Tech Startups: Never Outsource Your Technology
When you are building a company, there are a number of things you should outsource at the beginning (HR, legal, IT, etc). But you should never outsource a key business function. If you are a recruiting firm, don’t outsource your recruiters. If you are a chef, don’t hire somebody to design your menu. If you are a tech startup, don’t outsource your technology.
So many people have a cool idea and think that a powerpoint and a few dollars spent on elance or odesk will bring them success. If you are starting a blog, then go ahead and have somebody else build it. But the technology is only for distribution – you’re not outsourcing the writing. If the key value in your company is a technology product – you need a founding member who can make that technology a reality. There is a reason why every large, successful technology company built its core platform in-house (Google, Apple, Intel, Salesforce, Microsoft, etc.).
Outsourcing works best when you have extremely clear requirements, routine development tasks, and a product that is not likely to change. Startups are the opposite. You are constantly iterating and fine-tuning your product based on customer feedback (if not, you should re-evaluate). This can’t be accomplished by tossing requirements over a wall and hoping for something great. Engineering talent is drastically underrated. Using a freelancer to build a cheap product is a nice shortcut. It might make sense to create a quick prototype/mockup to show to potential customers. But when you really launch your business, it’s your staff that determines the future value of your company.
In my mind, there are two successful outcomes for a startup. The first is an early exit, where you get acquired for your technology and your team members. The second is the creation of an independent, profitable business (that either gets acquired or goes public). An early exit means that you have a great product and great technologists. Without both, there’s no deal. So you can’t get an early exit without a great tech team. For the second situation (which is what you’re aiming for), you have to fill a distinct market need and do it better than your competition. Without great technologists, the best you can do is prove the market need and then try to raise money while competitors gear up. But venture capitalists will look to your tech team as one of the key factors in their decision process. Persuading talented technologists to join your venture is a major aspect of running a business. If you can’t do that now, raising money will change things less than you think. Engineers flock to companies that have engineering in their DNA. If your company doesn’t have technology as one of its true roots and founding principles, you’ll find a difficult road ahead.
By the time you raise money, you want to have the machine ready. You should have the basic platform built, the key team members in place, and your sales process ready to roll. Then all you need is fuel and you’re off to the races. If you’re asking for money to find and hire technology talent, you’re behind in a very difficult race.