Questions

I designed an enterprise level application for the network marketing industry. We have an MVP that is gathering fantastic data, and scheduled multiple meeting with potential Angels/advisors. While I am extremely passionate about the company, the ultimate goal will be a buyout. From a acquisition value perspective, would it be better to: 1) hire and manage an internal development team; or 2) outsource to an experienced development team. What are the pros and cons of each? Much appreciated. Thank you all for your wisdom :)

Here is a good read on the topic - http://blog.venturepact.com/blog/why-doesnt-fab-com-use-us-based-engineers

There are many firms that have successfully built companies by outsourcing the development including:

Warby parker
Fab
One Kings lane
Birchbox

So it is clearly possible to outsource tech, the main things you need to think about are:

1. What differentiates my company from the others in the market? If your company is not building a new technology or new algorithm then outsourcing software to get you started will work. Of course your core algorithm or core differentiator should not be outsourced.

2. Who you choose to outsource to? Are they a good fit for your needs and do they have the right technical skills?

3. How will you manage and work with the outsourced team?

Depending on your funding position and the type of company you have you might find that there are things that are core to your company that you would like to keep in house and hire a small development team to focus on that and outsource the part that is not core to your business.

With regard to buyout option the main question the buyer will have is on your key differentiating factor so if technology is just an enabler then it will not be as much of a focus in a buyout discussion. However if the buyer if you are innovating in technology and a lot of the IP is in the technology then the buyer will be more reluctant to buy the firm if all your tech is outsourced.

So do not outsource parts that are core but non core parts can be outsourced.


Answered 9 years ago

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