Bug fun - A 'cash back' SLA model for contracted software development

Bug fun – An SLA model for contracted development, specifically about getting “cash back” for project delays and development quality (bugs). Spreadsheet link at the end.

Startups with little capital or that are bootstrapped often contract some of their development to lower cost companies worldwide. This model is gaining traction, whether it is in the initial stages of a prototype development or a full blown application development. An almost inevitable part of development is project delays and bugs in excess of what one expects for a project.

In this article I am trying to come up with a model to get credit or actual “cash back” from the vendor for delays and bugs (based on project parameters). Other standard measures of code quality can be incorporated in this model too.

The concept is simple – the vendor should give a credit equal to the percentage of the delay or the percentage of bugs above what was agreed upon. Example: if my project is delayed by 1 day (say 2%), I should get 2% of cost back. Simple. But what makes the ‘delay’ formula complex is provisions to prevent ‘gaming’ the model. By simply putting fewer resources on the project, and dragging out the calendar days, the vendor gains and the entrepreneur loses. So the model incorporates resources, calendar days, grace days, with independent scaling factors for each.

The bugs model is much simpler, just a percentage of allowed bugs. The bug count is normalized into ‘bug units’ based on an agreed upon conversion, such as 1 critical bug equals 2 major bugs equals 5 minor bugs. You get the idea. Then you allow some bug-units (say 15) per certain person-days of development (say 20). Thus, for a 100 person-days project you allow 75 bug-units (which could be 75 minor bugs, 15 critical or 30 major, or a mix thereof). Hence the “bug-equivalence” should be well thought out for your project beforehand. Then if you have 15 excess bugs, you should get a credit of 20% of the project cost, or some part thereof.

Yes, agreeing on the severity of a bug is part art, part science. One person’s bug is another person’s feature! But take the 80/20 rule here: even if you agree on 80% of the bugs, it is better than nothing. Example: not being able to login or register on a website is a critical bug, not being able to edit your profile is major and a spelling mistake is minor. And yes, this may increase the cost of doing business across the board, but think of it as insurance.

In the end of both models, there is a simple scale factor that you can use for tweaking the credit to make it palatable to both parties. Whether its cash back or credit for future projects, that’s a bi-lateral decision too.

A bit about me: I have worked extensively with the outsourced model (on both sides of the oceans), with over 17 years of IT experience, since way back when Netscape had not IPO’ed and outsourcing was just catching on. I worked for Infosys (India), Keene (USA), and more recently, I have worked with multiple small software development companies in India for my own startup Coloci.com.

I would appreciate your thoughts about this model, its acceptance among vendors, tweaks, etc based on your experience in this space. Thanks in advance! The spreadsheet is here: https://spreadsheets.google.com/ccc?key=0AjbcRctmfiWQdFBjS3lGTF9iZV9QeU00aC0xdlVIYUE&hl=en.

Anurag

Founder & CEO, Coloci.com

PeerIt.com - digital media marketplace

PeerIt.com

PeerIt is a digitial media distribution platform and online marketplace rolled into one. Simply said, producers of digital media (videos, music, computer games etc) can upload their content for sale, and buyers can purchase content from it. Purchases include a “payout” (cash back) for the buyers, which creates an incentive for them to push the item to other folks, kind of like an MLM (multi level marketing).

The interesting thing about the site is the media distribution – its based on a p2p (peer to peer) network using torrent files. The user has to download the p2p client from the site to be able to buy or sell on it. However, there is no DRM (Digital Rights Management) for the content, unless the seller provides it (not sure how that would work though). Sellers can list items for free. The revenue model for the company is from transaction commissions (a small fee on each sale). The site provides the usual goodies such as Seller Rating, Ask a Question, integration with PayPal and Google Checkout etc.

Competitors in this space include Wurld Media’s peerimpact.com (recently acquired by Roo Business Solutions, public company, OTCBB: RGRP), which also uses a p2p model with content licensed from some major media labels and independents, however it’s a b2c model only (no sellers). By selling photos, PeerIt also competes with the likes of bigstockhoto, fotolia, shutterstock etc. For videos and eBooks, other sites include PayLoadz, metacafe etc, although they have different business models.

Climber.com - passive job search

Climber.com

Climber is primarily a job search site for “passive” job seekers (Climber’s proprietary algorithms match you with companies that would be of mutual interest, even if you are not actively looking for a job). You can create your personal profile on the site, by answering simple questions via an easy Web2.0 interface and some text entry, aided by a could-have-been-animated picture of a female assistant, although one that is better looking than the Microsoft Office’s “helper dog” J. At the end of the signup session, Climber creates a holistic summary of your desired career along dimensions such as Work environment, Social aspects, Leadership, Compensation etc of your ideal company. Your profile is then matched up with jobs/companies aligned to your career values, and presented to you (and the companies too, I guess).

The niche site is a useful tool for those looking for a job on the side, to see if anything interesting comes up. It is like having a job search agent on some of the other job-search sites, but with more variables taken into consideration to find your ideal job. You can also actively search for jobs using their Search box (though it took me a bit longer than expected to figure out where to do an active search, but I guess the primary intent of the site is for Climber to connect job seekers and companies). You can apparently rate companies too (though I couldn’t find the link to do so). A desirable feature on the site would be to be able to turn off your public profile for a while, maybe when you are not even passively looking for a job. The site has some networking features too (similar to LinkedIn), such as ‘Ask your network a question’ and ‘Get endorsed’. As usual, the success of such a job marketplace also depends on getting a critical mass of users and/or employers.

