Startups shouldn't outsource their tech. Unless...

Startups shouldn’t outsource their tech. Unless…

If you have the next big idea but you don’t know how to build it, outsourcing your tech for someone else to build is never your best option. I’ve written before about Why agencies suck for building startups, but outsourcing your tech to anyone is never your best option.

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Here’s why you shouldn’t:

1. The IP doesn’t sit in your company
   I’m not talking about the IP rights, those can always legally sit with you. I’m talking about the knowledge of where to fix a problem when it arises. If you outsource you tech you don’t own that knowledge and thats a big risk and will significantly slow down your ability to respond.
2. The engineers aren’t passionate about your problem
   Building new things is hard and can be really complex as you try and do something that no one else has. To solve this, you ideally want your engineers to wake up every morning thinking about how they can make this project better. You want them to take their own initiative and not be bogged down by someone else’s procedures or to just waiting to move on to the next project.
3. It costs you more
   Now you’re paying for someone else’s overheads an profit margins instead of just paying salaries. This can increase the costs by 50% — 200% and in a cash strapped startup that really hurts. If outsourcing is going to be cheaper than hiring your own team watch out! It’s very much a case of “you get what you pay for” and outsourcing to save money in the short term is generally a big warning sign. (See point (4) below.)

Hiring a tech founder and your own team is ALWAYS your best option. But despite that, there are times when it does make sense to do so….

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Here’s when you should:

1. It’s really hard to find a good tech founder
   This is always the first prize even if they don’t write all the code themselves they’re still going to mitigate most of the above reasons. But finding someone that you get a long with and persuading them to give up everything and join your idea is one of the hardest things to do. It’s often easier to find one after you’re built some tech and managed to raise some money as they normally don’t need to take the same risk as they have way more options.
2. You’ll probably need a range of skills
   Most projects are going to need at least a frontend and a backend built at some point as well as some design. Maybe even some mobile apps built. The odds of being able to hire all of these skills right at the start is really low unless you can afford a big team or have a unicorn on your team.
3. A team can build faster and more reliably
   Even if you do hire 1 or 2 people in the beginning it’s going to take them a while to get good at working together and they’re going to make a number of mistakes as they figure out what works. Using a team that is used to working together and already has those learnings built in can really speed things up — and often build things with less issues. (This can also act against you if they have a ton of processes that get in the way of building your product fast, so choose your partner carefully!)
4. Outsourcing allows you to control your burn rate
   When you’re paying someone else to build your tech you can set limits on how much they spend for this phase and then take that out to your customers and grow your business. Needing to build the next set of features or improvements could take 2 months or a year, which if you’re paying a fixed set of salaries can hurt. The flexibility of having someone else build it allows you to better manage that all important burn rate of how quickly you’re spending the cash that you have.

In summary, your first option should be to hire your own team. You should only every get someone else to build your tech as a second best option — and you should acknowledge that up front. If you decide that you do want to outsource, you need to be really honest with yourself on why you’re doing it.

Outsourcing is NEVER a sustainable long term solution for a startup. If you can’t hire a team in the first 18 months then you should be dead and limping along on maintenance mode is never good for anybody.

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