Accidental Entrepreneur: Basic Project Planning with Finance in Mind for Dummies
Welcome to my 30th weekly article as this week is called “Basic Project Planning with Finance in Mind for Dummies!”.
In this article I’m going to go through the key elements of what it takes to launch a successful product which include but aren’t limited to project planning, execution, financial consideration along with execution.
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My goal is to be able empower folks to go after their goals and reach their full potential!
“அழிவதூஉம் ஆவதூஉம் ஆகி வழிபயக்கும்
ஊதியமும் சூழ்ந்து செயல்”. — திருக்குறள் (461)
“One should consider Expenditure, Return, and Profit of the
deed in time to come; weigh these, then to the act proceed.”
— Thirukkural (461)
The Basic idea for building a product or starting a company is to create a product which can be sold in the market to customers in a profitable way for the creators. The product can be a physical product, software tool or services. Before jumping into product development, it is important to analyze the two items from a finance point of view. First one is the cost and effort associated with building or creating the products. The second one is the customer aspect of returns once the product is built.
My personal experiences in this area taught me good lessons. When I started the first company in my twenties, I was running the department which spent close to 75% of the investors’ money which was around US $10 million. It wasn’t an easy task to manage the budget but I followed the following principles to organize the projects and plan the budget which yielded successful companies.
Resources or Headcount: For company success, especially startups, a key component is hiring the best people who can help with main product development as well as fill in any gaps for effective project execution. There are three kinds of employees I looked to hire:
- First one is a few experienced people who have worked on many complex projects and been successful in taking the product to the market.
- Second ones are the specialists who could be experienced or recent college graduates, but have specific areas of expertise which the company needs
- Third one is recent or fresh graduates who are smart but can be molded to deliver high quality results.
Financially looking at the budget, it is important to hire the right mix of people to fill in the positions while meeting the financial restrictions. In my experience, since the founders had solid technical backgrounds, we hired very few experienced and specialist people. Then we hired many more young recent graduates to learn and produce over time. Also in compensation, we provided the employees with equity in the company to motivate them. The success of the company would eventually create financial success for the employees. I can proudly say that we made many of our early key employees millionaires by providing them good equity in the company. Few additional pointers during budget planning for resources:
- Total cost for each resource is 20–25% higher than the basic salary due to medical insurance benefits, office location, IT expenses, Tools and other expenses. Keep some amount in the budget for these.
- Be fair with compensation among team members.
- No one in the company or project is irreplaceable.
Vendors and External Resources: Once the internal resources are planned and hired, the second aspect of expenses come from buying productivity tools/contract resources. These are normally targeted expenses to complement and enhance the internal team.
Few such items are:
- Tools such as Slack and others to improve communications and collaborations among team members.
- Feature, task and bug tracking applications such as Jira.
- For hardware development, tools from CAD (Computer Aided Design) companies are a must for accuracy and to manage complexity.
- Design houses and engineers to augment the internal resources for a short duration to develop the product. These are seasonal or only needed for specific phases of the development.
These tools and resources can be expensive. By managing the right time to get them involved and utilizing them effectively, one can save a lot of money. I will be providing some tips on optimizing these expenses in the last article in this series.
- Planning with Production Scaling in Mind: Success of product development is ultimately winning customers and selling products at reasonable profit. Once the product is developed, it is difficult to go back and change much. By thinking about the product cost from the early stage of the project, it is easier to control the cost and make right decisions on the following items:
- Choosing right components: This could apply to purchasing licenses to include in the product or hardware components. By considering the minimum and maximum opportunity size and minimum order quantity, the team can choose the right vendor.
- Choosing the right manufacturing house: At the beginning the volume would be low and turnaround time needs to be short. Balancing between cost, minimum build quantity and lead time to build the products, one can select local versus remote manufacturing houses.
- Choosing components with a second source: This hits hard when a product needs to be scaled suddenly. When possible, during the design phase, it is critical to analyze and incorporate components which can be second sourced.
- Minimalisms: I like this quote that “The Best code is the code you don’t write” or “Best HW design component is the component never used in the design”. What these codes imply is that by minimizing the code and component, reliability of the design improves and cost of the product goes down.
These are some simple yet important principles to optimize the financial expenditures which increase productivity. This can be applied to small startups as well as large corporations. Hiring the right personnel/resources and aligning their capabilities with the necessary tools combined with the right decision making with the new production introduction (NPI) phase can mitigate the major setbacks during the overall development process. I have always had the production and scale as the ultimate goal, which was backed by decisions made accordingly from the first day of the project. This is one of the secret sources for the success of both of the startups. These are my financial principles for success, what are yours?!