Outsourcing Technology Development for Startups

When embarking on a technology-based startup, many founders face a common challenge: whether to establish an in-house technology development team or outsource the task. Unfortunately, there isn’t a definitive answer to this question that suits every situation.

In such circumstances, founders must consider the following questions:

1. Is technology the core of your business?

If technology plays a central role in your venture, you not only need to develop it but also safeguard your intellectual property.

2. Can you test your idea with a minimum viable product (MVP)?

In some cases, it’s possible to develop a minimum required version of the product for testing purposes. You may even consider using an off-the-shelf product that isn’t perfect. For instance, I know of a venture that successfully collects and executes orders using Google Forms and Google Sheets, despite being a company with Rs 3 crore in revenue.

3. How much investment do you need to allocate for technology?

Make an estimate of the required investment and determine if you can afford to invest that amount upfront. Keep in mind that this can be a risky endeavor. If the estimated investment is low and you can afford to write it off in case of failure, you may consider giving it a try.

4. Can you bring in a co-founder who specializes in technology development?

If your startup involves software development, it may be easier to find a co-founder with the necessary skills. However, hardware-based ventures may require some investment. In such cases, outsourcing technology development becomes harder to avoid. Nevertheless, you’ll need to decide how much you want to outsource and what aspects you should develop in-house.

5. What considerations should you keep in mind when outsourcing or developing technology in-house?

Two crucial factors to consider are protecting your intellectual property (IP) and ensuring continued access to the technology development team.

To address these concerns, you can enter into a formal Non-Disclosure and Non-Compete Agreement with the outsourcing partner. Additionally, you can incentivize the partner by assuring them of future benefits from orders. If your relationship with the outsourcing partner is amicable and understanding, you may even propose a minority equity arrangement.

When entering into such contracts, you can also specify the building, production, and transfer of models. During the product development phase, you can assign one or two of your employees to work alongside the outsourcing partners. This allows your employees to learn and understand the technology being developed. Once product development is complete, the outsourcing partner can permanently transfer these employees to your company, ensuring continuity in maintaining and upgrading the technology.

It’s essential not to hesitate in acquiring a basic understanding of the technology being used in your venture. While you don’t need to grasp every aspect, understanding the underlying principles will enable you to discuss the technology with vendors and effectively manage your team in the future.

By addressing these issues, you can start by building technology with an outsourcing partner and launch your venture. Over time, consider transitioning the development process to your own organization.

However, it’s worth noting that many successful cases involve at least one founder who possesses strong technical knowledge and actively participates in the technology processes. If the technology is complex, founders often invest long hours to build the core product themselves and gain a comprehensive understanding of the entire stack. This approach can also facilitate bootstrapping.

If you lack technical expertise, don’t let that discourage you from launching a tech venture. Instead, focus on collaborating with others while safeguarding your long-term interests.