Should a Startup Outsource Software Development in 2023?

The Anti-Outsourcing Argument

While perceptions have changed in recent years around the idea of outsourcing, some retain their arguments against outsourcing. 

This is a very traditionalist view from the days when outsourcing was a dirty word synonymous with low-quality code and misaligned goals. 

However, that doesn’t mean that they’re wrong. To contextualise my point, let’s start by looking at Y Combinator

Y Combinator

YCombinator is at the top of the list of institutions that are hardline against outsourcing. 

Michael Seibel, partner @YC, puts it bluntly:

Reading YC apps, I’m seeing too many founders who have raised some seed capital and who outsource engineering to cut costs. This is a common error that is a huge red flag for future investors and is often much more expensive in the long term than having a technical co-founder.

Michael is not wrong, many investors are still uncomfortable with betting on startups that outsource their software development. 

Investors with experience in the tech industry will also know that there is a global developer shortage. As such, finding a technical co-founder can be a long and arduous process – something that many early-stage startups with a limited runway don’t have time to complete. 

Take Audapio’s founder, Dudley Gould as an example. He spent months trying to find a tech co-founder and still came up empty-handed. So he built his MVP with a software development company. His product went on to be quickly acquired and he exited successfully. 

All of this to say, you should always look to bring your tech team in-house at some point in your startup journey. But if you need to ship an MVP quickly to prove your value proposition – there’s no reason not to, as long as you choose the right people for the job.

Michael’s second point, that outsourcing can lead to higher costs in the long-term, is also not entirely false. Choosing the wrong agency can result in higher costs and a longer time to market. 

But this can happen with any technical stakeholder you choose. In my experience, it’s not the model that matters, but rather the person/people you choose to work with. 

Related: 3 Founders Share What You Can Expect From a Startup Accelerator (Y Combinator & 500 Startups Alumni)  

Joel Gascoigne CEO and Founder of Buffer

Joel Gascoigne, Buffer CEO and founder, seems to agree with the YC school of thought. He proposes 3 clear points to support the thesis that tech startups should not outsource software development. These points summarise most of the criticism I’ve heard during my many years attending events and talking with founders.

1. Your goals and an agency’s are completely misaligned

2. It gets you into the wrong mindset of what it takes to get a product off the ground

3. The founding team should wear every hat

While I agree with some of what Joel is saying here, I would say that it is also a broad generalisation – so I would like to address each point, starting with misalignment. 

Your Goals and a Freelancer’s Are Completely Misaligned

Yes, the goal of any business is to make money. There is a danger when outsourcing that the freelancer or agency you’re working with will prioritise making money over what’s best for your startup.

I would argue once again, however, that this comes down to the people rather than the model. 

The best way to combat this risk, should you choose to outsource, is to find a freelancer or agency that is passionate about your project. Do they challenge your vision to make it better? Are they excited by what you’re trying to achieve? Etc. 

Also, in an ideal scenario, the right people for you, in whatever form they come, will know their success is bound to yours. They will have the same short, mid, and long-term goals: to see your project succeed and raise millions. 

2. It Gets you into the Wrong Mindset of What it Takes to Get a Product Off the Ground

Joel’s point here is that you should be focusing on product-market fit as opposed to focusing on finding a technical stakeholder to bring your product to life as soon as possible. 

He argues that you can validate your product idea by using no-code platforms like Wufoo, Google Forms, WordPress landing pages, etc. 

More than that, he argues that in doing so, a developer or tech co-founder will be far more interested in your idea than if you approach him with an idea on a napkin. 

I can’t argue with Joel’s point that you should be validating your product idea as soon as possible. 

And certainly, if your product’s technical needs aren’t complex it can work. 

What I will say is that you need to be aware that you’re forfeiting flexibility with this option. And usually, that leads to scalability issues. In a future iteration, you may find yourself in a position where you can’t add certain functionality. Rewriting it from scratch may not be the end of the world, but I can’t imagine a scenario where that’s a good thing. 

Also important to note: when it comes to validating your product with google forms and other Q & A based tools – be aware that you’ll only be validating customer interest, not customer action. 

Take successful entrepreneur Yaron Samid as an example. He set out to build a free platform that would check your credit card bills and notify you if there was fraudulent activity on your account. 

He went out to validate his idea and almost 100% of people told him “yes I would love a product like that.” 

So he put a tech team together and built the full product. But when it launched, nobody stopped to sign up and use it. They didn’t take action. 

In the end, Yaron had to pivot his product (more than once). This extended his time to market, cost him money and meant he had to change personnel to make the pivot work. 

Had Yaron instead built a simple MVP and released it to validate his assumptions, he could’ve saved himself a lot of time and money. 

My point here is that while Joel has a point, be careful “validating” your idea this way. You risk garnering a lot of interest only to find that no one actually wants to take action. 

3. The Founding Team Should Wear Every Hat

A common phrase in the startup world, I’m sure the “wear every hat” theory is not foreign to you. 

And it’s true, you will be wearing many hats as you launch your startup. As Joel puts it himself: 

In the early days [of Buffer], between the two of us, Leo and I did development, design, database and sysadmin work, customer support, marketing, and more. I even built the first version of the Android app before we invited Sunil to the team to take it over.  

And that’s great. If, like Joel, you’ve been coding since you were 12 there is no reason for you not to build your MVP or POC yourself.

But, if you’re a non-technical with a strong business mind there is no point in you wasting your time focusing on the technical execution of your startup. 

Your time is much better spent on reaching out to advisors, mentors, investors and potential customers to grow your business. 

Instead, you should find a technical stakeholder to help you cycle through the build-measure-learn loop and iterate towards product/market fit. 

And, once again, I would argue that it comes down to model vs. people. There are great agencies out there that can help you with this, just as there are great CTOs or freelance developers. 

Equally true is the fact that there are terrible agencies, freelancers and CTOs out there. It comes down to ensuring you have the right due diligence process to choose correctly. 

Related: How to Find a CTO for Your Startup: The Founder’s Guide