A New Dynamic for Early Stage Product Development
Thursday, January 7th, 2010The current system for developing conceptual applications is broken. Many early stage entrepreneurs clamor to find developers that can build their product on a tight budget so they can get it in front of venture of angel funds for further development and proof of concept. These entrepreneurs consistently seek out a pool of developers that are few and far between: those that are willing to work exclusively for equity. This search typically results in two unsuccessful outcomes. The entrepreneur encounters an incompetent team that fails to develop a quality product, or the entrepreneur becomes frustrated and abandons the project entirely.
Why Does This Suck?
As a developer, I love new and innovative concepts. As an entrepreneur, I love disruptive ideas that can change the landscape of business as we know it. How many of these ideas meet with either of the two fates above? In today’s world of abundant talent and money, why do good ideas die without a fair chance to prove themselves?
I meet early stage entrepreneurs with cool ideas all the time. I want to help them, but they very often can’t allocate the budget to turn their ideas into reality. What results is a chicken or egg problem: the entrepreneur needs a product to pitch for funding, and the product developer needs funds to develop the product. What ultimately results is a dead idea that was never given the chance to get off the ground.
And Now…For Something Completely Different
What if a term sheet wasn’t in dollars and cents, but in developer time? What if VC’s wrote two checks – one to the entrepreneur and one to a recommended product development firm?
There are many intelligent individuals that are emphasizing the importance of building great products. In my opinion, the best people to build products are those that have done it before. If that’s the case, then, how many first-time entrepreneurs know how to build a product? It’s my claim that it is an investor’s fiscal responsibility to ensure the entrepreneur is connected with the right resources to develop their product.
Ideas like TechStars, YCombinator, and small, localized incubators and organizations have done a ton for the online startup community. Good luck getting into an esteemed mentorship program like TechStars without a developer on your team, though. All of the people around these ideas recognize the need for sound, technical talent, but rely on the entrepreneur to supply it! It is my belief that the investors can provide entrepreneurs with this talent as part of their investment. Whether they staff engineers permanently or furnish a recommended list of vendors, I believe the investors are more qualified to discern between developers that can deliver results and the unfortunate bozos that pervade our industry.
Why This Works for Investors
I consider the investors I know to be wonderfully connected and resourceful. They usually have a demonstrated track record of building successful products and companies. If I’m a first time entrepreneur, why not rely on my investors to connect me with a team of capable and efficient developers? As an investor, wouldn’t I want to be connected to developers that can make my portfolio truly shine?
If you’re connected to the best and battle-hardened developers, that creates a lot of value for your firm. Having engineers at your disposal to assess the complexity and costs of doing business during due diligence would allow for investigators to help discern between the money pits and the lean, money-making machines. Additionally, having an elite team that can get the job done right and fiscally efficient would allow you to cheaply evaluate business concepts.
Why This Works for the Entrepreneur
To say it matter of factly, entrepreneurs without software development backgrounds simply do not know how to hire solid, technical talent. If investors are helping to recruit and screen candidates, that really can increase the efficacy of such crucial hires. Not to mention, investors can train and mentor entrepreneurs on what to look for in a sound, technical hire to sustain future growth.
When entrepreneurs get funding and can make hires, do they really know how to evaluate a potential engineering employee or contractor? Potentially, a seasoned entrepreneur with a product development background may have a list of contacts to reach out to when they become flush with cash. How many first-time entrepreneurs, however, waste valuable time and money on incompetent people that don’t bear any fruit for their clients?
In early stages, most business-oriented founders want to focus on strategic partnerships and sales, anyhow. While there’s an increasing and encouraging awareness of how important your first technical hire is, it’s not something a first-time founder is really equipped to do.
Why This Works for the Development Community
There are a lot of bad developers out there that sustain themselves on unsuspecting, first time ventures. In a world where investors help to build a sound framework for screening candidates, these bad apples fall out of our industry. This effectively would raise the bar for everyone in the field, which would make the most meritorious developers more valuable and respected. Good developers would no longer have to tolerate those that didn’t carry their weight because they simply wouldn’t be found on the same team together. This would result in higher job satisfaction and retention, in addition to better output and creativity.
Additionally, developers love new projects and business problems to solve. If the investment community could provide a capable and elite team with a continuous supply of cool concepts, I bet you’d have a happy team of developers.
The Grass is Always Greener
I’m not necessarily knocking the present state of affairs. I can certainly understand why investors don’t want to manage the hiring process to this extent, and why certain entrepreneurs would view this type of involvement as intrusive. My intent here, is to raise the point that investors usually have the know-how to assist entrepreneurs with their product development efforts, and that they should use that know-how to the benefit the value of their portfolio and benefactors.
That being said, there’s also the issue of observing how a team stands on its own, which is probably the strongest case against this model. The development team sponsored by the investor won’t always be there, so it would be important to recruit and phase in a technical cofounder at some point in the product’s development. An investor might not want to finance this endeavor, and they generally want to invest in a full-strength team from the onset.
In the end, we’re in unfamiliar territory. Perhaps all we need is a better way to match good developers with promising teams and ideas. Brain power and attention are becoming the scarcest of resources, and my desire is to create the most efficient economy to maximize the outlay of these resources. The idea, the founder’s passion, the developer’s capability, and the investor’s money are all necessary to create successful products, so let’s all work together to optimize what results.
Update: Nick Plante tipped me off to a company trying something like this named SproutBox.
