Just like you, I’ve been there, in the trenches. I know the rollercoaster well — one day full of optimism and the next feeling worn and battered. Like you, I’ve also had great ideas that have been burned in my soul with my brain constantly churning around possibilities of how my app should look, what it should do and how it would change the world – or at least wishfully thinking that it would hopefully improve my bank account. I was consumed with these thoughts and sure my idea would work, and then I saved up some money and decided to go for it.
The feeling was liberating and the excitement was palpable. And in a flash, all that positive energy emanating from my entrepreneurial flesh, turned into anguish and disappointment. Why? Because the first task on day 1 of execution was to find developers to expertly and economically bring my vision to life. I got a few quotes and quickly realized that I had a choice to make – save up 5 times more cash to build, or to roll the dice on some people I had just met with thick accents who I knew had little or no accountability and to trust them to build me what was surely a money-making app.
Little did I know that very soon, The fairy tale would turn dark and my vision would turn hazy as if I’d just eaten an apple given to me by a wicked Disney character.
After interviewing a bunch of development companies, I literally had no confidence in the ones I met working offshore. There was a mild communication gap with some, and others just didn’t make me feel warm and fuzzy. Some were too eager to get started and their complete confidence that the task could easily be pulled off, without even really understanding the scope, were all red flags. The onshore devs however, were just plain awesome. They asked the right questions, were diligent in understanding my concepts, they took me to a nice lunch and they very quickly understood what I had intended to do. To go any further and get a solid quote, all I had to do was pay for a ‘scoping fee’ to pay for the time required to analyze and determine the criteria. It was only $5k, but it still was shocking since that was 5% of my budget.
I left the scoping meetings feeling completely rejuvenated and again excited. It was short lived – because then my $5k was gone and I received the quote to build. Well, I had saved $100k for my project, but the quote came in at $400k. Yes, my project was a very ambitious project building a complete exchange to trade securities, but still, I just didn’t have that kind of cash. Well, what I did have was a good idea and luckily I was able to convince others of this as well. So, in came the cash and I raised $500k in order to get it built!
Fixed Fee vs. hourly?
Now, here is where my first important decision came. I was asked if I wanted a fixed fee engagement or an hourly build. There were pros and cons to each, but in my case, since I hadn’t completely fleshed out the entire scope myself, it was easier to get started working hourly. Also, here is a tip about how developers view these choices. When looking at a fixed fee project, The way developers protect themselves is two-fold. 1.) they pad their labor estimate and 2.)they charge a premium cost for change orders or additional scope that falls outside of the initial agreed upon scope. So, while fixed fee can be less risky for the entrepreneur, it is important to know EXACTLY what you want to build and everything must be completely spelled out in the initial scope. I’ve found the best way to proceed is to get a fixed fee and an hourly quote for a project and then make a decision.
Behind Schedule and Over Budget
6 months into development, it was apparent that we were falling behind AND, the payments were adding up until the point where it was obvious that we weren’t going to be able to finish. My enthusiasm had completely been squashed again. I did share some fault in this as there was ‘must have’ functionality that needed to be added and certain descriptions in my requirements weren’t clear enough or needed to be changed because it just didn’t work as well as I had envisioned, however, the devs never advised me how any changes would impact the overall budget. Despite maintaining that we should be fine with the budget, it became apparent that this was not going to be the case.
Scar #1: While you likely know every aspect of your vision, make sure this translates well to your requirements document. Better to have too much detail than not enough.
In the end, I was left with a half-finished MVP(Minimum Viable Product) platform that wasn’t even completed and I had run out of money. Not only that, I actually had to take on debt provided by the developer to get it into shape where I could actually demonstrate it to my investors. Lesson learned: I should have taken a more active role in the process, but I had mistakenly assumed that since they knew my budget that we’d be OK and I was actively working on the myriad of other tasks and responsibilities that needed to happen in order to commercialize my idea, so I was spread pretty thin. I was embarrassed – how can I tell my investors?
Scar #2: when you read that the biggest failing of entrepreneurs is being under capitalized, believe it. Always have sufficient reserves or contingency plans before you get started.
With this quasi MVP, I was able to get a little more capital from my investors, but what I learned was that due to the $145/hour price tag that to complete it with the current developer would be more than my investors would give me. Even though I didn’t have a great feeling about it, I had to go back to the dreaded offshore model out of necessity. This time, there simply was no other option.
I Looked into China, Russia and Indian companies but none were as attractive as a contact that I made in Vietnam. The language barrier was just a bit too much and I settled on a company in India that I had found online. Their site was nice, the salesman I spoke with was confident and they seemed like the right approach. One month into development, it was obvious that this company had no clue and was just downright awful. Literally, based on the deliverable, it was obvious that they didn’t even understand the task at hand and the execution was so bad that I literally threw it all away and went back to the drawing board. I knew the price was too good to be true! Literally, this company seemed completely devoid of competent developers once I saw what they had created, but it made me realize that their salesmen were fantastic and that is where they focused all of their energy, Sales.
