TOP TEN: For Start-Ups
This article originally appeared in Outsource Magazine Issue #27 Spring 2012
It’s easy to create a start-up now. Everyone and her mum wants to create a start-up because it’s so cool to call oneself an “entrepreneur” (or by similar titles like “Ninja”). But the reality of building a company has not been distorted yet. It’s easy to start but it’s difficult to scale and sustain. That truth is never going to change. So if you are a first-time entrepreneur and are prepared to max out your credit cards to keep it going, be sure to encounter this two-minded monster called “outsourcing”. It can help you sustain, even as you drum up supportive customers and scale. But perhaps it can fail you, too!
Some of you have to outsource right after making the pitch deck (business founders!) and some of you have to outsource after hitting your coding maximum (Series X-funded start-ups that are in a hurry to crunch “time to market”).
So if you are a start-up founder and this is your first brush with outsourcing, what would be the ten things you should have on your pocketbook (or smartphone), before talking to an outsourcing vendor?
1) Don’t outsource your thinking process!
Having an exciting idea for a start-up is often the only exciting part of an entrepreneur’s journey. The rest can be all challenge, gruntwork and moving mountains. The first test of your ability to run a company comes when you take a 160-word idea pitch and make a requirements document (for your own consumption or for the outsourcing firm). If you feel like outsourcing that task, it’s not yet time for you to create a start-up. Remember that the outsourcing firm has no passion for your idea and that is perfectly okay!
2) Your start-up is an experiment. Your vendor selection process is not!
A start-up is a temporary organisation that is on an experiment to find a scalable business model. Once it finds the model, it becomes an enterprise. Don’t, however, get carried away by the intellectual connotations of the word “experiment”. There are parts of your start-up execution that can survive experimentation (target market, positioning, product scope etc.) and there are parts that cannot survive experimentation (partner selection, cofounder search, which type of VC to go with etc.). The latter topics test your ability to do due diligence. Build the evaluation model for vendors, before picking the vendors.
3) Minimum viable product is not what you have money for. It’s what helps you test a hypothesis or two!
Don’t ask your outsourcing vendor to build out all features that you have money to pay for. Build in iterations to test a hypothesis or two, in each iteration. Use the results to plan the next investment area. Not all outsourcing vendors are used to rapid iterations. Be sure to work with ones that can handle the iterative development nature of start-ups.
4) Track the reputation.
If you cannot track the reputation of a vendor within three clicks, do not outsource to them! Most vendors and their founding teams are on LinkedIn. The good ones tend to have an active GitHub profile and perhaps a Stack Exchange profile too. Their people tend to be active in tech conferences. If you read no such signs of community participation in their field of interest, they probably are not going to be the best in the business.
5) Own design inspiration and thinking. Outsource execution.
It’s no longer enough that your product is an engineering marvel. It has to look good and your customers have to find it easy to use. Even enterprise software firms are busy buying start-ups that make pretty and smart products. You have no excuse to not have a design and experience philosophy for your product. If you don’t have one and depend on an outsourcing firm to tell you what it should be, you are going to fail.
6) You are not in it for the “best bean counter” title.
Don’t get me wrong. You have to negotiate, to get a good deal. But be aware that there is a price to negotiation on a service. If you negotiate too hard, you risk getting a team that is not formed in the best of your interest. A good price is that with which the buyer and seller feel a little unsatisfied.
7) Equity for work is not a smart strategy.
The life of a version of your product is often days or weeks, when you are an early-stage start-up. Don’t throw precious equity to buy a service that comes with an expiry date. Show your commitment to your idea by paying money; else your outsourcing vendor will lose interest soon. Even popping up the equity question might put off seasoned vendors. A savvy business person on the other side would find it hard to rationalise why he or she should hedge their upside on an uncertain outcome that they have no direct control over. It’s the nature of start-ups to fail. Don’t ask your partner to fund it.
8) Treat your team with respect. Yes, they are your team!
Your service provider’s team spends more time on your product than they would on any other thing during the day. They are not an interruption to your work; they are an important part of your work. Treat them with respect and dignity. They are your choice, after all! If you outsource to Asia, be aware that in most Asian countries, it’s uncouth to confront. It’s considered rude to disagree. Condition yourself to pick subtle cues of hesitation, discomfort and disagreement when you interact with people.
9) Penalty clauses: fun to write and negotiate; not so much to measure and enforce.
I’m not a big fan of focussing a lot on penalty clauses. They have a place in your negotiation. But they serve very little purpose, as having to resort to a penalty means that a larger damage has already been done to your goals. Your skill is in making a relationship successful rather than recovering what’s left of it.
10) Keep in touch!
The best time to know your provider at a personal level is when you are between projects. Always be in touch. Keep them posted on your progress. Surprise them. Talk to the most junior team member too. Often, they add perspectives that are unencumbered by contractual sensibilities!
About the Author
Ashwin Ramasamy is the Founder & CEO of ContractIQ, a peer recommendation service for SMEs that seek to outsource. He is a graduate of the Indian Institute of Technology, Madras.