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Abstract

This article uses system dynamics simulation to enhance current understanding of the effects of product development lead time improvement in situations where a software company itself is not able to finance its operations with its own cash flow. In these situations, capital markets will provide some rounds of financing for startup at the very beginning, but after a while the company itself should be able to enlarge its operations with its own operational cash flow. However, the delay in the product development process, as well as the decline of R&D productivity within the final product markets, will have their effects. On the basis of the results of this article, it is suggested that the improvement of product development lead time is one of the most important parameters in the software startup environment. In some situations, not only will slightly improved lead time performance require fewer rounds of financing, but also expansion of the company's operations will become less troublesome. Copyright © 2003 John Wiley & Sons, Ltd.