The Challenges of Working with IT StartUps
5 minutes

The Challenges of Working with IT StartUps

Being an entrepreneur is a difficult but exciting life! We’ve worked with both young entrepreneurs working on their first idea and more experienced entrepreneurs who have been through the process several times, and we’ve learned a few things about working in this market.

New entrepreneurs frequently arrive on our doorstep with ideas for 'revolutionary' technologies, whether they are applications, web services, frameworks or some other product. They are almost invariably certain that their idea will be the next big thing, and this rigid belief is probably necessary to provide the drive and energy an entrepreneur needs to push their concept from a vague idea to a profitable product or service. On the other hand, this belief also tends to be quite inflexible and dogmatic. We understand this, but it also has an impact on how start-ups deal with their IT suppliers.

Unless they are developers themselves, entrepreneurs rarely know from the start the true cost of making their big idea into a working product, however this doesn't prevent them from getting funding from private investors, VC firms or even investing their own hard earned cash. While some IT start-ups are developers who create their own products, those that aren’t are generally on restricted budgets and timescales that make them wary of hiring development teams and make them consider outsourcing.

At first, the cost saving seems to be obvious: no need to manage the development process themselves, reduced hourly rates, no need to invest in costly equipment and rent of a spacious office. The risks and the cost seem to be reduced.

In reality, it doesn’t often work out that way. Keen entrepreneurs rightly want to participate in every aspect of their company, but this doesn’t work so well with outsourced IT solutions. They often try to cut costs by trying to micromanage the development process, but this more often ends up disrupting it, leaving the developers needing to spend more hours sorting out the problems caused (at greater cost to either the client or developer). Start-ups often also try and take on some IT functions themselves, such as testing and QA, but they lack sufficient knowledge and experience to do so effectively.

Start-ups are also rarely building off-the-shelf products. When working on new or unproven ideas, cost and time estimates are less reliable than on other projects. For start-ups with budget and time constraints, they often cannot afford to bear the cost of necessary additions, which can lead to conflict with developers.

While many of these issues would be apparent to professional developers, start-ups with professional developers on board rarely hire outsourced IT! In the absence of such experience, we have come across three ways to avoid such situations:

Odd as it may seem from an outsourcing company, consider avoiding outsourcing altogether! Instead be self sufficient with regards to your IT needs. It may seem to be more expensive and risky, but having a knowledgeable in-house development team with the right skill set will make the development process more flexible and responsive to your particular needs. This is particularly advisable if you foresee the need for continuing upgrades or maintenance of your system, as the greater costs of hiring a team will pay off over time.

Consider hiring an experienced CTO to oversee the development process. This is a halfway house, avoiding hiring a full IT team but ensuring you have real IT experience in your start-up team. The CTO can then get involved in the planning and system architecture, and will be ultimately responsible for interacting with outsourced developers and ensuring timely delivery. They can manage expectations on both sides to ensure a harmonious working relationship.

Finally, one can offer to share revenue with the developers. While this may seem a big risk for a start-up, it gives your developers an incentive to go ‘above and beyond’ a standard outsourced development contract. If the developers are directly benefiting from the project, they may also agree to absorb some of the risks. Rather than a potentially complex relationship with a supplier, you gain a skilled partner in your new endeavour, but do remember in this case you need to sell your idea to the developer as much as they need to sell their services to you!

These three models all help ensure that a start-up gets the IT services it needs in a smooth and cost effective way. The first path is more expensive but good for keeping control of the development process, the last requires the lowest capital investment but splits profits, while number two is a halfway house between them.

Whichever path your start-up chooses, you need to carefully consider the costs and benefits of outsourcing your IT needs. In our experience, straight outsourcing can only work for IT start-ups if the project is rather straightforward or the developers are experts in the specific field with a proven track record. In any more complex situation a different model is needed, otherwise there is a high risk of the development process becoming slower, more expensive or painful than you need it to be. This is bad for the development company, who will likely see profits disappear, but worse for the start-up, as it could threaten the project's survival. On the other hand, by understanding and planning for the complexities of software outsourcing, you can ensure your start-up gets cost-effective development services in the manner than best suits your growing company.

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