Startup founders: You’re screwing yourself with outsourced development

I am what’s known as a “non-technical founder.*”

This means I’m not a developer who can build the tech product. Typically non-tech founders are businesspeople, skilled in finance, marketing or sales.

Too often non-tech founders turn to advertising and development agencies to build out the first generation of their tech product or concept.

This is usually a horrible mistake.

The better direction is to find a technical cofounder to build the product and guide technical decisions.

First, some context

I spent the better part of a decade working inside advertising and development agencies. I’ve hired several agencies at GoWild for various campaigns or work. I also had technical cofounders who built our first app for iOS, and we hired an agency to replicate that app for our Android launch. I would never do hire a development agency again—we spent years digging out of that hole, and killed runway with an expensive project.

I was the Creative Director for the Louisville Slugger Museum for a few years, which was a client that came with special perks, such as holding pieces of history. The site we built was a complex tech solution. It’s still living and working well, despite being seven years old.

I have been on both sides of this decision. Most people who advocate for agencies either own an agency (and have something to gain), haven’t worked at an agency or haven’t seen these projects play out at length.

Sure, there are times agencies can work. I’m telling you, though, most of the time?

They won’t. 

Now, the scenario

When a non-technical founder has a business concept that requires tech, there are two options: 

• Find a technical cofounder(s) to help build it

• Pay someone else to build it

Founders usually say they hired an agency because they couldn’t find a technical founder. With some digging, I’ll often find they actually didn’t want to give up the equity. This sword cuts both ways, though—having more equity of a product that is not built to scale and is destined to fail is not a slice of pie I want on my plate.

Taking the time to find a technical cofounder is worth it. What you give up in equity will be returned in multiples you can’t imagine by building a lean product right and for scale. You will spend some time up front laying groundwork, sure. But it will mean moving faster, and building better in the long run.

It could even be the difference between success and failure. 

Several of our earliest competitors have bit the dust years ago because they paid an agency to build their social tech. Recurring maintenance and evolving tech landscapes kept the founders at the mercy of the agencies. The apps first stopped getting updated, and eventually, wouldn’t even work with the latest versions of the operating system. They withered in decay.

Founders think they’ll move “fast” (hard air quotes here) with an agency. Months or years later, a technical person will join the team and tell you the truth:

“Your tech is a mess. You’re in technical debt up to our eyeballs. And we have to rebuild this now, or it will never keep up with the road map. Yes, I know you thought you were ready to scale and it’s peak season. But this product couldn’t scale a mole hill, let alone that mountain of cash you had in mind.”

Ouch.

I get it. It is appealing to hire an agency to get a lot of talent for the cost of a salary or two, and to knock a product out fast.

That’s why I’m sharing this raw look at reality.

Challenges startups will face with agencies

• Wasted budget. Huge chunks of your budget are wasted with account managers focused more on control than your success—that’s either your or your investors’ hard-earned cash going out the window while an account exec reads and forwards your emails to the people doing the work.

• You will never be a priority. Not for any agency. Your budget is small, so your passion project is someone else’s afterthought. You’re getting B or even C level talent, period.

• Agencies bill for hours, not years. Agencies work for hours billed today, they do not think of how this product will scale in 10 years. It’s in their best interest to have you coming back to them, actually. In contrast, a technical cofounder will look at a product road map and make decisions for scale. Agencies? They will use the same backend, code and practices they’re used to, because replicability is how they hit deadlines and make money. No startup ever won by saying “our tech is so replicable!” by the way. Zero continuity. You have zero continuity with or even knowledge of your own product, because you don’t employ the people who are working on it. You may not even own the tech, depending on how well you reviewed your contract.

• You don’t matter. You will get steam rolled by the bigger paying clients.

• Maintenance hurts. Tech is not a car rolling off the lot, ready to roll without any maintenance for the first 10,000 miles. Tech needs constant maintenance and attention, and with an agency, they have you on the hook for a retainer upon launch. This may or may not be stated in the sales pitches, but their claws will be in you to the tune of nothing short of $10K per month or more. And it’s likely more.

