Having been in the business for quite some time, we often hear that founders are reluctant to work with us because they would much rather build their own internal development team. This is not unique to ASquared, and it is not specific to any one sector or industry.
It is likely that that many other businesses in our industry are having this exact conversation with potential clients as we write this article.
The idea of building your own development team certainly has some merits, and many investors will insist that start up founders explore those merits.
In fact, in a recent Dragons Den episode a founder was strongly advised that under no circumstance should they outsource development work, and the only way they would see investment was if they committed to building an internal development team.
Going against advice like this might seem counter intuitive and risky, and this article might already seem to sound a little biased. However, we will do our best to portray the benefits and pitfalls of both approaches.
To start with, we are going to assume that you are not a developer-founder, however, much of the information below is still applicable, because there is only so far you can take your venture on your own before needing more support.
If we start from the point of view of developing an internal team, we can think of this as the process of building a team to develop a product. In other words, we're going to try and assemble our A-Team to build the best possible product as quickly as we can.
Let's look at three primary benefits of hiring a development team, these being development of in-house expertise and product knowledge, development and retention of intellectual property rights, and culture.
As a startup, it is very unlikely that you're going to be developing something that already exists, instead you will be creating something novel, innovative and unique. Therefore it makes total sense that, overtime, you will want to develop world class expertise in your product or service, within your business. It will be your team’s ability to understand exactly what's going on within your codebase that will be the difference between slow or rapid success or failure.
And indeed overtime, we would wholeheartedly recommend that you develop and build this internal capability, because there should be nobody else on the planet that is more expert in your solution than your company.
Competition in today's digital world is fiercer than it has ever been. Whilst the pandemic was a uniquely difficult time for many people, including founders and investors, the event combined with the climate emergency we are all facing, has put even more emphasis on the role of startups in helping solve some of today's pressing issues. That evolved need stacks on top of the existing growth dynamic of early stage technology companies and the expectations that investors place on them.
In this highly demanding fast paced, cut and thrust world, intellectual property development, retention, protection has never been more important for the success of both the startup, and their investors.
We therefore agree, that intellectual property should be carefully documented, and clearly owned. Building an internal development team, is as good a way as any of achieving this.
Despite the benefits that having an in-house team provides here, there are ways this can go awry. There have been cases where development teams have been using incorrectly licenses software stacks, resulting in significant valuation deductions further down the line.
Culture has always been an important thing for any successful business. However it is only in fairly recent times, that new hires are, in significant numbers, questioning the culture of the potential new employers, and even rejecting offers from those that don't fit at a cultural level. In a period that is currently known as the Great Resignation, culture is sometimes the only thing that stands between building and retaining a successful, high performing team, and scraping around in the dark trying to find ways to constantly please demanding team members.
We see culture as a very important part of the business, and something that an in-house development team will be crucial to help develop grow and cultivate overtime.
Alright, so there are some pretty significant reasons why an in-house development team would be a good thing. And even as an agency, we not only see the benefit, but we will actively promote the benefit of building an internal team for your startup - if, and importantly, when it makes sense for you.
Hiring a team takes time and money, and that is something that we've gone into in a fair bit of detail in another article so there’s no need to go into the details here. To summarise, though, good developers are both hard to find, difficult to convince to join you, expensive and difficult to keep. On top of this it can take months to find the right individuals, and cost tens of thousands on top of their salary in terms of recruitment costs, tax, social contributions, and additional benefits.
A high proportion of early stage developers will leave, some very early and some much later. Either way it’s a problem, and from our experience the strong personalities of development-aware founders lead to higher rates of attrition.
But it’s not just technical founders that can cause challenges for building development teams. Any founder with a strong personality, big ambitions and a predisposition for perfectionism over pragmatism has the potential to create friction within development teams.
When a developer leaves you in the early stages of your venture, it is a set back, but you still have time to recover from it - as long as you have the budget and roadmap to go through the hiring process again.
When a developer leaves you later in the project, it is a much more risky affair.
Losing a key development team member later in the project, is much more disastrous because so much more work has been done, so much more of the benefits mentioned above have been developed and retained by the individual. Onboarding a new hire not only takes more time and effort, but often runs the risk of "not invented here syndrome”, resulting in damaged morale and motivation within the rest of the team, and costly delays.
This really exposes another risk; key-person risk. If budgets allow, a perfectly acceptable way of managing key-person risk is duplicating critical roles, in each element of your development stack – front-end and back-end.
