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How to outsource building fully operational prototype while mitigating the risk of cloning?

I am seriously considering outsourcing the finishing of building my prototype to development companies.

Reasons:
  • Seed Round was not an option for I already understood what had to be done & believed I could launch without disclosing my plans.
  • A Round should start 3-4 months after I launch the initial service
  • I can not afford to hire 1-3 full time developers till after the first 3-4 months of launching and have the revenue to support them full out.
  • When I run the first 100 clients through, I want to already have a full team prepared to rapidly develop
  • Scaling across industries & borders is key to our success
  • I believe this is a disruptive technology solution
Concerns:
  • Trusting an outsourced team with 3 years of work that is certainly marketable is making me anxious.
  • How to mitigate the risk of someone starting up competition, rather than having an invested interest in my success.
  • NDAs are great but that doesn't help cover the code & logic in the minds of the developers.
At this point in time, I have no choice but to get help. The original plan was to do this all on my own with freelance developers building my fully functional & profitable prototype (I call it Stage 1), take it to market, then do a Round A involving my first clients.

I can not afford to have a development team rip off my idea. Yet would be ridiculously stupid not to get more help at this point.

What should I do, to mitigate the risk of someone working within an outsourced development company running a clone of my service?


10 Replies

Hugh Macfarlane
2
0
Hugh Macfarlane Advisor
Originator of "the buyer's journey", author of "The Leaky Funnel" and Founder & CEO of MathMarketing.
Chris, I am at exactly the same point and contemplating the same issue with the same concerns. Our advisors suggest we should get a co-founder CTO instead.

We originally built our B2B funnel optimisation application for our own consultants to use in the work we do, then made it good enough for our channel to use for their clients, then for our largest customer's own marketers to use for their channel partners (tens of thousands) and have had to step up the development quality and budget in each of those phases.

We're funding the development off the profits of our consulting business and each step-change in budget has hurt. Now we're getting the application ready for a DIY market which is bigger yet, and less forgiving (app must be faster, more robust and more intuitive). We need to step up budget and quality again. We feel we're super-close.

So for this final push we're torn between bringing in a first round of angel funding and hiring 2 more devs, outsourcing to a development company or bringing in a co-founder CTO with resources of his / her own.

My inclination was to go the angel path as we don't need massive development to get over this last hurdle and feel our 'ask' will be too small ($100k)to be credibleto professional angels or pools (like Angel List) so would end up with FFF and they'd likely want too much equity and too much influence, for a too-small round.

Our external advisors have been categoric in their advice: the 'last hurdle' is more like a 'last push' and will have several hurdles, and either hiring 1 or 2 more offshore devs (our team is already distributed and that works fine) or outsourcing are much the same - fee for service rather than vested interest, will cost more or take longer more than we have scoped right now, and we'd face the inexperienced angel problem and hence have given away a lot for a small capital injection that proves to be not enough.

Their strong advice is that we should bring in an experienced CTO as a co-founder willing to vend in enough of his / her time to get us through this and the next 3 unnamed hurdles and for us to be willing to give up enough equity (on a short vest) to attract the right person, and earn real skin in the game from them.

So that's 2nd-hand advice, but hopefully helps.
Javier Oliver
1
0
Javier Oliver Entrepreneur
Lead Engineer at Mechanical Ingenuity
I'm a freelance mechanical design engineer, and I might be able to give you some insight. I get a lot of clients that come to me with NDA's and great ideas. They are very protective of their ideas, which I understand, but the truth is, I really have no incentive to steal anybody's ideas. Even if I didn't have any professional ethics and I could easily steal a great idea with a lot of potential, it would be horrible for my current business as a freelance engineer. I love engineering, and I loathe business, so I'd be giving up my current practice to roll the dice on something I do not enjoy.

So my point is, get an NDA, and either find an established development group that wouldn't risk trying to steal from you, or find somebody you trust that loves what they do (like me). Consider that developers probably don't have much interest in marketing and business. Besides the legal and ethical hurdles they'd have to overcome, they probably won't have any desire to try to rip you off.

I'm assuming a patent (even a provisional patent) is out of the question? That would obviously help put up another hurdle.

Good luck!
Mikko Koppanen
1
0
Mikko Koppanen Advisor
Senior Technologist
Hello Christopher,

Not to sound negative but: Whilst reading your post my initial question is: If you are worried about development partner stealing your idea, scaling it to 100 clients, going across industries etc how are you going to defend against competition during the initial 1-3 month period after launching when you cannot afford to pay for tech team?
Christopher Tiller
0
0
Christopher Tiller Entrepreneur
Eat, Recruit, Technology, Consult, Network, Repeat
Thank you everyone for your responses...

Mikko,

I am already paying my techs, it is assistance with project management that would be great to have. So today I seriously thought of outsourcing to teams who specialize in prototype development management & rapid expansions.

I had originally planned on just using the freelancers I currently have working with me. However managing to get everything lined up is a bit overwhelming at times. SO I tossed my questions out here to see what kind of advice/feedback I would get.


