outsourcingI’m working for a fat startup (lots of cash) where the founders are former big-wing executives, with average 30 years of successful experience in the banking industry. They are used to outsource software development, writing a very detailed specification and hiring someone to build it.
I can’t possibly convince them that this “rocket launch” approach is not the most suitable for startups (I tried, it is like preaching Darwinism to the Pope). For me it is total déjà vu (1990s all over again) from when I worked for startups before the first Internet Bubble - they used to operate like this, and all failed miserably.
But I was wondering if I’m biased: perhaps there are web startups that succeeded doing this. Do you know of any?
[update]
Product is a real estate marketplace, not really related to financial transactions or other strict/regulated field.
If you can manage the project and the specs are detailed and follow quality control on incoming code or code committal, then there is nothing wrong with that. If the development work is going to be only for a short phase, it can make economic sense to outsource over keeping an in-house team even if the founding team was tech savvy.
As far as my understanding on the matter, outsourcing had nothing to do with the bubble. It was more to do with the lack of a viable monetizing plan and hype.
Some factors you should be considering are:
I’d echo most of the points made in Ali’s excellent answer: with an in-house product manager and some in-house engineering skills for QA, outsourcing can work fine.
The main point I’d insist on is that recruiting in-house developers is hard, and takes significant time and energy. When you’re flush with cash, and time to market counts, outsourcing allows to hire an entire team who is experienced working together in a snap.
The only thing in the process you described that strikes me as bizarre is the waterfall approach to development. It can have merit in a large company but in a startup it’s a recipe to create a product that no one actually wants, especially if you don’t have clients lined up ahead of time.
Some areas of finance are arguably different though. If you’re building a tool to streamline FIX or clearing, one could argue that the protocols and the demand are simply there – just make it better, faster, or cheaper than the competition. Likewise if you’re developing HFT algorithms; these are usually developed in-house for IP reasons, but there’s no fundamental incompatibility with outsourcing the task as long as the ideas originate in-house. If you’re into offering e.g. a new type of market data, on the other hand, lack of customer development will likely be a problem.
It depends, really. In my opinion outsourcing is beneficial if it’s combined with Lean methodology and Minimal Viable Product (MVP) approach. That kind of development outsourcing has a lot of benefits for startup founders, e.g.
It saves time and money. If the outsourced developers use Agile software development approach you can find yourself with a MVP in a couple of months. Having this done quickly gives competitors less time to catch up. We are using these methodologies at EL Passion since day one and our clients are satisfied with the effect.
You can focus on sales and marketing plans. By placing your idea in the hands of a highly skilled development team can give you more time to work on your business connections and campaigns, which can be as vital as the development itself.
Hiring an in-house dev team for a startup is time and cash consuming. You can’t be 100% sure with the effect the product will have and the time it will take the team to gel can be a factor too. I personally think it is better to hire an experienced team of developers that have worked together on numerous projects.
At the end of the day it’s the approach and effect that matters and I know for a fact that an outsourcing team can be as good and quick (if not better and quicker!) than an in-house one.
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