All of the things mentioned above ultimately can be solved with both time and money. However, these are two things that startups are very rarely blessed with an abundance of. The purpose of a startup is normally to get to market with the best possible product they can, as fast as they can, within constrained budgets.
If you are going down the route of building out your own internal development team, let us share with you something we have learned after spending decades of our careers in both development roles and the management of development teams.
Nearly every developer (if not most) suffers from impostor syndrome - and as a founder, that will become your problem to deal with.
Nearly all developers are self-taught, through a similar passion and dedication to their career as you would expect to find from an aspiring artist. Driving them is a constant need to find new, innovative ways to solve problems more efficiently and smarter than before.
This means that developers rarely say “no”, in fact we have heard it said by several senior developers that “anything is possible with software, it's just a matter of time and money.”
The desire to be seen as a proactive problem solver, and an expert in their field leads developers to say yes probably more than they really should. If not understood, and dealt with in time, this can often lead to overpromising, under delivering and a development of tension and stress within the team. This is one of the common pitfalls that divides founders and development leads within early stage businesses.
Unfortunately, this problem doesn't go away with time. Technology evolves at rapid pace, and this excites developers - the possibility of using something new, to solve bigger problems smarter, faster and more efficiently than ever before. While this can be a truly amazing thing, it does mean that most developers are always “over their skis”, operating ahead of the curve. Simultaneously, they’re learning new tech, and having to make promises against features and deadlines, with very little real world experience about how the new technologies work.
It is pretty common for startups to change their direction one or more times before they strike gold – this is infamously known as the “pivot”.
Pivots come in all shapes and sizes, some relatively minor, others seismic.
Minor pivots might be a change in messaging, features or target market, perhaps even a change in leadership. Often these are necessary course adjustments to secure a good product-market-fit.
However, sometimes a series of minor pivots is simply patching up a leaky bucket with sticky-plasters … where the bucket is made of salt. At some point, the leaks are the least of your concern and the bucket simply begins to disintegrate.
In these cases, investors, advisors, founders or even new team members acquired in a minor pivot will influence more significant shifts that require fundamental changes to technology, architecture and/or staffing.
When this happens, the pivot will either make or break the startup.
At this point, a large development payroll commitment is going to feel quite constraining. So constraining for some, that the pivot is never made and the gold never struck.
As mentioned before, in-house development teams can be a big asset, but until the direction is unwavering and all pivots exhausted, then they can be quite the hinderance.
Now let's look at some pitfalls and benefits of working with an outsourced team through an agency.
This approach can be seen as building a product to hire a team.
In other words, focusing your startup resources on getting a product as quickly as you can to not only create a market presence, but use that to attract team you need to succeed.
As mentioned (and promised) above, we absolutely see the benefits of having an in-house development team, but it comes down to the delicate balancing act of speed to market versus cost and effort.
We believe the success of a startup is very much dictated by its ability to get a minimal viable product into the market in order to test and acquire target users, within the time frame and budget constraints set by their own management and investors.
While building a team will be crucial, a highly qualified well-respected team will not survive the cut if the product or service isn't successful within the startup's runway.
So with this, we think that agencies can provide a critical enabler for startups to succeed fast enough to be able to hire, build and grow a high performing development team of their own.
Most agencies themselves have gone through the startup phase. We know the pain, frustration and trauma that can come from building high performance teams.
We can only directly speak for our experience at ASquared, but during our conversations with other executives at agencies like ours we believe our experience is not one other kind. As we built our companies, we have experienced all of the pitfalls mentioned above, and more, when developing our own internal capabilities.
We spend a tremendous amount of time, effort, and money making sure our teams are well supported, empowered, and able to deliver to the best of their ability.
In addition to providing constant personal and development career opportunities for our teams, we provide opportunities for them to learn new ways to work with each other, to challenge themselves and their team members to strive to be better versions of themselves everyday.
A healthy and engaging culture is critical to create motivation, retain your teams but also in attracting new hard to find talent.
Development talent is a global shortage, but in the UK, and especially in London, it is incredibly difficult to find the right people at the right time at the right price.
As a London startup you might be prepared to offer your lead developer maybe £80,000 a year, perhaps even up to £120,000 a year at a stretch, but the chances are that if they're that good, they can also demand twice that from a better funded, better brand name startup from California.
To delve into the psyche of a developer once again, it's not just about money. When deciding to take a new role, or deciding to stay within an existing business, developers often look beyond money - within reason of course, they should be getting paid what they feel they're worth. Most are looking for the opportunity to grow, to demonstrate their leadership and their expertise, to be involved in something successful, to enjoy both what they do and the time they spend with the people they work with. All of this leads to the importance of a strong, healthy and identifiable culture.
