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by • August 29, 2012 • Founders, ProductComments (3)424

Paying freelancers to build your prototype is a trap

If you want funding, don’t pay freelancers (or agencies) to have your first product version built. Doing so is a dead end, a trap, a red herring, and generally expensive.

This trap is easy to fall into because investors truthfully claim that they need to see a product before they can invest. But they also need to see a product team, and hiring someone to build your version 1 does not bring you any closer to finding a team. You end up with an expensive prototype and are still unable to fundraise.

Idea + product - team = Nothing

Idea + product - team = Nothing

So is there ever a time when it’s wise to hire out your prototype?

I think it’s acceptable (but far from ideal) if you plan to bootstrap or self-finance the entire company until it’s profitable. The caveat being that it takes much longer to build a profitable tech company than one tends to expect. It’s also okay if tech is non-central to your business. For example, if you are a service business that has a website, hiring out version 1 makes perfect sense. However, for anything whose core is tech, you need the team.

Version 1 is funded through sweat, not cash

Version 1 is funded through sweat, not cash

You need to find someone willing to put in sweat equity, or to at least join as a full-on part of the team with a bit of a salary and a bit of an equity stake. Building the right team is a necessary and unavoidable step. Buying your product doesn’t let you skip that step… it just front-loads your development cost[1].

[1] And front loaded development costs are a Bad Thing.

 

PS. Are you in London? I’m running a 40 quid, full-day workshop on the foundations of lean startup strategy with Sal Virani. It’s this Saturday, September 1, at Central Working Bloomsbury, and you should come. It’s cheap because Capital Enterprise & Open Innovation are kindly picking up the bulk of the tab. Ping me if have any questions!

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3 Responses to Paying freelancers to build your prototype is a trap

  1. Piotr says:

    Rob,

    I like the “Version 1 is funded through sweat, not cash” quote, but my experiences show that when you want to start with developing the first version ASAP, it’s much easier to kick off with freelancers / small agencies.

    Building the team is a long lasting process, building the right team is even harder and full of risks (are the people right, can they deliver, do they invest “sweat”), which increases the risk of project failure. Another thing is finding a real partner. Not every expert wants to work for equity. And especially for equity in a startup founded by the first-time founder.

    Don’t you think that you can mix the freelancers / agency model at the beginning with switching to more dedicated staff once version 1 succeeds?

    Cheers,
    Piotr

  2. Rob -
    Thank you for your post.
    I am in agreement with Piotr.
    I also would add that your argument is very much contingent on context. It is often easier to find talent and potential partnerships in markets that are not as “hot” as the USA.
    I have known of cases where developpers meet with non-technical founders at networking events. One obviously has to begin creating a relationship. It is not easy but it isn’t impossible.
    While investors do prefer teams that have worked together for a long time, I see that attitude changing in the future. One has to be able to adapt and pivot according to the circumstance. You should be able to survive and adapt even if you lose your CTO.

  3. As someone who runs a studio that only works with US tech startups we have built products from the ground up for clients and also worked with existing startups.

    The issue for many new startups is they find it hard to bring together a team that is;
    1: all in the same place
    2: all happy working together
    3: have experience working together
    4: no time delay

    Hiring a studio gives all the above and allows them to build a product quickly and efficiently the only issue is cost, hiring the above is far more expensive than offering equity and hiring your own team.

    The con’s of course are what you brought up above, and are BIG con’s if you are looking straight for investment, but its not always possible to pull your own team together first.

    We’ve never taken equity in return for work its far too risky, but we do work long term with many clients, and when they feel the time is right we will work with them to help hire in the right team and get them up to speed on everything, working along side them for the time needed.

    Luckily investment hasn’t been an issue for many clients due to our close involvement or long term contracts.

    Just figured id put in a point of view from another angle.