A common and increasingly asked question I find myself getting from start-up entrepreneurs is “Do I need a CTO or technologist as a co-founder, can I not just outsource the pure technical development and own the IP?” I have 3 key reasons, based on experience supporting start-ups through funding and commercial success, as to why I think the answer to be “Yes, absolutely”.
I can think of at least a dozen such conversations just from the last quarter of 2011. I can also point to an equal number of examples where early stage companies had made the decision to outsource only then later had to reverse the decision and to in-house their technology.
So in my experience, yes… you do need a technologist as a key part of your founding team – assuming of course you are in the digital/online/technology world. There are, of course, many advantages in having an outsourced development team (either on or off-shore) but the actual ownership and delivery of the product needs to be owned in-house. I am not alone… I had a chuckle when I read Charlie Crystle’s blog (a Founder/CEO/Hacker) where he posted: “Two posts ago I lamented the news that a local startup might outsource their core dev.” So to the why…
1. It’s quicker, better and smarter
Having someone in the core founding team who can read and interpret code is key to swift delivery. A start-up needs to iterate quickly and take on the feedback from beta testers. Without having someone in the team who can really see ‘the matrix’ and understand how to make the quick changes slows the process down.
Take, as an example, a web company that had outsourced its tech development with no in-house technologist. Rather they built a product specification and agreed fees in equity and cash with a development team. The concept was a relatively simple mobile application service but one which when launched did not quite deliver. The solution, it was found, was that some of the nuances and uniqueness of the proposition fundamentals was not captured in the specification and the result was a massive and costly delay. The development team had become busy with other projects and had ‘delivered to the spec’. The start-up then found a technologist who understood and could fix the problem quite quickly and take the development further by managing the process from the inside.
2. It’s your baby, your IP and your product
A company that I know and whose proposition I really like had done a lot to progress the build of their technology platform to provide a 360 service to a growing market opportunity. As the development was fully outsourced, a parallel track of development was going on. On one side there was the commercial development which was rapidly shaping as the team were talking to potential clients and users. They were gaining insight and feedback – all good stuff which should have had the chance to be incorporated. Simultaneously the (outsourced) tech team were building to the original spec, unaware of the tweaks, changes and enhancements which should have been part of the build.
The crunch came when discussions were being had on the IP and new developments. To the surprise of the entrepreneur/founder, the technology company considered the IP they had developed to be theirs… Needless to say, this became an unworkable. After many months development the founders and the development team agreed to part ways and the technology build was restarted, this time in-house.
If you do outsource your development (even with your own technologist at the helm) make sure you know what IP is yours and what is someone else’s. Fixing this retrospectively is costly, painful and can be near-impossible. While technology is not always (easily or cheaply) patentable, owning the IP is still very important. Getting to market with someone else’s tech is like marketing someone else’s product.
3. Investors need a technologist in the cockpit
I have found that 9 times out of 10, if the technology person is not in the meeting, the investor wants to meet him/her. A lot of time is spent trying to understand the technology. “Who owns the process? Who is responsible for making it happen? What if it goes wrong?” When the answers are not “My CTO” but “the team in Bulgaria/India/Estonia etc” then the investor usually asks something like “so what are you asking me to invest in?”
Investors in technology businesses want to invest in the idea, the opportunity and the certainty that they have invested in a team that can deliver and be successful. They want to be able to look into the eyes of the tech and know that their investment is being looked after and to see that the founder and technologist are partners in delivering the vision.
Clearly there is a difference between early stage and later stage start-ups but the fundamentals are the same. Assuming that the company will grow to be successful, a CTO will eventually be needed at some point. The thing here is that techies and developers can be a little like artists. So often they all write their own code in their own way. Without the achitecht at the helm from the start there is all too often a rewrite when a CTO does get involved.
Whether the tech development happens in-house or not, the role of the chief technologist should be one of a mix between translator and visionary. The role of visionary is to partner with the ‘ideas person’ to take the idea concept from idea to execution. By understanding the vision, the solution and the opportunity it is the technologist who can then translate this into the 1’s and 0’s which are the code. As a translator to the development team it is the CTO who bridges the wild imagination and deliverable, executable development for a real product.
Someone needs to be able to own and live and die by the technology. There needs to be someone who can read the code, interpret the code and make the right decisions to deliver the product. When this person is not a key part of the founding team, the vision ownership is also that extra step removed from the core. When outsourced, then even further away.
Whether your CTO is full-time or not is not what I am trying to advocate but essentially someone who is your partner in the vision. someone who is able to parallel the commercial demands and developments with the understanding of the technological delivery.
If you are convinced, here are 4 other resources you may find relevant: