Outsourcing Development

January 24, 2008

A few of you have asked me whether they should outsource their development with questions usually covering code quality, costs and security.

The security risks – especially the risk of the development shop stealing your code to compete with you or selling your code to your competitors are the lowest one. Their job is not to be an operating company – they would not know how to compete with you – and they would not get much business if they were re-selling the code they wrote for you to your competitors. However, as with many such decisions, “caveat emptor” – do your due diligence: talk to several clients they have worked with in the recent past – both large and small – sign an NDA, a non compete agreement and make sure your agreement with them states you own 100% of the intellectual property they develop for you.

The more relevant issue in my perspective is one of management. Outsourcing your development will NOT save you from needing a great CTO and/or VP of Product. You will need to have very well defined specs for the development to meet your expectations. You will also find them to be much more responsive and effective if you are speaking with them daily and verifying their work daily. This constant need for communication means that where you outsource to is highly important. If there is a 13 hour time difference communication is extremely difficult because there is never a good time to talk.

My personal experience has been mixed. With Zingy, we tried outsourcing our Brew development to a development shop in Russia. The problem was that the code they wrote worked on the emulators, but not on the phones which always had quirks of their own. The Brew emulators might be more accurate today, but at that time outsourcing ended up being ineffective as we essentially had to rewrite everything for the phones with our New York developers. We also tried outsourcing other elements of our development, but the development company took on more than it could handle with us and was always late and we stopped using them. Make sure that whichever company you hire can handle your needs – that they are not overwhelmed by a large client and will pay attention to you, that the work you have for them is in line with their expertise and that your project will be adequately staffed.

With OLX, we off-shored the development, but it’s all in-house. We are incorporated in Argentina and all the developers are full time employees of OLX. It works well because Argentina is between 1 and 3 hours ahead of New York which makes communication easier. The New York team also spends 2 weeks every 2-3 months in Buenos Aires with the team. Most importantly, it works because I have a phenomenal Co-CEO and partner who manages the team in Argentina. We could not have 66 employees in Argentina without Alec’s (www.alecoxenford.com) expertise and experience.

Some of my other portfolio companies have successfully outsourced development. I can personally highly recommend working with DigBang (www.digbang.com) in Argentina. I am happy to introduce any of you to them if you are interested.

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