Investors Aren't Afraid of Smart Tech Outsourcing

One of the most misunderstood fears entrepreneurs and startups have is that investors won’t invest if you outsource your technology development. The truth is much simpler: they’re only reluctant if you give up control over what makes your offering unique. If you are not a technology company but are instead an ideas company supported by technology, investors will focus on your ability to control and spread your idea, not the technology you use to achieve that goal. Don’t let your concern over investor reaction prevent you from doing what’s best for your company’s growth. Keep reading to learn if outsourcing technology development could be right for you, when it isn’t right, and why you should always remember that investors care most about a smart strategy no matter what you do.

Is Technology an Enabler or a Core Requirement?

Almost every new business relies on technology for its operations. What you must determine is if this technology is your differentiator, or if it simply makes it easier for your business to operate.Let’s look at a hypothetical company: an app that sells groceries online and delivers them to customers’ homes. Open the app, pick the things you want, pay, and suggest a time for your groceries to arrive.At first glance, that feels very tech-heavy, but look where most of the activity is happening: behind the scenes. This company would spend most of its time and capital sourcing food products, storing them properly, and securing a fleet to deliver the goods once an order is received.It initially sounds like a tech play because the end-customer interaction is an app, but the expertise to really make that business successful is a smart understanding of logistics, warehousing, and sourcing. Technology only makes the final delivery easier.Think of it this way, you could call a phone number and tell them the groceries you wanted, bypassing the app entirely, and the business would operate fine.

Define Your 'Piece De Resistance'

We like to think of the core functionality, knowledge, or product of a company as its Pièce de Résistance. The core of your business should always be owned and understood by the people you employ. The secondary hooks of your business, such as how a technology or expertise is applied, can use multiple paths to development because they require that central concept.

Google: Tech is a Core Requirement

Companies who offer technology first, like Google’s search engine, are a technology brand. They create their differentiation based on the technology and its capabilities. So, Google’s early Pièce de Résistance was its algorithms and search refinement code.That’s why we’ve seen such little outsourcing for Google, which instead opts for bringing developers in-house and purchasing either technology or development companies when it sees the need for new offerings.

Uber: Technology As an Enabler in the Valley

On the other hand, Uber presents us with an interesting case to review. Uber is not an app company, even though it’s app is what ultimately caused you to do business with it.Uber’s core is a transportation service that focuses on branding. The company understood this from the very beginning, outsourcing much of its interface development to offshore coders.Uber’s Pièce de Résistance was the ability to get drivers and riders to trust the brand and sign up for a service, with enough volume and a smart enough algorithm that people didn’t have to wait long for a ride or pay too high of a cost.The technology that Uber outsourced was cosmetic and eventually helped simplify the process, but it relied on a core competency instead of creating one.

What Matters Most: Controlling Your Own Destiny

The investors I’ve worked with, and the ones you’re trying to court, should only care about outsourcing your tech development when the tech is the core of your business.What investors will always care about is if you own the core strength of your business; if you own what is required to be successful. Because, if you don’t, then someone else is in control of your success and your destiny.Venture capitalists, angels, and other investors don’t by default dislike an outsource strategy, but they will require you to be smart about your outsourcing. You must maintain the control of your core functionality and intellectual property, but they’ll be supportive of you pushing development or interfaces to firms that specialize in that creation.Control your destiny by making sure your business can stand on its own, and your intellectual property is protected.

Ensuring Outsourcing is Smart

Investors are concerned if you have a shrewd technology strategy that protects your business. Determining what constitutes an intelligent approach differs for each company and each offering.To help you start the process of thinking about your outsource options and what will ensure long-term protection and success, we want to ask you a few quick questions:

• Have you properly vetted your outsource partner?
• Are they locked-in through an NDA or other means?
• Who owns the code they create?
• Are they using the best tools for your industry?
• Do you have a strategy to bring things in-house eventually?
• Will your technology be safe when your venture hits lean times?

At the heart of these questions is an understanding of your ability to keep your Pièce de Résistance safe and under control. Investors are going to perform their due diligence on your idea and your company. Having answers to these questions and framing your technology conversation to address related concerns can help you make investors comfortable with your outsourcing strategy. We also believe it’s the best way for new companies to plan for both the growth opportunities as well as the dangers that lay ahead. “Many different risks can emerge in an outsourcing strategy, but similarly, you might also face risks by relying on just a few team members to keep things running. Contact us now to learn what risks you might face if your business structure includes only an engineer.” ~Assim Gupta, CEO, Closeloop Technologies.