You Don’t Know Jack! How Software Gets Developed Part IV
Last week, we looked into software complexity and the SDLC in relation to crowdfunded software development along with a diversion to look at the concept of diminishing returns in software. Part III can be found here.
Part II looked at complexity in relation to crowdfunded software development as well as introduced the SDLC and can be found here.
Part I introduced the concept of complexity in general and can be found here.
In part IV, we’ll look at budgets and what they mean in software development.
Budget is important. Without money, little to nothing happens. People need to eat and pay their bills. Without money, something is a hobby and progress is slow. With money, it becomes a job and people can devote more time to doing whatever “it” is. This of course is important because most things which get made as part of a business are looking for an ROI (Return On Investment). Somebody invested some money and if they did so in a commercial endeavour, they expect to earn some money from their investment.
The thing is, crowdfunding is not investing in the traditional sense. Nobody expects a percentage return on their cash. What they do expect is a return on their hopes in terms of enjoyment or utility of whatever they’re crowdfunding, games are an entertainment product so people are likely looking for some degree of enjoyment from the game if and when it gets funded and made.
But how do you budget for something that has no fixed budget? Well, you project. You try to figure out how much money you can reliably count upon and then scale your development to try to match that amount while leaving yourself some wiggle room in the event that something doesn’t go to plan. So when people start saying that a company is screwed because it only has $x left, they’re trying to panic the public and affect that company in doing so.
The simplest type of company to budget for is a one product company. This is for a few reasons:
- You generally have a reasonable idea of your cost centres for production of your product and can relatively easily translate that into how much of it is needed to cover existing development, support, sale, management departments etc.
- Your incoming revenue stream is fairly simple. It’s made up of the revenue associated with your one product! Granted, there may be sales revenue, sponsorship revenue, VC revenue, but even with these separated out, it’s not too difficult to budget for compared to huge companies which have multiple product lines, some interrelated with each other which means that revenue from product x is contingent on the development of product y.
Budgeting for a company is as you would imagine, like doing your household budget but scaled up. Let’s compare it to a house:
Most people live somewhere! This somewhere may be a house or apartment that you own, rent, or have a mortgage on so are in the process of paying to one day own. The costs of living in this place are equated to your rent on office space (most companies don’t own their office space).
Next, you have a lot of smaller outgoings. These may include:
- Food/drink this is what you need to allow you to keep living. Think of this as the engine room of your company. Spending money on something which allows you to keep generating money
- Maybe you have a monthly car payment. This in itself may or may not be required to allow you to earn money but you have figured out that for you, it’s worth it.
- You’ve got all your utility bills, gas, electricity, water.
- You’ve got your ongoing costs like a mobile phone, broadband connection, maybe a tv service like Sky or Netflix, amazon prime, petrol, paying for your kids school trips/fees, etc etc.
Now, I’m obviously simplifying it somewhat, but hopefully to pay for all your expenses you incur in everyday life, you’ve got a job of some sort. Maybe you live with someone and they have a job and contribute too. You see, running a household budget is a lot like running a small company, you have your incomings and your outgoings and you need to offset one against the other. Some people are good at budgeting and end up with a surplus (profit), some people struggle and have a negative number at the end of the month after all is said and done.
The bottom line is, (relevance in the next section, point 2!). If somebody said to you “Hey, over the past 4 years of you working and earning all this money, where has it all gone?!?!?!” If you’re in the UK or US, the average income over that period is about 100,000 of your chosen currency. Would you expect to have most of that available in the form of savings after 4 years? Of course not, and this is no different from a company. Companies earn money and spend money so that they can continue to earn more money and keep making their product(s). This is important to keep in mind for crowdfunded game development.