Darren Herman

Over the past 10 years in startup life, I’ve used internal and external development teams on my projects. In my early years, I was a codemonkey and would write my own HTML/PHP for my projects and this allowed me to keep costs low, deploy quickly, and make changes as needed. As the companies matured, I had to hire either freelancers or staff to maintain and build out the sites as my duties changed from the development side to the business side.

In 1999, I started outsourcing quite a bit of business to a team located in Romania. These guys (and gals) knew what they were doing and got things done extremely quick and with fantastic deliverables. They also added their own insight into the project (with approval from myself) and sometimes, built additional components that I had not thought of. Our work got to a point where there was enough volume for them to send a project manager to the USA and we worked extremely close together to fast track projects through the development cycle. Our relationship was and continues to be fantastic.

Many startups ponder the magic question, Should we build our software internally or should we outsource the development of it? There is no right or wrong answer here, it all depends on how you manage it. In order to successfully manage an outsourcing relationship for software (inclusive of web related items), you must have extremely detailed requirements drawn out. Every little detail of the project should read flawlessly and you should make sure that the team who is building the project understands your language and they understand the project as a whole.

Annectodately, I was advising/consulting with a team recently who outsourced an online platform for buying/selling of items to a group in India and they received a finished project that was terrible. Why was it terrible? Because the specs were extremely sloppy and non-detailed. The Indian team essentially had to create this platform from thin air. It’s not enough to tell a team to build something like Digg, MySpace and YouTube. You must develop design specifications, use documents, user flow, an ideal use scenario, and provide as much guidance as possible. If you are extremely detailed oriented, you can benefit from outsourcing because you can potentially save money on development efforts.

A friend in the venture capital industry at a leading firm here in New York said, “For the most part, venture firms like to see entrepreneurs outsource as much of development as possible, but we like to see the most important proprietary advantages developed in house.” I would agree with him here. If you have some intellectual property or significant advantage being built outside of the USA or the confines of your legal reach, you may want to keep extremely close watch over that specific IP.

Ask The VC recently has an entire posting on this subject.

If executed properly, VCs are usually strong supporters of offshore development centers. Not only are development costs reduced, but if customer support is an important part of your company’s success, you’ll more easily be able to provide generous support hours with an offshore office. Furthermore, our experience is that acquirers of companies are also happy to find well-run offshore entities that they can leverage.

The web has allowed us to locate offshore talent much more easily. Service providers registered on sites like Elance, RentaCoder, Odesk, Guru, and other sites all have thousands of registered programmers who could create the next big software project. Familiarize yourself with each one as they all specialize in different things, but this is a good place to start if you’re looking to outsource. For larger projects, you may want to go with a company specializing in outsourced development. These companies may be registered as well on these platforms, but they also probably have a fairly prominent site. One of my buddies, Andras from Dream Interactive in Hungary is an example. They are a very prominent firm in Budapest but they do quite a bit of work for companies all over the world. The team can manage the entire project as well and have all the pieces in place to handle work coming from the USA.
All in all – if you can manage it correctly, go right ahead and outsource. If not (and that’s OK), start finding some local talent and bring it internally….