When starting your own company, there will come a point when you need outside help. Most likely that will be when your technological knowledge has reached its limit. Most entrepreneurs turn to development firms – or dev firms for short – to help them with their tech. The problem is that these big firms make you pay big money for their giant overhead and labor, much more than the product you actually get. Even worse, many of them will ask you for equity in exchange for building your software. In other words, they want to see that you’ve put a considerable amount of money into the product yourself.
What Happens When You Let A Dev Firm Build Your Website
Dev firms require huge payments for their services. The less you pay, unfortunately the worse it gets. I’ve seen it. I saw a development firm charge $15,000 PLUS 10% equity to build a startup’s website. Keep in mind the website is the cheapest part to build. This is nothing in comparison to what you have to pay to get your app completed and then you still need to create an Android version! Even though I paid $15,000, it took them almost a YEAR to build the site. When I got the finished product…that is, after $15,000, 10% equity and 12 months…I had a website that couldn’t accept payments. There was still no app and the dev team was unavailable for weeks at a time whenever bugs wrecked the user experience. All I could do was just sit by and watch. It was incredibly frustrating.
Money Makes The World Go Round (And Especially Dev Firms)
You probably think you are different, that your idea is worth millions and these developers will be thankful to be a part of such a tech goldmine. Your idea is worth $10 million. You’re cool with giving up 20% of that worth to someone who will build it for you much more than investing tens of thousands instead right now especially considering the outlook you have with a dev firm. You are fine giving them those $2M because after all your company wouldn’t even be able to exist without your developer and for $2M your developer should be entirely devoted to you. But all of that is just in your head. In reality you don’t have those $10M yet. You may have them some day and then you can give your developer that 20% stake, but all of this is just a promise for a future that may or may not become reality. That promise isn’t tangible. And that 20% is worth NOTHING until your software is built and launched, you have customers using that tech, and your company has actually become profitable.
It’s tough out there. For all of us. Your idea might be a great idea but that’s all it is, just an idea and there are millions like you out there. Dev firms know this. And so, if you can’t build it yourself, you have to pay up. I know it’s tough. It’s the end of the month. You have to pay your rent or mortgage. You have credit cards to pay. We all have to budget, including the people working on your app at the dev firm. Now, would you, as a developer, put in a full-press effort on turning an idea into a working app and website because of 10% equity or would you be working on the projects that pay your bills today? Cash makes people move. It motivates people.
Is This Your Developer?
Motivation through money won’t be your only problem. You need to remember that your developer will never truly be your developer. When you are just starting your company you will probably not have the money to hire a full-time developer who will work exclusively for you. That said, an outsourced developer will never be truly your developer. Even if you are offering your developer equity, he or she is still not exclusively your developer. Unless they give up all their other projects, developers do not just work for you alone.
Developers are in high demand. Everyone has an idea to launch that will make them millions and developers can take advantage of this. Developers and dev firms take on tons of projects and your company will just be one of many they have to work on that month. Don’t think that there is any other way than cold hard cash to motivate them otherwise and even then your project might still get lost while the developer goes on to the next big thing.
Everyone needs a developer and developers can take their pick from the litter of ideas. Trust me, their offer to work with you will be based on the money they get from the deal and not based on how great and innovative the underlying idea is. Developers have their own best interest at heart just like you. They have bills just like you. They need to get paid just like you. So, if you can’t pay them, your idea can be as great as it can be, your developer will move on to the next project that pays. Even if you continue paying them, they might drag your project out if you pay hourly or have them on a monthly retainer plus equity.
And Suddenly They’re Gone
Now you’ve done it all and spent a lot of money to hire a small dev team in your city, but next thing you know, you can’t get ahold of them because all three of the people who actually work there, are sales reps. The founders are sipping margaritas poolside talking about how they’re going to make millions with their firm while no one actually does the work needed to build a successful company and get your product launched.
This case isn’t uncommon. Dev firms do go under more often than you think. There can be many reasons for that: Maybe they spent too much on lavish office spaces or fancy interior decor, but didn’t spend enough on tech hires to build quality products. Maybe they have many inexperienced hires. Or maybe their insufficient work simply caught up with them.
If you have to work with a dev firm, pay them in cash. Don’t promise them shares. You shouldn’t give up control and the shares aren’t worth anything until you turn a profit. Paying the dev firm right away holds them accountable. Specify your needs, divide your payments if necessary, but don’t pay them hourly so they can’t drag out your project without delivering what you need. But always remember that even all that won’t save you from paying for the dev firm’s large overhead. And that overhead is often the reason the dev firm goes under then.
Realize It’s On You
When offering to pay in equity, you’re offering to pay a development team in dreams. Especially if you are working on other projects, why would a dev firm believe you are going to be able to make this thing succeed? Just like you need the dev team to do an amazing job for your idea to be worth anything, they need you to hold up your end of the bargain for their equity to be worth anything as well. So neither of you really goes all out because both of you aren’t sure whether the other side will totally hold up their end of the bargain. Consequently, your dream never blossoms. One or both of you waste time and money on something that never becomes reality.
By now you should have learned not to give equity to people like developers who can tank your business. There’s another group of people that can greatly impact the success of your company and that quite often gets a nice chunk of equity. According to Noam Wasserman’s Founder’s Dilemma, 65% of startups fail because of co-founder disputes.
You don’t need a co-founder. If you start your thing and get it going, people will want to join you. You don’t need to have a bunch of people to start and all of you struggling to take care of things you don’t really know about. The only person you need on Day 1 is yourself. Then, you can bring people on the team in the capacity best fit for them and compensate them accordingly. Avoid the nightmare of trying to divide tasks according to equity split, ignoring the different roles people should actually play in a company. It will only lead to disputes. Launch your business, hire someone to help you in your areas of weakness and don’t offer them equity right away.
Solopreneurs Can Win Big
Surround yourself only with people who clearly believe in your idea. Ensure you’ll get your idea off the ground with minimal hassle and middlemen. You don’t need an app built from scratch that costs much more just to cover for the large overhead of a dev firm. You just need specific features for your app. Features that already exist in a code base somewhere else and can simply be modified to fit your needs. This is something your average developer would never tell you: You don’t need a whole new app built. Getting all the features you want and customizing them, is what really counts. Not building your app from scratch can not only save you hundreds, it can save you thousands. You can actually have a functional app with your logo, colors and copy in 30 days.
Don’t waste months of your time and tens of thousands of dollars and giant chunks of equity to get your product to market. Instead, hustle to grow your business and keep 100% of the rewards to use as you see fit in growing your business. Hire employees, make a big marketing spend, buy your own Tesla, whatever you want! No one will ever be as passionate about your idea as you are.
You CAN launch your business on your own. You HAVE the drive. NOTHING can stop you except yourself. If you want it badly enough, you can achieve it. You don’t need a big dev firm by your side to build your company’s software and you definitely don’t need to offer them equity in order to get your work done for you!