Mikko Koppanen
0
0
Mikko Koppanen Advisor
Senior Technologist
Christopher,

that clarifies the situation a lot. I guess to understand your current problems more: are you managing the freelancers as a team or directing each one individually? Are you taking the technical leadership role or is one of the freelancers owning that side of things? What kind of tools are you currently using to manage on-going work (Jira, Basecamp etc)?

And are you looking to keep the freelancers and get a prototyping company on top of them or changing the whole development onto a company? If the issue is mainly managing the project / team then maybe getting a project manager into the mix might be a feasible strategy.

Christopher Tiller
0
0
Christopher Tiller Entrepreneur
Eat, Recruit, Technology, Consult, Network, Repeat
Mikko,

Some of the freelancers I definitely want to keep. I have been managing everything & now know why highly experience CTOs are worth their weight in gold.

After I had made the initial question post, I put a call into an IT project manager and long time friend. I will lay all my cards down for him & see what he says.

I think you nailed it when you said "getting a project manager into the mix". This is definitely what I will need to do, till I come across the right cofounder.

No matter what, the show must go on.

Man, I love Founderdating. It is refreshing to have like minded people like this.
Chris Mohr
1
0
Chris Mohr Advisor
Vice President for Intellectual Property and General Counsel at Software and Information Industry Association
There's a legal answer and a practical answer. (This ain't legal advice, as I have no idea what it is that your app does).

In general, your legal tools as a business owner are relatively limited. The first is an NDA, which you know, and the second is making damn sure that every potential piece of IP resides in you and not in those you have hired to execute your idea. This is important for both patent and copyright (which can only be transferred in writing). You can supplement those tools with technologies that log developer activity and so forth (who emailed whom, what files were accessed, what was done when, etc.) in the event that you have to go to the mattresses. If you have to actually enforce those agreements, odds are you've already lost.

What I'm concerned about is that you sound like you may have a developer team that you don't trust entirely (?). That's a hard situation to be in.

There are two approaches where you are. The first is release, take advantage of the first mover effect, and run like hell. Promote your idea and upgrade on the fly. Give buzz for it so that people are excited. Other people will copy the concept for sure, and then it's on you just to execute better. As they execute, take a look at their patents. If there's no protection, don't be afraid to add additional features.

The other way is just to wait till it's nearly exactly what you envision. The dangers of perfectionism are obvious; it's not just delay, but also that organizations sometimes will not like to hear that the app is just not delivering what people want. It makes it difficult to change features that were months/years in the making. That is simply human nature. (Sounds dumb, but it happens all the time and is more likely in small environments).

I'm a believer in the first approach.
Christopher Tiller
0
0
Christopher Tiller Entrepreneur
Eat, Recruit, Technology, Consult, Network, Repeat
Thank you Chris.
Jens Zalzala
1
0
Jens Zalzala Entrepreneur
Founder, Head of Mobile Apps Development at Shaking Earth Digital
Hi Chris,

I run a development company which works with a lot of startups. We're in the same boat as Javier: We love doing the work and are not in the business of building competition. One of our pitches addresses your biggest concern: We already have a team and know how to manage it, which leaves you to actually focus on the product.
So my advice would be: Don't worry so much about it. Find a team that has experience and look at what they've done. If they've been working with startups for 3+ years and their CEO hasn't started 13 other side ventures, you're probably safe.
Even if they end up working on a similar app down the line, it doesn't mean that your ideas were stolen, it just means they're good at that kind of work. I would stay away from clauses that try to protect things like programming logic. All you're doing is hamstringing the developers that are trying to do the best work for you.
Christopher Tiller
0
0
Christopher Tiller Entrepreneur
Eat, Recruit, Technology, Consult, Network, Repeat
Thank you everyone for the feedback... It was quite the learning curve. If I were to answer someone asking me this question now, this is what I would say to them.

  1. Find the team that OWN the best databases of code directly related to what you have to do. This saves time/cost in development.
  2. The databases are related to what projects they have done in the past. However many are outsourcing the work, one level past you, so you want to know how many of the team to work on the project are in house.
  3. If they are cool with you flying to meet the team, chances are better they are not bluffing.
  4. The owners and staff of the development companies love New & Diverse challenges. Their passions lay in finding logic in massive amounts of chaos. Therefore are not there waiting to rip off someone's ideas. They love working with dozens upon dozens of great ideas. This fuels their passions.
  5. TRUST is earned not given, and doing your homework to determine EXACTLY what skills, background, and team you want to work with is incredibly important
  6. Don't bother asking the CEOs, CTOs, Directors... if they would be interested in partnering. Unless you already have more than enough capital without them, and a business plan that will close the deal.

All that being said, I think it is also highly important to make detailed notes of all the companies you had spoken with. One day you may have a MVP and are finished Series A Round. Odds are some of those same companies have expertise & code repositories you will want to buy copies of.

So never say never, if anything just say not quiet yet.


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