Previously the prerogative of big companies, outsourcing has now made its way to early-stage startups. A lot of startups decide to outsource product development to nearshore or offshore IT partners. But while there are successful examples of startups that have been acquired after contracting with an outsourcing vendor, there are plenty of others that fail when working with an extended development team at early stages. Is it really the decision to outsource too quickly that dooms their chances?
Stephen King could draw inspiration from some of the horror stories of how dismally startups can fail. These stories usually look the same: at the early stage, the product faces a drastic decrease in quality due to outsourcing, the startup loses its investors, and ultimately the whole project falls short of customers’ expectations. It’s classic.
There are loads of reasons why an early-stage startup might fail, and outsourcing software development too soon just might be among the most distressing. We’ll explain why it’s a bad idea for early-stage startups to outsource and what the alternatives are.
Risks of outsourcing for early-stage startups
The internet is overwhelmed with success stories purporting outsourcing to be the best option for young startups, but in reality, it’s not such a great plan. When a budding business seeks the right outsourcing partner, they often focus on the wrong priorities and make risky financial investments, putting the entire startup idea in jeopardy. Here are some arguments against outsourcing for early-stage startups.
Unnecessary financial risk
Outsourcing has become more expensive. Even if you’re looking at the cheapest destinations, you’ll hardly find anyone to implement your idea at a reasonable cost. At the beginning of your entrepreneurial journey, huge expenses are something that you should avoid as much as possible. The golden rule is don’t spend money before you’re sure you’ll make it.
According to research published in the CB Insights analysis, out of 20 reasons why startups fail, running out of cash and having the wrong team are the second- and the third-most dangerous factors. Outsourcing software development too soon can be the cause of running out of funding. This is a big strike against early-stage outsourcing.
Loss of spirit
There’s one thing about successful tech startups that distinguishes them from the myriad entrepreneurs and enterprises. It’s their passion for their idea and the perseverance to turn $100 and a garage-born product into a mega-bucks business. However, to an outsourcing contractor, you’re just another client – and usually a very small one. A startup partner likely won’t share your passion and all that startup spirit.
Lack of care and communication
The best products are built by entrepreneurs obsessed with a shared idea. Why? Because even the most involved software development vendor will remain a contractor, not your co-founder. Only your trusted partners will stick with you through thick and thin, whereas an outsourcing vendor isn’t obliged to do that. Moreover, it’s much easier to build a product when nothing is lost in translation. Your entire team can spend long weeks or months in a garage discussing features, performance, and usability instead of waiting for a scheduled Skype call with someone half a globe away.
Alternatives for early-stage startups to grow
What should a startup in its infancy do to bring its product’s idea to life, you ask? Hiring local experts might not be the best option, since the salary of a good expert is usually too much for a young business. You also shouldn’t forget about HR, facilities, and numerous perks that software engineers are used to. It might seem like a dead-end, but there is a solution. Find several more people to offer a share in your business to in exchange for their professional services and get ready for tons of marketing and sales work to get the funding you need to succeed. A small, passionate, motivated core team will be ready to take over the world.
Find a Chief Technology Officer (CTO)
First, look for a bright tech-minded Chief Technology Officer (CTO) and, if necessary, give them shares in the business. Statistically, having two co-founders rather than one significantly increases the chance of startup success. With two co-founders, you can raise more investment, grow your pipeline faster, and be less likely to scale too fast. Plus, it’s cost-effective. You don’t have to pay your other co-founder, but all the expenses and responsibilities go fifty-fifty. During the early stages of growth, the ability to rely each other and share all the burdens (including financial ones) is critical but unattainable with an outsourcing company.
A perfect CTO is someone tech-savvy from your first-degree connections; someone who shares your passion and will work 12 to 14 hours a day. Define the skill set necessary for the success of your venture and fill out the expertise you lack so that you can cover the technological holes in your startup.
Having co-founders pays off
A startup requires different skill sets from marketing and accounting to UI/UX and sales. The list is endless, but the equity isn’t. Think about which areas of responsibility you can cover by finding the right people who are willing to work hard but get paid irregularly. You can also use fellow co-founders as beta testers of your product-to-be. They can rate your idea, discover shortcomings, and suggest enhancements.
Build sales and marketing channels
Early-stage startups often struggle with productivity. At the very beginning, it’s best to devote time to developing marketing and sales channels, finding product/market fit, building a pipeline, and attracting active buyers. Decide on your target audience, network with them on social media, join online and offline groups, visit conferences, attend local meetups, drop in at co-working spaces, and do all of this regularly.
Find investors to grow your capital
Don’t forget about the time you’ll spend looking for investors, having hundreds of conversations before closing a funding round, preparing for and making investor pitches, and so on. All these activities take more than six months in our experience. And do you know what’s most painful during this period? The cost of each and every developer you once decided to outsource work to. Or the fixed price you have to pay for each deliverable. It might all be too much when you don’t know if your idea will even get funded.
Building a successful business is about making the right decisions – and outsourcing during the early stages isn’t one of them. You need to budget time and money so that you can invest it in critical activities like building your MVP, shaping your sales pipeline, and finding investors. At later stages, you’ll have more time and resources to concentrate on outsourcing. Easily extending development capacity is sure to come in handy when your product, fueled by investment, needs to scale quickly and effectively. What’s the best time for startups to outsource? Read our next article to find out or contact us for more details.