One of the coolest start-ups in Florida also has an awesome founder that I am happy to call a friend. Having a front row seat to the joyride of his story has been consistently exhilarating and terrifying. The ups have been out of a movie and the downs have too — but not the type of movie I would buy a ticket to see. From an outsider’s perspective, many of the problems he is experiencing come from choices he made in outsourcing key parts of the business.
The core of a company’s value proposition should be consistent with the core of the team. Herein lies the challenge of many businesses, such as the one noted above. When an entrepreneur is strictly a businessperson (what we will call a non-technical founder) and doesn’t have the development, design or engineering experience to build or even design the product offering, he or she has an important choice to make. As we explore the options, let’s consider pros and cons of each as well.
• Find a technical co-founder, sharing the dream, and equity, to build the business. This option may not involve any upfront payment or salary, but equity (sometimes a lot) is expected. That technical co-founder may be able to develop a minimum viable product (MVP) to show feasibility, and do the work at night and on weekends so his risk is mitigated except for opportunity costs. A founder with a multiple-exit-tech-pedigree is often enough to attract investment. Questions: Can your concept attract an A-player who can build and scale the business? Does her reputation give the team tech credibility/access to investors or other opportunities? Will you need one person to build the MVP and then hope to raise enough to attract the long-term CTO?
• Hire a developer/designer/engineer on a salary, sometimes with equity as well and usually the more equity, the greater the level of commitment. This means this person is your employee and you are paying him. Questions: What is your budget for start-up costs for months for development plus building out the rest of the team, marketing, etc.? Can you find/afford an employee who can build and scale what you need? Normally you won’t find someone with great connections and experience seeking employment in an early-stage startup without wanting an equity stake and founder’s rights.
• Outsource the technical development to an individual/team (short-term). In hiring an individual consultant, plan on upfront and continuing costs. If the relationship is just to build the MVP, technical elegance may not be high on his the priority list. They will be passing it off to whoever you have next — bugs and all. If a better opportunity comes along, you may be out of luck. Questions: Can you find someone who will build well, give you sound advice, and do the proper documentation so you won’t have to start from scratch with the next developer? Will an investor consider having an MVP or prototype enough versus examining the experience of the team member who will be leading the engineering or design going forth? How do you manage expectations when investors like what you have but have no guarantees about the long-term involvement of the consultants?
• Outsource the technical development to a team (long-term). There are several great development shops who take a combination of payment for services and equity and have a team supporting your technical needs — not just for the MVP but long-term, like an outsourced CTO and department. Rokk3r Labs, New Frontier Nomads and Vertiglo are great examples of high-caliber teams that support some of the top start-ups in the country. Think of this relationship like you are bringing on a firm as a partner. The company builds and tests focused on quality because it is accountable for long-term support as well. Questions: Are you comfortable having your team be partners who are looking out for their own company and your company? Will investors support this approach? How does the firm handle potential conflicts of interest as your technical partner may take on new clients who could be future competitors? Some firms have category exclusivity or other protocols in place to mitigate potential conflicts.