A New Business Model Of Custom Software Development For Agile Development
Presentation (SlideShare)
I gave presentation on 22nd ACM SIGSOFT International Symposium on Foundations of Software Engineering (InnoSWDev@FSE) in Hong Kong.
I talked about a business model of Sonicgarden as a representative of Mr. Kuranuki’s team. Mr. Kuranuki is running his own company Sonicgarden successfully using this business model.
I hadn't been sure if this business model could be effective outside of Japan. After I gave this presentation, now I believe this business model could save loads of small business owners and programmer internationally.
Problems of custom software development
When we try to adopt agile software development for custom software development, we have lots of problems.
1. Requirement development is really difficult for customers 2. Fixed scope leads to too many functions 3. Estimation leads to overestimate as a risk management 4. Fixed scope contract makes it difficult to use agile 5. Nouhin leads to a lot of document.
Let me expand.
For customers, requirement development is really difficult. If they can't, they should hire an outsourcer. It would be expensive.
When you use fixed scope contract, customers would be afraid of missing inevitable functions. Thus they try to include a lot of functions.
Why does estimation lead to overestimate? When you estimate functions, you are likely to add more functions than expected. Because you know the prediction could be difficult. As a risk management, they are likely to estimate it with some buffers.
Nouhin is a ceremony. In Japan, when you finish a fixed scope contract of software development, you need to create detail documentation of the software and give them to the customer with the source code with transferring the ownership. This ceremony requires huge documentation and huge man-hours. In addition, no one refers these documentation.
These five points increase the cost of custom software development service.
It was apparent that if we are to use agile and be effective, we need to change the business model itself. With that idea in mind, Mr. Kuranuki started to construct a new business model.
The points are these three.
1. Monthly subscription 2. No estimates 3. Agreed scope Monthly subscription
 Generally speaking, we use fixed scope and time contract when we outsource custom software using software development company’s service. But it is not suitable for agile development.
That is why a lot of company use time and material contract when they want to use agile development. But we think it is not enough because developers are time restricted during 9 am to 5 pm period. In addition, customers tends to add pressure to the team to produce more. This contract leads to productivity worship syndrome.
The most important thing should be value.
Monthly subscription is the solution we choose for the new business model. It doesn’t require any fixed scope, due date and binding hours. The developers just promise to provide their service like SaaS provider. This service is like a consulting business. Instead of just an advice, they provide not only advice but also development and operation.
Agreed Scope / No velocity / No estimates
Agreed scope
By changing contract, we can change the rule of software industory. In this business model, there is no requirement development. Customers and Developers just have a meeting every week. It takes only 2 hours on average.They talk about not only function of the software but also business itself. e.g. strategy, vision and so on. Like a CTO.The developer decides how much amount of function they implement. In this business model, developers never promise the amount of their time restricted, scope or due date. Developers simply decide the scope of a week. We call this agreed scope.
No velocity
They don’t need velocity. In my opinion, I(Tsuyoshi Ushio) know velocitiy is not for managers nor customers but a development team.Velocity is just a relative number, so the number itself means nothing. But I saw a lot of people are obsessed with it and always care about the number. I know it is ridiculous. You don't need to use velocity if you use monthly subscription contract and agreed scope.
No estimates
They don’t need to estimate as well. A developer is in charge of at least one customer. But if they are a good programmer, they can be in charge of multiple customers. It means their salary raise. If a customer doesn't like their performance, they would terminate the monthly subscription contract. In addition, not fixing time of thier work, developers themselves decide how long they need to work. It is more easy to keep their work-life balance.
Using this business model, Mr. Kuranuki’s Sonicgarden becomes a highly successful company in Japan. Now they have over 30 customers for 3 years.
Future reading
The presentation is just 15 minutes and this blog post is just a brief summary. If you are interested in this business model, a paper is available which describes the model in more detail. You can watch the presentation by the movie.
In addition, you can read the book "Nouhin wo nakuseba umakuiku" as well. Mr. Kuranuki published it which is available only in Japanese currently.
For chairs of an agile or a lean startup conference, I highly recommend you to invite Mr. Kuranuki to your conference and let him a presentation and ask him loads of questions.
If you invite him, you'll never regret!
Any questions?
@kuranuki, @yattom, @zacky1972, @sandayuu_en
