Industry Experts Round: Top 9 Reasons Why Software Projects Burn Money

Industry Experts Round: Top 9 Reasons Why Software Projects Burn Money
Industry Experts Round: Top 9 Reasons Why Software Projects Burn Money

Startups face a daily challenge: how to carefully manage cash flow while meeting the expectations of workers, investors, and customers. Success appears to be all about managing burn rate for many young companies. Outsourcing software development in the early phases of a company can help accelerate time-to-market, allow greater agility (recruiting, human resources, etc.), assist in writing product specs to handle scale, and significantly reduce cash burn rates.

In recent weeks, startup cash burn rates have been the subject of extensive analysis, from Mark Suster to Marc Andreessen, to Bill Gurley (covered on the Wall Street Journal and on Business Insider) and even the BBC have run articles on the topic. I even came across a quiz from Joe Floyd at TechCrunch: “How to tell if you’re burning money too fast”.

In the process of developing new software, it’s easy to incur unplanned costs. It is estimated that software development projects can cost between the mid-five figures to seven figures, as revealed by Forbes. And 1 in 6 projects experiences a cost overrun of 200%, according to Adeva. The failure to manage projects properly can be one of the most costly mistakes software developers make.

Software development projects can burn through cash unnecessarily in several ways. Below are 9 industry experts weigh on why new software projects lose money and how to avoid them.

1. Failing to Verify The Needs of Users

Vipul Shah, COO, Ace Infoway


An experienced product analyst can aid in capturing valuable user feedback, says Ace Infoway COO Vipul Shah. As a result, you will be able to adjust your expectations.

It’s easier to fall in love with your idea than to verify whether users need what you’re building,” said Shah. “I call this phenomenon ‘Visionary Premises’. According to a Standish Group report, 47% of new software applications face challenges, while only 4% are successful and 49% fail. Every entrepreneur believes he/she is Steve Jobs. Nevertheless, you should hire a good product analyst to conduct small user studies and observe how people interact with prototypes when you begin developing your software. Make sure you listen to their feedback and adjust your expectations accordingly.”

2. Taking Longer Than Expected to Complete

Ilija Sekulov, Marketing & SEO, Mailbutler

This can be due to a variety of variables, including unexpected technical challenges, changes in project scope, or project management problems. As a result, the project may necessitate more resources (for example, extra developer time and hardware) and incur additional costs, resulting in a higher burn rate. To address this problem, it is critical to carefully plan and manage the project from the start. This can include defining clear project goals and objectives, developing a detailed project plan with realistic timelines, and allocating adequate resources (e.g., people, hardware, software) to ensure that the project is completed effectively and on time.

3. Outsourcing Projects

Rosmy Barrios, Director, Health Reporter

Industry Experts Round: Top 9 Reasons Why Software Projects Burn Money

One critical thing to remember is that outsourcing can be costly. Outsourcing is frequently essential for projects that require expertise beyond the capabilities of an internal team or when there is too much work for the existing staff, but it should be carefully planned and budgeted.
Companies may also build their own software engineering teams; this long-term investment may generate more value than spending money on all external resources. Whatever strategy is taken, it is critical to recognise how quickly finances can be strained during software development, plan prudently, and modify accordingly so that projects do not become cash drains!

4. Seeking Funding Before Clients

Yongming Song, CEO, Live Poll For Slides

Software development projects involve a lot of trial and error, which is fueled by the desire to make it large, which leads to major blunders. One blunder is to start fundraising before you’ve gotten enough traction. The truth is that without a significant number of clients, the endeavour will never be economically viable.
A cost-effective answer is to seek funding only after speaking with potential clients and agreeing on lucrative deals. It is critical to put your ideas to the test before pursuing funding.

5. Cutting Corners During the Planning Stage

Ryan Igo, Revenue Marketing Manager, Surety Systems

The planning stage is the most essential step in the software lifecycle implementation process, but it is also the most difficult to get right, regardless of the type of software.

If there is a migration or upgrade, clients must grasp how business processes and interfaces differ across systems. Not only should managers collaborate with the software vendor’s implementation team, but end users should also evaluate scenarios to guarantee a smooth transition. These projects are prone to having extended deadlines and going over budget due to issues discovered in the middle of the project that should have been addressed during the planning/discovery period. Even if it means postponing the start of the project, measuring twice and cutting once results in a better-managed project.

6. Poor Planning, Resource Management, and Communication

David Stellini, Co-Founder, All Front

Poor planning, resource management, or communication can lead to cash burn in software development initiatives. Inaccurate estimates cause delays and additional expenses, while poor resource management causes setbacks. Disagreements, wasteful spending, and rework are all the result of poor dialogue.

From exploration to deployment, successful software development projects adhere to contemporary methodologies such as Agile. This enables teams to adapt to changing requirements while keeping expenses under control. Proper communication routes ensure that progress is made and roadblocks are identified.

Building a solid product is preferable to gradually introducing new features. This expedites creation, testing, and the time to market.

Article orginally published on Ace Infoway official site:

7. Not Establishing a Customer Support Portal

John Willis, Founder, Convert Free

One of the simplest ways to waste money on your innovative project is to fail to create a solid customer support portal. You’ll find that many of your software’s users have questions. Customers will abandon your programme if they are unable to reach you for assistance.

A strong support network can guide consumers through multiple funnels and provide a more well-rounded user experience. It’s all too simple for a development team to incur unanticipated costs when creating new software. If the project is being built for internal use or for a specific customer, ineffective scope creep can drive up costs, and an app that is released but does not work as intended can result in a lower-than-expected return.

8. Hiring Inexperienced Developers

Yogesh Kumar, Digital Marketing Manager, Technource

Inexperienced developers can take longer than usual software development time, and it can burn cash. They will need more time to understand your project and implement what you want in it. Often, in this situation, using the latest technologies can be a challenging task for developers. You can address this situation by following some steps:

  1. Be clear on what you want
  2. Keep a record of everything
  3. Make updates regularly
  4. Decide the financial limit for each task

9. Ignoring Scope Creep

Rengie Wisper, Marketing Manager, Check CPS

Scope creep is the most common source of software development project burnout in my experience. When dealing with a new client, it’s critical to get everything out on the table as soon as possible. If something is going to change during your project, make sure it occurs from the beginning so you don’t end up wasting time and money later on.

The best method to accomplish this is to reach an agreement on what will happen if things change. For example, if your client wants something added or removed from their initial specs, they may pay extra for it — or they may not get anything back if they request changes after you’ve completed the majority of the work.

The Bottom Line

Hopefully, the above points will guide you toward completing your project on time and within budget. To provide cutting-edge solutions within the budget promised, Ace Infoway scrutinizes the landscape and identifies the culprits behind cost overruns. Because of this, we have been recognized as a top software development company. Contact us right away if you need help with software development.

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