Facing Customers learned lessons, Words that customer hates

Angry-Customers

In software development projects, one of the most hated sentence by customers is when you say to him “This is a new requirement” … when we say this sentence -as a project manager or business analyst- we usually wait for an unexpected behavior from the customer 🙂

Actually both hate it, the customer and the development company. Customer hate it because it -definitely- means extra cost and time !.
The development team hate it for the following reasons:

  1. Project manager knows that he will get into a lot of arguments, debates, and negotiations with the customer and the development team lead about the new requirements.
  2. Team leader will check if this requirement needs a major or minor changes in the system architecture. Major changes mean higher cost and also some team depression.

There is a rule in software engineering saying that

“The best ever written requirement document represents only 80% of the customer vision”

I strongly believe in this rule and i consider it one of the axioms in software development, and one of the major reasons why agile development methodologies are introduced.

Development team has to deal with this rule as a fact. Customer always asks for new requirements. This is normal, and it happens all the time. Team should think how to deal with it rather than resisting it. Team should have tactics and best practices to deal with it.

One of the management tactics i followed over years, is to manage the customer expectations and psychology. I want the customer to get used to this sentence, not to hate it. Customer should be aware that we develop his ideas and thoughts, we help him get these thoughts and ideas into real life. As a result, each time he sees part of his ideas come real, he will have comments, feedback, changes and enhancements.

Also we will let him know that not all changes require extra cost and time, but in all cases, we should fill a new requirement form. We want the customer to get used to this document and this sentence too. So when you come at a time and ask him for extra money or time, you have something to negotiate with, as you did him a lot of enhancement without any trade-off.

act like rich people

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Sales, Marketing, and Strategy !

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The Cash flow template…

download the excel template

Many visitors who visited my 3 parts article that talks about how to make a financial plan that rocks, and also those who red the article about “how to valuate your startup company” asked me for the template i used…

here is a link for the template, enjoy …

Cash flow planing and valuation template based on DCF

this template is well explained in the four blogs below

How to Rock your start-up project Financial plan – Part.1 (Build the template)

How to Rock your start-up project Financial plan – Part.2 (Make different scenarios)

How to Rock your start-up project Financial plan – Part.3. (Financial decision criterion)

How much your Software startup company worth

the first three blogs show how to plan your cash flow, the fourth shows you how to calculate the discount rate…

if you find it useful and helpful, please don’t forget to share it and to follow my blog.

Thank you all

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I am starting a SCRUM course…

I am starting a course on SCRUM frame work. For those who do not know it, it is a management framework that you can use  to manage any rapid changing project or business. Usually used to manage software development teams. But i believe, any project manager in any business domain, any entrepreneur or any executive should know about it.

At the end of the course, I am planning to have video lecture on how to use scrum to manage your life and family activities.

Please subscribe to the channel hosting the course to know about new lectures, and please like and share the lecture.

Channel URL https://www.youtube.com/user/MoveITChannel

Thanks

Being CEO

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people have this vision of being the CEO of a company they started and being on the top of the pyramid…

What it’s really like: everyone else is your boss – all of your employees, customers, partners, users, media are your boss. I’ve never had more bosses and needed to account for more people today.

The life of most CEO’s is reporting to everyone else … if you want to exercise power and authority over people, join the military or go into politics. Do not be an entrepreneur.”

Phil Libin, CEO of Evernote.

How much your Software startup company worth

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Three years ago, i planned to raise an investment in my company. The first question i asked myself then was, How much equity the investor will take for the money he will invest. That was a very hard question …

The first thing came to my mind then is to go for a financial expert to do the company valuation. Their rates was shocking and i get back and decided to do it myself. From the first moment i decided that, i realized that it will take a lot of time, could be months. I am an engineer, but i already have a good accounting background from a 3 months dedicated course. And hence I started by Google and red a lot of articles about “company’s valuation” just to decide the study road map. After a one month of reading articles. i searched for a course about financing. Coursera was a very good destination and i got a course there for 8 weeks from Michigan university. After that course, i went back and red again all the articles i red before. and you can definitely say that this article is a summary of my findings. I hope you like it and find it useful, if you do please share it and leave me your feedback and comments.

For a company that all its value is in intangible asset like a brand or software or portal, You will not probably find a way to valuate it except with the “discounting cash flow” approach. In this approach, you valuate your company with the business it can generate in the future. simply, how much business you can do in the future defines your current value.

to work with this approach you need to know two major things:

  1. Your Sales and profit forecast over five years at least.
  2. The discounting Rate (the rate you going to use to discount your future cash flow into present value).

discounting approach

In a recent article i have wrote about “how to build a financial cash flow plan“. and Soon i will write about “how to build your business plan“. This article is focusing on how to calculate Discount rate.

A major factor in applying discounted cash flow approach is the discount rate. Discount Rate is calculated based on three sub factors, below we will talk about how these three factors are calculated and how they are affected by the country you live in. I have made two examples, one from USA where i live and invest now, and the other from Egypt, where i used to do business before.

Rate of Return of the risk free:

The risk-free rate of return is the theoretical rate of return of an investment with zero risk. It is a theoretical concept as there is no risk free business. and it is used as starting point for calculating the cost of equity and capital.  For instance, a bank considering a loan application will start with the risk-free rate and then add additional interest for other risk components such as default risk, inflation risk, and, if the loan is to a foreign company, currency risk.

Usually it is calculated based on the return on government bonds as it could be the most safe investments.