If that doesn’t convince you, consider how your budget will be spent:

Sample budget

• 30% never makes it to creative, marketing or strategy—it goes to straight to account management, which is effectively dealing with your unrealistic expectations and filtering them to the creative and development team

• 25% for strategic planning for something that has yet to even prove product market fit and will probably need a pivot in 9 months

• 15% for your endless revisions because you don't know what you need yet

• 10% for layers of creative concepts you never see and don't need yet

• 5% for research on your industry, just to catch up to your knowledge

• The rest is subsidizing their beer kegs, putting greens, ping pong tables, client parties, and most painfully, catching up on margin from other clients who are over budget

Of course, all of this is not to even mention that startups are usually nightmare clients, too. Founders care more, and have unrealistic expectations for budgets and timelines, timelines and tech capabilities. I’ve been the client and the creative—it’s just true.

What is one to do?

If you truly cannot find a technical cofounder, there is an option that I have seen play out much better:

Hire skilled contractors and consultants.

Contractors have much less overhead and, as sole proprietors, don’t charge for account management (no need to forward an email or hold a team meeting when you are the team). This puts you at a better hourly rate than your agency (usually 40 to 60% less), and saves you 30% of your overall budget since you’re not paying for account management. This may sound small, but consider that many startups begin with a $500K first round of funding, which gets them about 6 months of runway or more. Cutting your tech budget in half means another month of life, or you can put more into other areas of the business.

In the sample above, the founder who hired niche contractors is getting a better product, and had more budget to put into marketing and research. The founder could have also simply banked the savings and used it on runway. This is for a made up company, but is a very real look at $500K funding round for six months of runway.

Contractors are often much more specialized, too. A niche contractor lives and breathes the subject matter, where many agencies are full of generalists (note I said many—agencies can also have industry expertise). Specialized consultants and contractors will also help you avoid some of the technical debt you’re destined for with infrastructure built within an agency’s comfort zone.

I’ve also found that contractors are much more likely to tell you you’re wrong and save you time and money, because specialists stay in demand. They have nothing to gain by lying—they’re usually turning down clients they’re so busy, so you’re replaceable. In contrast, I’ve seen so many agencies roll along with what a client wants because they are afraid to piss off the client and lose the retainer.

Look, I don’t hate all agencies. 

I sharpened my skills in agencies. And sure, every project is different. There are also times agencies are a must, such as marketing your new product, or helping you with PR campaigns.

But if you’re building a tech company, build a tech company.

Own it from start to finish.

Outsourcing your development is like putting together an IKEA bookshelf and telling your friends you built it. You didn’t build it—you paid for it and followed someone else’s process for design, engineering and packaging.

Most of the time, outsourcing to an agency sets everyone up to fail.

3 things to remember when considering an agency for your startup:

• Build for scale. How do you know an agency is building a product for scale vs. building a product for completion? If you can’t, you need a technical advocate (cofounder or team mate).

• Meticulously scope the project. If you still want to hire an agency, keep the scope of work and budget tight to avoid them claiming scope creep. Put the scope in exact detail in the contract.

• Maintain your leverage. Make sure you’re paying in increments upon completion of milestones so you have some leverage for hitting deadlines—never pay 50% up front. Whatever total they quote, pad it by 20% in your P&L and add another 30% of the project total for maintenance after launch and know that’s low. So, if they say $100,000, pad by $20,000 then know you may need another $30,000 to cover the first 90 days of maintenance.

• Plan for post launch. Truly think through the post agency landscape and launch. How are you going to maintain, work on, market, scale and win? Most founders never look past launch day, and they think their new site is going to bring in customers on its own. It won’t and they’ll be dead in 18 to 24 months.

*I’ve spared you a long disparagement about my loathing for this term and how it focuses on a negative attribute instead of my skill. Today, the term was relevant. However, really? Why don’t we call technical founders “non-business-minded founders” then? Dumb.