Aditya Kothadiya's Blog

I was discussing with my friends how do we decide how to spend limited available startup’s cash on the product development activity. It’s always a situation where you have to decide between the time it takes to get your product out in the market Vs the cost it takes to develop it.

For early stage entrepreneurs, the decision is always tougher because, they have very less money in their pockets and it’s still expensive to outsource the development even to low cost development centers in some other countries. At the same time, they don’t have enough professional experience under their belt to get a competitive and slick product out early enough in the market.

And the most obvious workaround we find is to go find an investor and raise some money such that we can outsource our product development activity. We were discussing a lot that when we should go and raise money and outsource the development activities Vs when we should keep working in house on our own. Remember, the discussion was tougher because it was for early stage hackers and entrepreneurs. For seasoned business people, who have enough cash in their pockets, we know what’s the best route.

But getting money from investor doesn’t stop at money only. It’s a whole package with lot of responsibilities, expectations, urgency, control, and much more. Thinking on the same note, here I found some interesting thoughts by 37Signals on why not to get outside funding when you are starting –

Outside money is plan B

The first priority of many startups is acquiring funding from
investors. But remember, if you turn to outsiders for funding, you’ll
have to answer to them too. Expectations are raised. Investors want
their money back — and quickly. The sad fact is cashing in often begins
to trump building a quality product.

These days it doesn’t take much to get rolling. Hardware is cheap
and plenty of great infrastructure software is open source and free.
And passion doesn’t come with a price tag.

So do what you can with the cash on hand. Think hard and determine
what’s really essential and what you can do without. What can you do
with three people instead of ten? What can you do with $20k instead of
$100k? What can you do in three months instead of six? What can you do
if you keep your day job and build your app on the side?

I know this topic is debatable from time-to-market perspective. But my personal say is, its fun to build the stuff and hack the code instead of just outsourcing it to some other company. It’s all about building self confidence and gaining sense of achievement. At least to start with, developing it in house would make more sense than outsourcing it. Once your startup reach to a certain stage, then it might be a good idea to think outsourcing option. But when you start with less people, you have to know the architecture and design in detail. You have to know how to debug the code when its required.

At the same time, we have to be open and should understand what are our limitations. We should define what we do best, and what we  don’t. That should prioritize when to spend money on outsourced development for those things that we don’t do best.

Our passion and ability to slog hard should take care of rest of the development activities. You have a happy hacking time ahead!

Note: For interested entrepreneurs, TiE Silicon Valley is organizing a panel discussion on the same topic on 20th Sept.’ 07. For details, click here.