BEFI Dec 10 Outsourcing Beyer

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IT Outsourcing for StartupsStrategic and operative issues of IT

outsourcing in a startup situation

Timm Beyer - skilldeal

Berlin, 10.12.2010

The Founder Institute



IT Outsourcing for Startups

Situation analysis

Sourcing strategy

Vendor selection process

Vendor handling

Risks and Trouble-Shooting



Situation Analysis

What are your priorities? What is your next and most

important goal? Examples:

±

Next financing round ± Time to market

± Innovativeness and solution uniqueness

What are your competencies? Do you have all the

necessary know-how?

What can you afford? Do you have to adjust your

goals depending on your budget?



Sourcing Strategy - Priorities

If your main priority is your next financing round you

should ask yourself: What do you need (on the

IT/software level) to convince your investors: ± Is a prototype sufficient that demonstrates the general

idea of your product?

± Or do you need a fully-fledged application?

± Is there a very specific date/deadline when you want topresent anything to investors?



Sourcing Strategy- Priorities

Is IT/ software your MAIN differentiating factor from

your competitors?

If YES, your main questions may be: ± Which in-house expertise do you have?

± What should you do in-house?

± If you outsource, who (in your team) is able to evaluate

technology expertise and the quality of work of yourpotential suppliers?

± Can you make sure that your solution will be able to

handle high performance requirements?



Sourcing Strategy- Priorities

Is IT or software your MAIN differentiating factor

from your competitors?

If NOT, you should rather ask yourself: ± Who has done something similar before?

± What technology/framework did they use? Are there

open-source solutions?

± What did they pay? How long did it take?

± What went well/wrong?

± Who can I ask? Who could give me good advice on

suppliers?



Sourcing Strategy

A possible outcome of a situation analysis could be:

± Your budget is limited, so is your internal IT know-how

± IT is important but not decisive for your success

± Your next financing round is approaching soon

Your sourcing strategy could then be:

± Find outside help (friend, IT consultant, ) for selection

and evaluation ± Optimise price-/delivery ratio by considering off-

/nearshore

± Build well-designed prototype and rebuild the whole thing

after your financing round



Sourcing Strategy Case study

Startup AbraC wants to create a web-based B2B

marketplace. Their in-house IT know-how is limited.

They assume that their main success factor is salesand marketing. They secured 150.000 Euros in their

first financing round.

What do you suggest they should do?



Vendor selection

Long list/ short list: Large vs. Small, Techie vs.

Creative, National vs. Offshore (and if offshore: far

vs. near) Specification: Can you judge how good your spec

really is? How flexible need it be?

Request for Proposal: Can proposals be comparable?Are risks covered?

Evaluation: Weighted Criteria, customer interviews



Vendor selection

You say The vendor mightthink

What you could do is

Our deadline is December

24rd!

We will try hard but you

know that IT projects are

almost always late.

Include sanctions in contract

Careful with your payment

plan!

We are a startup wework night and day! We

expect that from our

supplier, too!

Sure guys. Our peoplehave families and their

lives. We see what we

can do.

Make sure they fit to yourstyle, work hours and

ambitions!

Motivate or adjust?

Our specification is super-

detailed. You just have to

code it down!

Your specification is crap

but we will work

something out.

Improve specification

(external help?)

Or: Use agile methods withquick feedback rounds

We want a 25% discount

for the same quality!

Hm - we substitute some

of the programmers with

younger ones.

Include names/CVs of

programmers in your contract

Be reasonable about

prices/discounts



Vendor selection Case study

Startup BetaBarata has sent out RFP to 12 suppliers.

They met some of them in person, others were

called. They receive 12 offers which vary heavily inprice and timelines. Since budget is their priority,

they tend to invite the three cheapest and discuss

their proposals in detail. What would you do?



Vendor handling

Apart from basic project management such as

± Have a proper project kickoff

± Establish rules, availabilities and contact data

± Be on top of things

± Have regular status updates

± (And so on)

there are some lessons learnt that areoutsourcing-specific ->



Vendor handling Lessons Learnt

Formalism works! Write stuff down instead of just

expressing your wishes over the phone

Use tools, e.g. ticket systems, instead of emailing orchat (unless it is just handling day-to-day stuff)!

Make the suppliers project manager personally

responsible, as your partner (not your slave)! Motivation works well with suppliers, too make

them feel as a part of the team!



Vendor handling off-/nearshore

Offshoring or nearshoring can be an alternative.

Some things might be important to know:

±

It requires more coordination (and, usually, more time)than a national supplier

± Language (how good is your English? Or Russian?) can be

an issue, on both sides

± Cultural differences depend on country and company size

± Price discounts can be huge, but depend on the region

(not necessarily the country - Moscow is more expensive

than Berlin)



Trouble shooting

If something is not working well - Change it fast

(either processes, documents or people)

Cultural differences may occur Sit at a table withpeople and speak with them

Change of important team members may require a

Re-Kickoff Dont rely on supplier-internal updates Supplier change often means rebuilding the whole

solution Try to bring in an external expert instead



Risks

Main risks include:

Quality

Budget

Timeline

Property rights

To handle these risks, you probably need ->



Risks and how to deal with them

at least these things:

A good selection process

A good contract

And a good project manager



Handling/Trouble shooting: Case study

Startup CesarCity has started an IT outsourcing

project with an offshore supplier. The project started

well, but the alpha-version shows severeperformance problems with the (critical)

database/search functionality of their web software.

Since their IT know-how is limited, they think aboutchanging the supplier.

What would you do?



IT Outsourcing for startups

Thanks and good luck!

Documents

BEFI Dec 10 Outsourcing Beyer