We do a lot of startups at 25Fifteen — roughly ten new projects each year — and we often run into situations where we don’t have a particular skill we need in-house. Over time we’ve come to realise that it’s ok for an early-stage startup to outsource some of this stuff, but that outsourcing other things drastically reduces the likelihood of a project being successful.
If I could distill all that experience into one point, it would be never outsource things that are about your unique proposition. This usually means your product (what it does and how it does it) and customers (what they need and what they do with your product). You must do these things well in order to be successful, so you want to have as much involvement in them as possible.
On the other hand, you don’t lose much outsourcing back office functions like accounting, licensing, compliance, etc. These things can kill you if they aren’t done properly, so it’s worth the effort to get them right, but aren’t going to make you successful no matter how well you do them, which is why they’re sometimes called good hygiene.
If you get enough scale, it will become efficient to bring many of these things in-house. They still won’t make you successful, but they might be a bit cheaper.
Sometimes your tech isn’t a determinant of success or failure — perhaps ecommerce, where what you’re selling is the important thing, not how you’re selling it, or porting an existing product to a new platform — and in this situation it’s usually safe to outsource that too. You’re asking for something that’s well understood already, and mostly a matter of customizing off-the-shelf components.
But for anything where the tech is the product, it’s a huge mistake. Same for customer interactions, whether it’s acquisition or support. Knowing your customer is critical for every startup, and anything that keeps you away from them just makes this more difficult.
There are three important reasons for this (and a host of less important ones).
You aren’t learning what’s wrong with the product efficiently.
In the early days, actually building the product is less important than knowing what to build. You only learn what’s wrong with the way you’ve currently built it by doing that building, and then watching people use it. If you don’t do both of these, the lessons either aren’t being learned at all, or are being learned by other people, and then (maybe) transferred to you. Inevitably, things get lost in the transfer.
The thousands of small decisions that you can’t spec don’t get made in the best interest of the product.
It’s impossible to tell anyone how to do everything down to the minutest detail, so they have to make some decisions for themselves. The less detail you spec, the more decisions they make. They’ll make these decisions using their own criteria, partly guided by your instructions, and partly guided by their own biases.
This will still happen with an internal team, but you get to hire every member of the internal team, and you’re around each other all the time, so you have a lot more control over their biases.
You don’t build up institutional knowledge.
If others are learning the lessons about your product or your customers, you’re not as well-equipped to handle future challenges. You also don’t appear as well-equipped, to investors, partners, prospective employees, and even sometimes to enterprise customers.
This does not mean that you can’t use tools or consultants to help you with them. Using something like Hubspot to help with your marketing doesn’t separate you from your product or customers, nor does using an agency to help you articulate your brand, or execute on your SEO. You should not abdicate control or understanding of these things though. When you stop doing the thinking for things relevant to your unique proposition, you start to drift out of touch with your customers or your product, and your product will be less and less effective at addressing their needs.
It’s worth noting that some things are relevant for one startup but not for another. Arguably, Uber’s approach to compliance was instrumental in their early success, but for most companies compliance is hygiene. Only you can decide where the line is drawn, and the more honest you are with yourself, the more successful you’ll be.