I have been approached many times by would-be entrepreneurs that want to start a company which has technology as its core intellectual property, usually software as service. In some cases, the would-be entrepreneurs have no capability in technology and figure they will outsource the technology’s development and maintenance, manage everything and get investors to pay for it.
What’s wrong with this?
1) The core intellectual property and knowledge of the technology will reside outside the company. Admittedly this could be dealt with through legal agreements but the risk remains of intellectual property theft.
2) A primary issue is the risk that the delivered technology will be problematic this can occur for the following reasons:
a. Technology developers might not understand what exactly is needed and thus deliver what is asked for but not what is needed, for example, a web site is asked for, the software developer doesn’t question whether a cell phone app would be better, so a website is delivered and without security protections because that wasn’t asked for. Yes, I have seen this happen. In other words, they delivered what you asked for but not what is needed or optimal given the long and short term vision and goals.
b. The nature of the vision and understanding of the market tends to evolve, an in-house team tends to be more attuned to the evolving nature of what is needed.
c. I have seen business plans in which the entrepreneur figures their role is just to manage. Just being the ideas person or the management person doesn’t always work in startup.
While outsourcing or delegating can work, there are three main take-aways:
1) Never delegate understanding, the entrepreneur team needs to understand the nuances i.e. implications and implementation issues around their core IP this usually occurs for those that can do technology.
2) Entrepreneurs need to be able to do, not just imagine and inspire.
3) Investors tend not to like funding all the development costs while the founding team just “manages”.