Casey looked at the proposal for a magnet clearinghouse. "How am I to estimate this? It’s way too vague." Fortunately, the proposal included the source of the idea, so Casey set up a meeting with Frankie and Ellis to go over the details.

Frankie and Ellis were happy to describe their vision to Casey. They went on and on about all the features they envisioned while Casey took notes. Then Casey went off and estimated the work to produce such a system.

Casey gave the estimate to the Project Manager, who forwarded it to the VP, who reported it to the IT PMO, who gave the report to the CEO. At a regular C-level planning meeting, the senior leadership compared this cost estimate with the benefit estimates. The CFO noted that, if the estimates were accurate, it would take at least 8 years to recover the cost with internal savings. On the other hand, with the projected revenue of offering an external service, it would only take about a year to reach break-even.

"Not so fast," the Product Director interjected. "How can we be sure that this business will be a success? How do you propose to test the interest of potential customers, many of whom are competitors?"

The CEO looked thoughtful. "What are the assumptions about how quickly this business will ramp up when it’s launched? And what’s the synergy with our existing business lines?" Ultimately, they decided that it wasn’t a good strategic decision for Empire Enterprises to enter the magnetics brokerage business.

When Frankie brought the news, Ellis was crushed. It seemed like such a good plan. Frankie thought a minute. "Let’s go back and talk to Casey. We got carried away describing the Cadillac of systems. Perhaps we can find a cheaper one that will help you do your job."

And so they did. This smaller system didn’t have any of the bells and whistles needed for a commercial offering, but it would still make Ellis’ job easier. This time, the analysis showed the internal-only system would pay for its development in one to three years, depending on the volatility of market conditions. The project was given the green light.

"Let me run some numbers and I’ll get right back to you."

Kai hung up the phone and went down the hall to talk with Jesse.

"Jesse, I just got a call from a potential customer. They want what sounds like a fairly simple online presence, but they want it by the end of March. Given that it’s mid-October and holiday season is approaching, I thought I’d better check with you about our capacity to take on the job."

"We’ve got one development team that’s currently working on maintenance and improvement items, but the rest of the teams are dedicated to significant projects. The team that has some development bandwidth is intentionally being held in reserve for high-priority work that might come up during tax season, from January 1 to April 15. It’s crucial for us to be able to respond immediately to any legal discrepancies or operational problems that show up during that time."

"I guess that effectively gives us about a month to a month and a half of team time before the end of the year. That’s not enough to build the site they want."

"Historically, the tax season on-call development team has at least 50% unused capacity during the season."

"That would be enough capacity, I’m pretty sure."

"The worst case I’ve ever seen was the year they were 80-85% busy with emergency work. I hope we never have that crisis again!"

"Let me call the client back and see how flexible they are. I suspect we could do this job using a third of their capacity from January through March, but that’s too close to guarantee. Perhaps we can identify a subset that’s valuable, but small enough to guarantee before April, with the rest following on a time-available basis. We should still be able to complete it by the end of May, even with the worst-case tax season. If they’ve got some flexibility, then I’ll do some more rigorous estimates."

Recall that TinyToyCo founders, Chris and Pat, created an online game in their spare time, and then were able to create a stream of income from advertising in that game. They had a hunch that if they created a mobile app version, they’d do even better.

They felt they were beyond the point of nights and weekends, though. They had been doing that too long. As the web game had increased in popularity, the demands on their time had grown. There were inquiries from users, relationships with advertisers, maintenance of the application, and scaling to meet demand. These things were taking up the time they would otherwise spend in development.

Was it time to quit the day jobs and go full time? Was it time to hire someone? If so, should they hire a developer with more mobile development experience than they had, or hire an administrator to free up more of their time? The next step felt like a big one.

Both Pat and Chris had been good about saving money, and they each had about six months of living expenses in the bank. If they hired someone, that buffer would be cut in about half, as both of them were depending on frugality to stretch their savings to six months. Hiring someone would require paying industry standard wages, or close to it, plus payroll taxes.

Out of all the questions popping up in their brains, three rose to the top.

1. How long would it take to start generating net income with a mobile app?
2. How long would it take until the income matched their living expenses?
3. How long would it take to reach the break-even point, where the income had repaid the costs?

The first milestone would be the point where the drain on their savings would start to diminish. That would extend the time they could stay afloat without other jobs. The second milestone would be the point where they quit draining their savings. Once they reached that, they could breathe easier. They’d be able to continue indefinitely, as long as no unexpected expense came up. The third milestone was the turnaround point. At that point, their six months of living expenses would be back in the bank. After that, their work would start returning a profit. That’s when they could declare success. But when would that be, and could they make it that far?

It didn’t take a detailed estimate to decide that hiring someone was more than they could afford. That seemed entirely too risky given they were starting on a shoestring. Shortening the first milestone seemed like a prudent way to go. As long as they didn’t do something that would limit them in the future, the earlier they started earning money, the better.

Pat called up some friends who had successfully developed mobile apps to ask for advice and information. How long had it taken them to field a working app, and then to monetize it? Chris started searching for publicly available information from strangers to answer the same questions. Together, they started envisioning a few minimal starting points they could build to test customer interest. They estimated how long it would take for each of these. The easiest one seemed as likely a starting point as the others. If it flopped, they could transform some of the same code into other attempts. As a rough guess, they could probably try four or five attempts until they were broke.

As soon as they found a starting point that connected with customers, then they could monetize it with advertising and a paid version without advertising. That would be the first milestone.

They did some calculations based on their research to estimate the second and third milestones based on the experience of others. Of course, these were the survivors. There were many other startups who didn’t get that far, and left no data behind. They recalculated at half the growth rate, and at one quarter. The slowest growth rate gave them some pretty grim predictions, but if their first, or maybe second, version resonated with people, then it might be enough.

And they really, really wanted to try this. With that burning desire, and estimates that gave them some hope, they decided to go for it. They would go with their eyes wide open, though, and re-evaluate frequently.