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August 4, 2015

Investor Red Flag: Startups Controlling Too Much & Outsourcing Too Little

Entrepreneurs are largely control freaks and outsourcing feels too much like giving up control. But trying to control too much and outsourcing too little is a red flag for investors. Entrepreneurs will fail to get funded because of their misunderstandings about outsourcing.

Investors want the entrepreneur to be successful. Investors won’t invest unless their money is being used wisely. If the entrepreneur does not have the experience of building and managing a software development then outsourcing must be given serious consideration.

I spend a lot of time working with Incubators and Accelerators, attending Demo days and listening to investor feedback. One of the red flags I often hear from investors is that startups try to control every aspect of their operations, which takes away from the envisioning, evolution, promotion and selling of their “widget”, app or service. They know that unless control-freak entrepreneurs they can get the hell out of their own way and channel all available resources around perfecting and selling their product, they are doomed to fail.

Startups are not professional accountants, human resource companies, legal firms or software development factories. Heck, even ISV’s and software service companies are typically not true professional software development organizations. They don’t have the experience in the recruiting interviewing, training and retention of an organizationally aligned team of developers. Establishing processes and infrastructure to support the art and science of custom software development is usually one of the first things to go out the window in a fast-paced startup.

I always tell clients to keep their organization light and lean, focusing their energy and assets around the vision and evolution of their product and the selling, marketing, promotion of that product. Everything else, they should outsource to someone who specializes in that area of need.

But wait. What about all those stories of outsourcing gone wrong!? Isn’t that a more likely way of failing?

That’s true! Unfortunately, there are so many software outsourcing firms clamoring for attention it is easy to be distracted and led astray. You have to select your software outsourcing partner carefully. Would you choose an attorney who doesn’t know contracts or the law? Would you select an accountant who never dealt with the IRS? Should you select a software outsourcing firm with poor hiring practices, a lousy work culture, no experienced technical management but with really cheap rates? Of course, the answer is no to all of the above!

Many entrepreneurs don’t know how to select a software outsourcing partner wisely and jump to the conclusion it just can’t be done. But if they outsource smartly, focusing on building a true, dedicated extension to their team and development needs, they will delight investors by demonstrating the ability to delegate, grow, focus better, produce better product faster and more cost effectively.

Don’t let your startup ambitions die due to lack of trust in outsourcing. Use software outsourcing to your advantage and get investors interested in your company. 

Andy Hilliard

As CEO, Andy leads and advocates for the globalization and collaboration of great software teams with companies in search of talent, innovation and a globally-distributed extension of their engineering function and culture. Andy founded the ground-breaking nearshore software development services company, Isthmus Costa...

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