Climber’s CEO, Mike O’Brien, is a serial entrepreneur, having co-founded financialaid.com, and started CampusDirt.com, RateYourCampus.com and CampusClix.com earlier. Climber.com currently has 100,000 users and is adding 500 - 3,000 users a day. Competitors in this space include the well known job sites such as monster.com, Yahoo Hotjobs, careerbuilder.com and others - Jobfox.com (employers-find-you concept), JobsInTheMoney.com (accounting and finance jobs), and sixfigurejobs.com (100K+ jobs). A list of 50 jobs sites is here.

BrandFame.com

Brandfame.com

Brandfame is a b2b marketplace for online video producers and advertisers (brands) who want their products featured in those videos. The site allows producers to list their online videos (from sites such as youtube, AOLvideo, vimeo etc), and search for products that they could feature in those videos. Advertisers can search for videos in which they may want to place their products, and also list products that they want featured in videos. The two parties can connect by making an offer for the videos or products they are interested in. The site provides simple account management features that help the users keep track of their inventory, the offers they have made etc.

The site launched in July and is currently free. It has signed up a couple of producers and advertisers. The success of the site depends on getting a critical mass of producers and brands, and providing additional features that add value to the transaction and overall process. They are adding capabilities for tracking the number of views of videos, and an auction system for brands to bid on product placement opportunities. An exchange like setup where the popularity of videos could be factored in would benefit the producers too.

With the growing popularity of online videos, and their potential as an advertising medium, there is a lot of interest in this overall space, particularly in companies that splice ads into videos. A marketplace to connect buyers and sellers of media is a useful thing. Brandfame’s competitors include nextmedium.com (which allows placement in TV, film, music and video games, and provides some measurability), and mediamatchmaker.com (which supports multiple media types too). Another company in a similar space is rightmedia.com.

iRent2U.com - peer to peer lending

iRent2U.com

iRent2U.com is a web based marketplace for people to lend/borrow goods and services, for real money. The site provides features that let you manage what you want to lend out or borrow, search for good/services in the area and promotes sharing of the things that we already own but may not use frequently. You can lend almost anything that’s legal.

For example, take a look in your garage. Lawnmowers, weed whackers, bicycles, and such equipment. We use these items once in a while, and the rest of the time they are just sitting there, idle. That extra bandwidth can be put to use by lending it out. The site offers a pretty good description of how it works on their blog.

This is an interesting site in the peer to peer lending space (non-financial lending). Many people already lend within a small group centered around where they live, kind of like a physical garage sale. A good execution of this idea has the capability to do what eBay did for garage sales.

A couple of things will need to fall into place before this idea catches on. First, a critical mass of people will have to warm up to the idea of lending/borrowing beyond their locality. The company is also focusing on providing their services to businesses in the lending space, taking a cut of the revenues. Second, concerns around liability can prevent people from lending out, specially dangerous equipment such as garden tools. The site facilitates some paperwork in this area – contract, third party mediation, optional insurance, deposits etc. I guess lending in “good faith” – if there is such a legal thing – may encourage people to lend more. A rent vs buy calculator on the site may help steer people toward renting, specially for items with a low usage-to-price ratio.

They have some competition in this space – BorrowMe.com (site seems non-functional), NeighBorrow.com (organizes lend-able items into groups, focused on books/DVDs/music/games) and iLetYou.com (rent movies and games). Also, they could face competition from classifieds in categories such as “Real estate and Roommates” and “Vacation Homes”.

An integration with a service that makes it easy to list items on the site (by UPC code, ISBN etc) will help folks in getting started quickly. They are planning to integrate with Paypal and Facebook – which makes sense as p2p lending is essentially a social activity. The site has a clean and friendly interface (see below).

The company received their initial investment (15K) by winning the Pepperdine Business Plan competition in February 2007. They are raising about 250K from friends and family. Their revenue model is primarily commission on transactions and some advertising. They are hoping to launch in mid September 2007, possibly at the TechCrunch20.

LighthouseListings.com - real estate listing service

LighthouseListings.com

LighthouseListings is a real estate listing site that currently services the Northern California area. Users can add home listings easily, without having to create an account (a convenience similar to Craigslist) or having to talk to a realtor. Users can search for sale / rent listings via a simple search page. The site has a basic listing package which is free. Tiered premium packages are available too. They have about 140 listings currently, and a 12% monthly growth rate. They are also planning to go nationwide soon.

To create a new listing (for sale or rent), the user is walked through a series of simple pages asking basic details about the property. Users can now embed videos from sites such as Yahoo, YouTube and Photobucket too. They can add pictures by uploading to the site too (although I couldn’t find a way to remove a picture once added – hence the flower picture below).

The site competes in the space that has established players such as Zillow (free to post a for-sale listing) and ZipReality (not free, charges reduced commissions). These sites offer more features, are national and have an established user base.

Foxmarks

Foxmarks
Cool idea - based on Collective Intelligence