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How to ruin your startup: You outsource, you get no secret sauce

November 17, 2014


Congratulations, you’ve had a cool startup idea, you’re inventing Tinder for Dogs, or a shared economy for hygiene products. If you’re serious about making your idea a reality, this series of posts is for you. It’s about the mistakes, big and small that kill 90% of startups and what you can do to avoid them.


Excerpt from a conversation I’ve had 20-30 times

Me: Oh sharp idea, so how you going to [build/sell/market] it?

Startup Bro/Lady: Well, none of us are [developers/salespeople/marketers] so we’re going to hire an [agency/freelancer/random guy who likes our idea enough to build it for cheap but not enough to be a cofounder] to do it for us.

I know, you’re in a jam – you’ve looked for developers or salespeople or marketers but [insert excuse here]. You’ve got an inkling that this isn’t the best solution, but hey it’s a solution. Let me stop you right there, it’s not, it’s a startup killer hiding in a solution sheep’s drawers.

This is why you should think twice about doing it:

1. You have no way to judge their competence

The whole reason you’re hiring them is because you have no competency in the skill set you’re hiring them for (d’uh). Unfortunately this also means you generally have no ability to judge how good they are, or that their solution and tools fits your needs. Would your site be better off built in Ruby on Rails? Too bad, they only have PHP developers! Without at least an experienced advisor who can assess the people you’re hiring for you, enjoy playing Russian Roulette with the results.

2. You’ll be bled dry

When you outsource, you generally pay on an hourly rate, or a set one with a defined product. Unfortunately the nature of startups doesn’t gel with this. It’s a guarantee that as soon as you release something, you’ll realize what you thought the market wanted is something slightly different (best expressed as one of my favorite quotes: ‘everyone has a plan until they get punched in the mouth’). You need to iterate, quickly and cheaply to get it right and build your business.

Iterating when outsourcing is usually neither of those things – you’re charged for every change outside scope or more hours, and your work is scheduled according to their priorities and other business.

3. You’re also outsourcing your intelligence

The biggest sin. When you’re outsourcing, you’re also outsourcing all the benefits you gain from doing the work yourself. The critical learning that is gained from working through 20 variations of an ad and seeing how your audience reacts, the painful but valuable lessons of knowing when your site needs extra capacity to handle demand. The more I work with successful startups, the clearer the pattern is that the ones that work have a deep and nuanced understanding of their business and customers, their own secret sauce. When you outsource, someone else is learning the recipe.

Startup Bro/Lady: So I should never outsource?

Oh hell no, you should definitely outsource. You should just know when it’s appropriate. Outsource functions that aren’t core to your business, and as a result let you concentrate on learning and building the assets that are valuable. If it’s a core function, only outsource it when you have the expertise to oversee it correctly.

Five Takeaways for Outsourcing:

1. Outsourcing the core functions of your business won’t work, especially so for technology startups

2. It’s always better to find a co-founder to fill the skill gaps when building your startup’s first product

3. If you do outsource, make sure you can oversee it correctly

4. Finding good [developers/salespeople/designers] is always hard, deal with it

5. It takes a team to win. Learn to hustle and sell people on your vision

Startup killers is a series of articles for The Loop by serial entrepreneur and INCUBATE In-House Mentor, Shane Herft, and INCUBATE Program Manager, James Alexander. INCUBATE is the University of Sydney Union’s award-winning startup accelerator program.

Are you or someone in your startup team an alumni of Sydney University? Apply for the INCUBATE Summer Accelerator! 5k business grant and 14-week mentoring program. More information:

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