Should a tech startup out-source the development of its technology and software? Does a tech startup truly need an internal tech capability? Debates on this topic can quickly become controversial and the response offered will usually depend on whom you ask.
There are several key reasons why we think a tech startup should develop and maintain in-house tech capabilities. Read on for more!
A Definition of Tech Capabilities for Startups
A startup that holds ‘tech capabilities’ should be able to design, develop, maintain and extend software that is commercially viable or beneficial for society. This kind of startup should be able to develop technology for a reasonable cost in a reasonable timeframe. While it might be extremely difficult, startups with strong tech capabilities should be able to predict the future and plan accurately based on these predictions.
Startups with a strong tech capability would possibly have several specific attributes. For example, they might have:
- A demonstrated understanding of how technology can benefit a user or customer;
- The ability to envision, design and architect a suitable digital solution to meet a user need;
- The ability to select appropriate technologies to execute the technology vision;
- The ability to make meaningful progress in relation to a product roadmap, including prioritisation and sequencing.
- Knowledge of options and methods to improve performance, stability and scalability;
- A resource base of technology-literate employees, particularly developers, designers and product managers;
- The internal management and working habits that result in efficiency and retention of staff; and/or
- The networks to seek further guidance and advice that relates to their technology.
Four Key Reasons a Startup Should Build In-House Tech Capabilities
There are four key reasons that a startup should consider building an in-house tech capability. These reasons become increasingly relevant as a startup advances beyond a minimum viable product and has reached product-market fit.
1) Control Your Core Competencies
In-house technology capabilities make sense if technology will be a core competency of the company. Tech startups need to be focused on removing barriers and restrictions to their core competencies. It also makes more sense to be building their own human capital that relates to these competencies, rather than their another company’s (like an outsourced provider).
Of course, not all technology needs to be a core competence. Sometimes a technology has been commoditized, or will be prohibitively expensive to develop and maintain in-house. Tech startups need to know what needs to be core and what doesn’t.
2) Foster Closeness to the Customer
Tech startups need to have a deep understanding of the customer. An in-house development team will maximize the chances that your startup will develop a close engagement with and a deep understanding of your customers. Using an outsourced provider can actually encourage your startup to be ‘hands off’ with the customer.
3) Keep Ahead of the Game
Innovation is underpinned by knowing the customer and knowing the technology. Tech startups benefit from having the in-house expertise and know-how to continue to evolve a digital product. Rather than relying on an outsourced partner to innovate for you, your tech startup needs to remains in control of their own destiny.
4) Investors Will Want to See Your Tech Capabilities
Having a great product and a user base is one thing, but investors typically want to see your technology capabilities before they invest. Take this perspective from Mark Suster:
“Whenever I meet a team that had a consulting firm (even a great one) build their product, it’s an immediate “pass” from me. If you don’t have somebody inside your organization who is setting the technology direction then I’m convinced you’ll never head for greatness… Either your core is innately technical or it’s not. It’s what makes Google Google and Facebook Facebook.
Outsourcing is Unlikely to be Best for Tech Startups
There is much that can be gained from an internal tech capability for tech startups. When executed correctly, a tech startup should be more capable, better positioned with investors, and more aligned on vision and focus. As offered by Vivek Wadhwa:
… Outsourcing is for corporate I.T. departments and for large companies with global operations, not for small tech companies.
Internal tech capabilities are important. Unfortunately, it can be very expensive to build and maintain an internal tech capability in countries like the United States, Australia and other high cost countries. Contact us today for more information about how an offshore software development team might work for your company.
