Read "Rocks into Gold" Part 1
Yes, but ...
Bob turned back to his computer, reread Peter Prince's email, and then fired up his word processor. It seemed utterly pointless now, but he needed to update some of the FBU project documentation based on Peter's email.
A few moments later, his interoffice messaging software flashed at him, indicating a new message. He clicked on the flashing icon and the message popped up. It was from Billy. It simply said, "Bollocks!"
Billy sat in the cubical opposite Bob, but he preferred communication via keyboard rather than via lip.
Bob stood up just enough so that he could see Billy on the other side of the cubicle divider and asked, "What's wrong Billy?"
Billy didn't look up. Instead, he typed faster.
Bob wasn't offended. Billy wasn't being rude; he was just being Billy. Billy was a modern man—lots of friends all around the world, and, thanks to the Internet, the ability to interact with them without ever having to talk to them. In fact, Billy held celebrity status amongst some of the more technically inclined Internet tribes, where he was known as BinaryBilly.
Bob sat down again and waited a couple of seconds until the new message popped up. "What Sam said is bollocks. MegaCorp aren't canceling FBU because people won't buy it. That just doesn't compute." Billy obviously had been listening in to Bob and Sam's discussion.
Bob replied, "Why'd u say that?" "The people on the news say this recession might last a year, perhaps two at most, and then things will start to pick up. You and I know that FBU won't be on sale for at least eighteen months. By the time it does ship, things are likely to be picking up."
Hmm, thought Bob. That makes sense.
Another message popped up. "IMNSHO, MegaCorp would be crazy to cancel FBU now. They'd be far better off continuing with the project and launching it, as planned, when the bad times turn good again." Billy has a point. Bob wrote back, "So, why are they really canceling the project?"
"It must be because they're stupid."
Bob knew that wasn't true. He had been dealing with them for years, and they weren't stupid.
He picked up his phone.
Cash Shortage "Peter Prince speaking."
Bob said hello, made an appropriate amount of small talk, and then got to the point.
"Why are MegaCorp really canceling FBU?"
Peter, being a technical kinda guy, also referred to the Flitzerboing-Ultra as FBU. He did this deliberately-partly to annoy the marketing guys, but mostly because he didn't see the point of wasting syllables or keystrokes. "We're not getting enough money in from our existing products. We don't have enough cash in our bank accounts, and the bosses are afraid we won't be able to pay our bills. They have given all contractors their obligatory notice, but no permanent staff have been laid off—so far. The financial guys are selling the buildings we work in, and then renting them back from the people they sold them to. Our Christmas party has been canceled this year, we're not getting paid bonuses, and they're canceling a whole lot of projects, including FBU." "So, it doesn't matter how much money FBU will bring in when it launches. If it takes money out of MegaCorp's bank accounts, then it's dangerous and has to be killed?" "That's it. There's even a rumor that the marketing guys will have to downgrade from first to business class whenever they fly. That's unheard of." "Thanks Peter," said Bob. He wasn't sure if Peter should have told him all that, but it helped. He hung up and composed a quick email to Billy explaining the situation.
There wasn't anything Bob could do about the state of the economy, so he went back to his work, updating design documents for a dead-duck project that was still, at least officially, quacking.
Cash Flow in More Detail
Later that day, after he had eaten his lunch, Bob spotted Sam coming back into the office. She dropped off her handbag at her desk and came straight to Bob. She crouched down beside him and said, "You know, I think I gave you the wrong answer this morning. MegaCorp want to cancel FBU because they don't have enough cash to pay for it."
Bob nodded. One of the things he liked about Sam is that she freely admitted when she had made a mistake. He didn't say he had figured it out himself.
"Let me explain," Sam said. "Imagine that the MegaCorp financial guys set up a special bank account for the FBU project. Now, I don't know their numbers, and some of the numbers are unknowable, but I can take a rough guess at them. If they don't cancel the project, then they'll have to keep paying us roughly half-a-million dollars each month for the next year before they launch the product and make some money." "Ah ha," Bob said.
In his vast experience, most twelve-month-long projects took eighteen months, but he said nothing. Much of the past six months had been taken up by changing the software so that it did what the customers wanted, not what they asked for. KillerWattSoftware made much of its money from those change requests.
"I imagine MegaCorp's other internal costs would be about the same," Sam said. "So, let's say that it costs a cool million a month to fund the project. That means they have to spend $12 million on this project before it goes live and they can sell the FBU product." "That's $12 million out of their special FBU bank account before they make any money. That's a big overdraft, Sam!" "Precisely! And right now, at a time when everyone is tightening belts, no one has that kind of cash available to spare."
Bob nodded. He grabbed a blank sheet of paper and a pen then drew a quick graph. He wrote "Bank Balance" on the Y axis and "Months" on the X axis, and then he drew a line showing the balance decreasing month to month for the next twelve months. He showed it to Sam.
She smiled and said, "You've got it. Now, let me show you what happens in month thirteen, when they start selling the FBU product."
She pulled her own pen from her jacket pocket and drew a line going up, up, and away at a surprisingly steep slope. It recrossed the X axis at month eighteen.
"In theory, if the economy hadn't crashed and this project had continued on, then the FBU product was predicted to sell very well indeed. I don't know the real numbers, but our business guys estimated that it would bring in around $2 million profit each month once it went live. The project would 'break even' six months after it went live—that's the point where the bank account crossed over from a negative to a positive balance. Of course, that number was just a forecast—an educated guess. It could be more, it could be less, but you get the idea." "Wow," said Bob, neatly expressing his amazement. He previously had ignored the money side of projects; his job, after all, was to make software, not money.
Out of the corner of his eye, he saw his interoffice messaging software flash. He moved the mouse of the icon and saw that the latest message was from Billy. It said, "Double WOW!" "You think that's wowable?," Sam said. "Those numbers are conservative. MegaCorp is a big company and because of its scale, it can make huge revenue from relatively small investments." "So, in the long run, MegaCorp is losing a lot of money by not doing FBU?"
Sam said, "Yeah," then wandered off. She had some Is to dot and several Ts to cross before home time.
Bob tore the page off his pad then pinned it up on his cubicle wall. His retirement fund had shares in MegaCorp.
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Rocks into Gold: Part 2
Read "Rocks into Gold" Part 1