Within a ASquared we take culture very seriously and have allocated significant amounts of budget and time to help positively develop this. For example, we provide budget for colleagues to acknowledge each other and say thank you, for any reason they like. Above and beyond the ‘normal’ benefits we provide access to wellbeing and mental health services of their choice, allocate half a day a week to personal development and encourage (and pay for) the use of new software tools.
We do much more, too, including a novel digital nomad benefit to allow colleagues to explore the world, their birthdays off and three team adventure days a year. In fact, we have tripled the time and money set aside for culture and support every year, for the last three years in a row.
With all of these measures, in all honesty, sometimes things do go wrong. But, that's our problem that we must deal with and something we have already built strategies to help mitigate. If you're building your own team, you really should address the issue of reducing your critical dependency on one or two key members of your team. This is a painful learning experience for any company and something an agency like ours learns very quick.
At the top of this article we said we would try hard not to be biased, and with that let’s point out some of the pitfalls of working with an agency, as well.
Agencies come in shapes and sizes, meaning some will suit your needs whilst many will not.
Some agencies will under-quote for the initial work, hoping to be able to build a relationship and develop longer term engagements. You should be aware of this upfront, and make sure that you get a true sense of the cost of the project overtime.
In all fairness, providing reliable upfront pricing is incredibly challenging, and prone to error from multiple assumptions that often turn out to be invalid. You should look very carefully at what you will actually get from companies offering fixed-price services.
A better approach is to look for trusted partners that give you control and certainty over features, timelines and costs through transparency and short commitments. For example, we work to weekly commitments, where the features and budgets are agreed at the beginning of each week.
Whilst there may only be two primary platforms for deploying apps, notably the Apple and Google ecosystems, there are thousands of combinations of technologies that can be used to deliver.
This means many more technologies, and flavours of those technologies than anyone team could realistically be expected to understand and be an expert in.
Not many agencies are able to maintain teams of developers that have experience across every possible combination. That means that agencies will have natural strengths and weaknesses across these different technologies, and this is something that you need to make sure you understand when working with an agency.
Does the agency have the right skillsets, with enough expertise and experience to be able to deliver the project that you asking them for? Failure to get an adequate response on this question can lead to what's known as a bait and switch experience, reduced efficiency, reduced morale and ultimately late or poor delivery.
Intellectual property rights (IPR) are important not just for your business, but for your investors too. So be careful to ensure that any agency you work with has a clear and clean policy on IPR ownership that minimises your risk and satisfies the needs of your stakeholders.
Just because you're deciding to use an agency shouldn't mean that you have no idea who is working on your project. Transparency is crucial to build trust between your startup and the team building your product.
The bait and switch problem mentioned above can be mitigated if the agency provides enough transparency. Transparency can also help avoid finding yourself in the dark, helping avoid the frustration and delay sometimes experienced by remote teams failing to respond or deliver on your requests.
Ideally, transparency needs to flow in both directions. Good agencies foster open communications channels with their clients, and are proactive in seeking out regular feedback, warts’n’all.
We’ve built customer delight into the heart of our business and culture, with customer feedback influencing team success and reward.
The difficult truth about development programmes is that things very rarely go as expected – even if you expect that. As such, transparency and agile business practices are critical for the success of the project.
Working with an agency that encourages open, bi-directional communications ensures that any divergence from plan can be spotted and mitigated swiftly, with minimal cost or disruption.
However, when communication channels are more opaque and the time between check-ins is too long, then the further the project will drift off target, incurring exponential costs and complications over time.
There’s a fascinating analogy by the British academic, David Feeny, that likens this to whales and dolphins. Essentially, dolphins surface more frequently, while whales spend longer under the surface meaning things above have time to change a lot more before they notice. You can read more about that here.
Following the pricing point above, some agencies will try to tie clients in for a fixed period of time. Make sure you understand your period of commitment, because at some point, like many startups, you will want to pivot and change direction. Whilst this can be a lot easier with agencies than your own internal teams, it is only easier if your agency of choice hasn't tide you in for months or even years.
In the long term, it is most likely that an in-house development team is going to be the best option for most of your business-as-usual needs. However, you might find that an agency approach will give you the best balance of time to market versus risk in the early stages of your growth.
We should also acknowledge that while this document has really focused on the pros and cons of in-house versus agency for early stage growth, an agency can also be a preferred solution at later stages, too, but we’ll cover that another time.