Saturday, 21 July 2007

Outsoucing Development for Consumer Internet Startups

Nic Brisbourne from Esprit Capital has a thought provoking post about outsourcing development for early stage consumer internet companies. I think this is a useful discussion as the issues are clearly a little different for this kind of company than they are for a mature enterprise working in a more stable competitive environment.
We've had portfolio companies try various places on the spectrum from "mainly outsourced" to "nothing outsourced"- and we have CEO's who'd advocate strongly taking particular positions. My own instinct is that core "difficult" bits of software (like perhaps some kind of ranking agent or P2P engine) are best inhouse. Also, stuff which might have to change rapidly and frequently as you develop your service (e.g. some kind of web scraping thing), might work more easily in-house.
On the other hand stuff which can be simply and robustly defined at the start and are which is more "commodity" coding (e.g. replicate this competitor feature) might be better outsourced, partly to keep the company's fixed costs down, but also to help keep the core team focussed.
Something else that might form part of the equation for this kind of company is that the cost of capital is so high for most early start companies that time to delivery (including time specifying,negotiating & contracting) can be more important that it'd be for an established company looking at taking the same choices.
Finally, I'd suggest that we've seen companies where outsoucing has helped because during development stages the balance of development skills changes. Perhaps the company's built an inhouse team expert in standard ajax, php and database stuff, but there's a key element which requires skills in developing search agent stuff. Often the inhouse team will prefer the idea of building up their own skills in this area, but that can mean the company is paying (in cash and time) for learning curve towards a skill which is not expected to be a long term requirement.
I guess putting this together means that our experience favours mostly in-house, but I'm sure there's much more to talk about on this issue!