Should Your Startup Outsource Tech? 4 Questions to Help You Decide.
Many points of views exist on the subject of whether to build your product in-house or use outsourced teams. I’ve personally experienced both sides -- creating products through outsourced teams, and, in previous ventures, creating them in-house. At my current company, we do the outsourcing: I work as the co-founder of an outsourced technical company to startups.
So, I've experienced both sides of the coin. I've experienced the pros and cons of each option and have consulted many times with those looking to quickly get their first product out to their target audience with the goal of validating it and achieving product/market fit.
Along the way, I've learned the questions to ask, to decide whether to outsource your product development or build it in-house.
1. What are your business objectives?
The foremost factors in determining what product development approach to take are your business goals and objectives -- and your product type. Are you building a product that has never been successfully attempted before? Or are you only building a better mousetrap? For the former, you're facing many uncertainties pertaining to concept validation and product/market fit, as your hypothesis has yet to be proven by any existing product on the market.
Are you willing to take the risk upfront by hiring a team in-house on an unproven concept or idea? In this scenario, startups tend to outsource.
If your product falls into the second category, your risks are much lower since the product idea has already been proven through existing successful products. Now, it’s up to you and your capability to sell the idea to potential customers and iterate on the product development.
2. What is your equity dilution?
While there are many merits to building a business with a co-founder, plenty of successful businesses are run by solo entrepreneurs as well.
Are you comfortable sharing a large part of your company's equity with others? If not, you’re probably better off building the business on your own. Co-founders with complementary skills bring many benefits to running the business, but if you’re the idea or marketing person, you can simply outsource the tech portion in the initial stages of your startup without any equity dilution.
Then, once you’ve achieved product/market fit, you can hire a team to continue building the product in-house. This will help you determine whether you can manage the technical side of things during the first phase of product development.
3. What's your time to market?
I've never known a single startup or entrepreneur that wants to get to market later than sooner. However, there can be many to whom getting there fairly quickly is especially crucial. In those cases, outsourcing product development is the obvious choice.
Building a product in-house requires a team composed of a business analyst, UI/UX designer, engineers and quality assurance professionals. Each of these roles is highly specialized and key to any product development.
Getting a team ready in-house, on the other hand, can take anywhere from three to six months. You can actually get your product to market within that same time frame if you outsource.
4. What's your funding availability?
Having sufficient funds can have an impact on your decision to outsource or build in-house. Most projects are outsourced primarily for budgetary reasons. Needless to say, it’s far more inexpensive to outsource the first version of your product.
Some of the most popular products today were outsourced in their initial days: Examples include Fab.com and the more recent Slack, valued at $2.8 billion.
Accomplishing the right product/market fit in the initial stages of your startup, then, should be of primary importance. So, if outsourcing tech helps you get to market more quickly and at a lesser cost, follow that strategy, to the point where you can determine customer demand for your product.
Along the way, as you ask these questions to help determine your choice, don’t get bogged down with merits or demerits, as each option has its own set of both.