So back to the drawing board I went and I couldn’t get the thought of the Vietnamese company out of my mind. They had great devs and the project manager spoke well, albeit with heavily accented English and while I was hesitant, it simply couldn’t be worse than the Indian company. What I learned from this process is that my lack of oversight on the devs I had hired had let them get away with overcharging, under-delivering and simply not catching deviations from the plan quickly enough to contain unnecessary work. It was obvious that if I went down this path looking to capitalize on lower development costs, that I needed to have someone on my side always looking out for my interests — I needed to have a fulltime tech guy on my team that would oversee the development and make sure the code was clean and efficient and that the requirements were being properly implemented.
I reconnected with a longtime friend of mine who I had worked with early in my career as a technology management consultant at Ernst and Young – one of the most reputable technology consulting firms in the US. In exchange for equity in the company and a very small salary that was sort of embarrassing given his skill and experience, I felt like I was finally in good hands, and I was!
So, with my friend and new CTO involved, we booked our tickets for Hanoi and off we went.
Vietnam – a cautious next step.
Growing up in the 80s, I had seen Platoon and the Chuck Norris Missing in Action movies, so I was actually a little nervous. Vietnam was always our enemy in the movies and they were, gasp, Communists. Well, as you can probably imagine, Hollywood is good at selling tickets, but not terribly good with painting an accurate picture. The people there were awesome, super friendly and very accommodating. The food is great, and outside of the insane moped traffic, it was truly a great country to visit. The company had exceeded our expectations as well. The owners were competent and the devs took us through a similar scoping experience that we had gone through with the US company. The language barrier was still a factor as not all of the devs really understood English well and even when listening them talk in English, it was sometimes difficult to understand as my ear was very unfamiliar with the accent.
Good News, Bad News
After the scoping phase with the Vietnamese firm, it was determined that it would be much better if we started over. Yes, you read that right, scrap everything we had done to this point. Why? Because the $450k we had spent had created a platform that would be difficult to scale and the devs simply didn’t want to try and figure out how it was built and to try and continue it. Developers don’t like to use code made by others and these guys were no exception.
Scar#3 Fail Fast – don’t overlook your gut and if things aren’t working out, cut losses and move on. I spent $450,000 and had absolutely nothing to show for it.
We signed up and built the platform. The build time was significantly longer, mostly due to not being able to clearly articulate our message and requirements – there was a lot lost in translation and we would have to correct after heading in the wrong direction for a time. The upside is that with constant monitoring, deviations from the plan were short in duration, but correcting the path, was a common theme. Whereas the US devs were mostly a straight line, the amount of time and hours was a zigzag and while deviations were short lived, there were many and it caused delays. The 8 month project, turned into a year and a half. But, in the end, the cost to redo our initial work and add on the additional scope to complete got the whole platform done for $175k.
SCAR #4: Lack of oversight on the devs resulted in a half finished project and disappointed investors. Make oversight a priority or get someone involved that can keep devs on task, on budget and on time.
My Vietnamese experience was solid and well worth it, I only wish I would have started there, but how would an American in Huntington Beach, California ever have known? Along the journey I learned many lessons and made many friends. I proceeded to hire the best devs and one of my closest friends that I made in Vietnam – when you find good talent, you keep it close to you. Some of our devs have the rare qualities of being native Vietnamese, but also having excellent business sense AND they understand and speak fluent English.
Fast Forward to the Outcome
After building the platform, I received capital investment from a large exchange – so large in fact that this exchange also owns the New York Stock Exchange (NYSE). A few years later, I sold the company to an affiliate of my largest investor and kept my best developers with me. The plan was to keep everyone employed and to form a development company to share what I’ve learned with fellow entrepreneurs who are similarly wide-eyed and full of optimism. We have created a hybrid offshore development company that combines the cost savings of offshore developers with the efficiency and speed provided by onshore project managers. We like to think that we are the best of both worlds. As an added bonus, we are just like you, entrepreneurs. We know your challenges and we know your budget is important. We also know how users will see your applications and offer our experience, advice and ideas that will give you a better product, the first time around.
Conclusion — Hybrid approach minimizes downsides of offshoring and onshore development
From my experience, there are two approaches when looking for software or app development. You pay a premium and have on-shore developers who charge $100-170 per hour, or you can go offshore and pay $15-$80/hour. Sometimes, circumstances dictate which approach is feasible, but if you want to stay within the pricing of offshore without having to roll the dice, AND you want to partner with entrepreneurs who will look out for you, then let’s have a conversation. We believe that we likely represent the sweet spot — a convergence of low costs and low risk that you are desperately looking for.