In Jan 2015

  • Return on USA ponds is expected to reach 3.4% at the end of 2015 for 10 years bond.
  • And it is almost 15.27% for Egyptian government over the same period.

Definitely we can not take the market risk free factor as a discount factor for our business. the Discount factor in other project rather than government bond is higher, because the risk is higher, so how much higher is it …

Market Risk premium:

Market Risk premium are percentages that you just pick it up from the internet, we don’t much care about how it has been calculated. It reflects the economical and political stability of the country.

As per Jan 2015:

Egypt: Moody’s rating: Caa1, country risk premium is 4.42%.
USA: Moody’s rating: Aaa, Country risk premium is 0.00%

In 2011

Egypt: Moody’s rating: Ba1, and the country risk premium is 3.6%

Ref: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

Beta industry factor:

In finance, Beta is generally a measure of risk. so each industry has a calculated beta factor. it changes every year based on global economy health. You can check beta factor of each industry from this link:

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html

By jan 2015…
software (entertainment): 1.12
Software (internet): 1.19
Software (system and applications): 1.1

so based on three mentioned factors and considering that i work in the software (internet) industry then the discounting  factor in Jan 2015 is as follow:

For USA: (3.4%+0.00%) * 1.19 = 4.046%.

whereas for Egypt: (15.27%+4.42%) * 1.19 = 23.43%

Now you know the Discounting factor in which you going to use to discount all your future cash flow that your company can make … into today value.

Now you must have cash flow forecast for 5 years ahead. please review my article ” How to Rock your start-up project Financial plan – Part.1 (Build the template)”  and i prefer you plan your forecast based on this template.

Also review the article “How to Rock your start-up project Financial plan – Part.3. (Financial decision criterion’s)”  to know how to calculate your project Net present value. when you calculate your Net present value, you will use the discounting factor we calculated before.

Many entrepreneurs stop here and assume that the NPV is equal to their startup value, actually i did that before… 🙂

I think you may do that, if your idea is not tested in the market yet, and you have no good prove that your idea can fulfill and meet your forecast expectations. But if your idea is already generating money and you used your cash flow history as a prove that you can fulfill and meet your forecast, then your will be less estimating your company value if you sold it at the NPV.

You have calculated your NPV based on a 5 years cash flow. In real life, your project will not stop and terminate at the end of the 5 years… right ? … your project will continue generate money, and the company could last for decades making profits. how do you include this factor.

Here comes a factor named:  Perpetuity net cash flow (NCF). A perpetuity is a constant stream of identical cash flows with no end. we will keep things simple and make it equal to the net profit at the end of the fifth year. (assuming that you continue generate the same profit every year, not more nor less)

Then we will calculate the “Future value of perpetuity NCF” by dividing the perpetuity NCF over the discount rate calculated above.

Then we will calculate the Present value of the Future value of perpetuity NCF.

And finally the project value is equal to the NPV over the 5 years and the present value of the Future Value of perpetuity NCF.

Feeling lost 🙂 …. here is the Example…

I will make an example using a cash flow stream of one of my projects. i will assume that the project will have the same cash flow stream in Egypt and USA and valuate the project based on the discounting rate calculated above.

In Case the project is valuated in Egypt:

eGYPT

NPV = 1,115,929.50$
Perpetuity net cash flow (NCF) = 2,397,099.94$ (net profit in the last year).
Future value of perpetuity NCF = Perpetuity net cash flow / Discount factor = 2,397,099.94/0.2343 = 10,230,900.30$
Present value of perpetuity NCF = 3,571,167.39$ (see the following figure to know this value is calculated)

Then the company value Equals 1,115,929.50 + 3,571,167.39$ = 4,687,096.89$

PV

Now lets repeat it with the discount factor in USA.

NPV = 2,769,570.18$
Perpetuity net cash flow (NCF) = 2,397,099.94$ (net profit in the last year).
Future value of perpetuity NCF = Perpetuity net cash flow / Discount factor = 2,397,099.94/0.04046 = 59,246,167.56$
Present value of perpetuity NCF = 48,588,408.69$

Then the company value Equals 2,769,570.18 + 48,588,408,69$ = 51,358,050.87$

An important note i should mention here, is that i compared USA to Egypt, assuming that the project will make the same cash flow stream in both countries which is not right, and assuming the same taxation rate, which is not right too.
I just fixed these two conditions to have some insights on the effects of Risk free return and market risk premium.

I did my best to simplify it, if you have a basic knowledge about financing, i mean you know about the NPV, FV, …etc. then mostly you will not find a problem understanding this article. If not, you may need to read about it from the internet. and you may follow the steps i provided to you in this article even if you don’t fully understand it.

Finally, if you like it please share it. If you have any question, i will be very happy to answer you…

You can also download the template from Here
download the template

Creative Marketing

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I once red about a marketing campaign led by Judy Genshaft, the president of Florida university. The University was building a a specialized research center in biological engineering and bio-economy, and they did not have enough money for that.

Judy sold the the bricks that going to be used to build the center for business men who graduated from the university. Each who wants his name to be written on a brick on the center walls, pays 100$. And those whom want their names to be written inside the center halls pay 10,000$ !!!

And it works, the center has been built using the money paid by those who want their names to be written on the center bricks.

Funding and investments are not necessary come from the usual channels we know. Try think out of the box, find alternative ways, extend your mind, stretch your capabilities, and think in groups.