Subject: Re: street performer protocol
From: "Jonathan S. Shapiro" <shap@eros-os.org>
Date: Sat, 13 May 2000 12:55:02 -0400

>>> [Brian]
>>> How do I get someone who really knows the prices to contract
>>> out to me?
>>
>> [Shap]
>> You point out that it would take them X dollars to write the
>> software themselves, that this would take Y developers who are hard
>> to hire in the current market, that it would take Z months (where Z
>> is always longer than you will take because of hiring and startup
>> and familiarization delays) to build, and that during those Z months
>> all of the things that depend on the software are delayed.
>
> [Brian]
> And then they say, 'and after I've funded your development for you,
> you're going to sell *how* many copies at *what* "value to the
> customer" price??'

The investor/customer argument is diversionary. A better response is:

There may be other customers and there may not. I'm in the problem solving
business. The problem here is that you need this software to conduct your
business, and you don't have time to build it yourself. How much will it
cost you if you *don't* have me build it for you?

> What I'm looking for is the sales argument that *you* would accept,
> for a piece of work that you have complete information about.  How
> does the plumber hire a plumber?  Or the developer a developer?

I would accept an argument based on the time value of money, provided that I
*had* the money to pay you. Actually, the educated customer is your best
friend. The more they know about software construction the higher a price
they will set on building it themselves.

> I have problems discriminating between an undervalue of [slippage] as a
> flawed model, and as a negotiation strategy....

There isn't a distinction. The prevented slippage is probably your major
value to the customer; it's not just a negotiation strategy.

One way to deal with this is to donate some consulting time in the form of
assisting the customer to get a realistic understanding of the cost of doing
it themselves. Take the attitude. "Okay, you're right. You could do it
yourself. Let's take a couple of minutes together and price that out so you
can make a good decision here."

> If you do manage to extract a ridiculous price, and they figure it
> out, you're not going to have a happy customer.

The price isn't ridiculous if the customer understands what they got for it.

Look. Even big stodgy companies are shooting for 10% growth. So you go to
the customer, and you say:

Suppose you had this software in X months (where X is what you can do it
in). How much business will it enable in the next three years (i.e. between
today and three years from today)

Now suppose you do it yourself in Y months (where Y is how long it will take
them). How much business will it enable in the next three years.

Ask for high and low estimates. Now take the discounted present value of
those two amounts using 10% as the interest figure (i.e. what those revenue
streams are worth today if the company realizes it's growth targets). The
fair market value of your services is the cost of development PLUS this
delta. The delta represents the advantage of going with you, provided you
deliver as promised.. You, of course, will prove to be asking much less than
this delta, at which point you can say, "Hey, I didn't realize what this was
really worth to you! I should be charging more."

Now you point out that the developers they don't have working on this rinky
dink thing could instead be focusing on stuff that is vital to the
company -- making money, not playing catch up. Also, you point out that if
there business does well it's going to hurt more to do it themselves, and
don't they want to plan for success?

I guess I'ld summarize this as "know the numbers better than they do".

When it's all over, back off 10% and give them a bargain.


shap