to tie internal software to revenue increases unless the software directly supports the sales process or is needed in order to increase the production or quality of your products or reduce backorders.

In either case, it’s important to be realistic about the revenue projections, which means they need to be backed up by solid research and safe assumptions.

Decreasing Costs

Rare is the external software that can decrease your operating costs, but it can happen. For example, perhaps you are proposing an app that encourages users to perform some useful crowd-sourced task for you in return for rewards points or some other low-cost compensation. For the right task, this approach can be an effective way to get something done.

For most internal software, decreasing costs is going to be your main selling point. As with revenues, you need to have solid facts to support your cost-saving projections.

For example, in manufacturing, you can use time and motion studies to determine how much it costs now to produce a product and base your costs savings on the expected increase in efficiency or productivity. Software that automates a manual process is easier to sell because you eliminate all labor costs from the process.

Software that increases production quality can also decrease costs by reducing rework and scrap. Be careful, however: It might be unrealistic to expect any software solution will eliminate all quality issues.

Other Important Components of Your Pitch

There are a few other important components of your “sales pitch” that cannot be overlooked:

  • State the risks – Every project has risks, such as the risk market dynamics will undergo a drastic change or a competitor will have a better product or release a similar product sooner. Be honest about the risks; more important, describe how you will mitigate them.
  • State the software costs – The costs to develop and deploy the software are important because they determine how soon the software project will pay for itself. Don’t understate these costs; if anything, pad-in some extra for unexpected expenses.
  • State your assumptions – Any projections are based on assumptions. Make sure they are clear, complete, and realistic.
  • Use visuals – Just putting numbers in your slides is boring. Use graphics or video if appropriate.

ROI Is King

…and not just in France. The bottom line for company management is exactly that: the bottom line; the return on investment (ROI).

What’s the total benefit (increased revenues plus decreased costs), how much do they need to invest in the project, and how soon will it pay for itself?

If you can show they will make their money back in short order and back-up this assertion with thorough research and realistic assumptions, you should have no problem getting the funding you need to make it happen.

Brian Geary

Written by Brian Geary

Brian is a true believer in the Agile process. He often assists the development process by performing the product owner role. In addition to his technical background, he is an experienced account manager with a background in design and marketing.

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