(8 minute read / 43 minutes front to back)
Here’s how I build businesses.
When I’m on a startup budget, I search my network for an expert when I think I’ll spend more than $10,000 on something I don’t fully understand how to do myself.
Whether I’m working with a developer, a marketer, a financier, or an artist – I’m not comfortable risking more than $10,000 without someone to help me supervise.
I pay the supervising expert a few hundred dollars. Then, as requirements grow I go looking for another expert to keep the first in check. The cycle continues until I become an expert myself and am able to relax into larger risks.
Key Concept – Hire Someone To Help You Manage
Everyone You Invest Significant Money With
Until You Become An Expert
$10,000 might be way too much, or way too little, for your circumstances – but the approach always remains the same. Stack the people on your team like dominoes.
The hard part is getting qualified people to give you quality recommendations and objective opinions without costing an arm and a leg.
Look first to any equity-based advisors you might have, then hire experienced professionals for everything your equity advisors can’t handle.
Experienced professionals are generally more cost-effective than less expensive candidates. However, early stage founders are often intimidated to work with experienced people.
Here is how to hack your way to a functional team when you can’t stomach real help.
Step 1 – Get someone cheap to spec your idea before building it
All you need is a high level description of the features you want. The detailed specifications can come later, as you build your software (The Lean Startup MVP style)
Step 2 – Get a second opinion before you build anything
Hire someone who won’t be developing your software to evaluate your solution before you build it. CPOs are the best people to ask. It should cost less than $2,000 for someone to review everything in-depth… if that is even needed.
Step 3 – Get a third opinion if needed
Hire a third person to review your solution when the person reviewing your solution suggests a radically different path. This is especially important if the person providing your second option wants to implement their recommendation.
Step 4 – Get a CTO to check the projected costs and rates of your developers
Once you have the product/solution direction in mind, ask an experienced CTO if the rates you are paying are reasonable. Again, remember that most CTOs usually know how to build tech… most do not know how to build the right tech.
Step 5 – Get a Director of Engineering to review your code a few hours each week
Once you have a direction set and have hired your team, hire an experienced coder to guide the quality of your software on an ongoing basis.
Or just hire me.
You get what you pay for. If you fail to fork out a few thousand bucks for experienced people to help you get your project on the right path at the outset you risk losing everything.
WARNING: Experience means different things to different people.
A lot of leaders go wrong trying to stack the deck with people who have worked at notable brands. Experience at notable brands usually equates to a strong network, and this is important for equity-based advisors because they usually help you connect with other people but don’t do any heavy lifting themselves… but coaches need to be able to get their hands dirty and notable brand experience typically makes coaches expensive to work with.
Once you have a handle on what you want to build, it’s time to figure out who you want to build everything. Building an internal team and outsourcing are both viable options when you have a qualified coach supporting you.
The most efficient and proficient configuration requires at least $12,000/mo – but many options are available for leaders lacking gobs of cash.
Here are five ways to structure your team based on your budget and needs, starting with the cheapest:
The smallest and cheapest Minimum Viable Team possible includes a CEO, a Product Coach, and an equity-based developer.
If you’re working out of your garage, find $500/mo and give it to a Product Coach, then recruit an equity partner to be your Lead Developer / Technical Cofounder.
Don’t waste your time trying to recruit a senior developer as an equity partner. Senior technologists don’t need to work for equity. Focus on recruiting a jr. to mid-level developer and support him/her with experienced coaches.
$500 won’t buy you more than a couple hours with an expert coach, but you don’t need a lot of time. All you need at first is to know is that you’re about to build a product which is worth building.
MVPs just aren’t that technically complicated in the early days, so the most important concern is designing the right experiments that avoid wasting months or years of time and money.
Remember Billy? Don’t build a mobile app when a web app will do. Don’t build a product at all when you can get the feedback you need using mockups. This type of guidance is what a Product Coach will help you with.
You probably won’t have an accomplished equity advisor on your team to validate your coaches recommendations if all you have is $500/mo, so get someone that works in the Product department at a successful startup to look them over.
Expect to work with a Product Coach for a couple months ($1,000 – $4,000) to design a consumer product that is worth building. B2B products might take more.
Hire a full time Lead Developer when you have solid funding and want to get the most bang for your buck.
Your Lead Developer doesn’t have to be in the office with you. Your Guidance Team will help you move quickly even if you have to work over the phone.
There are some very capable people in Tier 3 markets like Florida, Utah and Illinois and the cost savings can be substantial when working with remote people. Developers are roughly 30-70% more expensive in Tier 1 markets like Austin, San Francisco and Seattle. Here’s a breakdown of rates in several software developer markets. The exact numbers aren’t reflective of the range of salaries in these areas. Top markets have top developers that make a boatload of money.
Augment your team with an optional offshore firm if time to market is a concern.
Allocate roughly $10,000/mo to the Lead Developer and $3,000 to coaches. If you want to move faster, bolt on an optional offshore firm.
Skip the Lead Developer and work directly with an offshore firm if you can get away with building a small MVP and can’t / don’t-want-to recruit an equity-based Technical Cofounder. Remember, your Product and Team Coaches should work together to help you reduce the size of your MVP.
Alternatively, you can hire a local Project Manager and work with independent offshore developers… but this is more complicated.
The cheapest Ukrainian firms will supply “senior developers” for $30/hr, but you’ll pay separately for project management and other support. “Senior” means different things to different people. Let’s simplify, I generally consider an offshore senior developer equivalent to a domestic mid-level developer.
Many firms have management offices in the US that make communication and time zone differences easier – but you pay for it. Offshore firms with domestic offices average $60-$80/hr — which are basically equivalent to the rates for domestic mid-level contractors.
Be careful when working with people from other countries. Many cultures, especially Indian, value “projecting confidence” much more than people in the United States. Because of this, you have to micromanage. If you ask the typical Indian developer if they can do something, the answer will always be “yes”. If you ask them to do it faster, the answer is always “OK”. And, you’ll never hear a word from them once they’ve overcommitted. It’s just silent failure every time.
Eastern Europeans are much more likely to push back, work hard and raise a white flag when they get into trouble. South Americans are easier to communicate with because the timezone challenges aren’t as tough – but also don’t work as hard, generally speaking.
Work directly with an domestic firm if you need to build a really big project, and don’t want to commit to building and retaining an internal team.
Domestic firms aren’t cost effective. They’re easy.
Hourly equivalents for domestic development firms vary widely. Firms in Tier 3 markets often compete with offshore firms with a blended rate below $100/hr. Rates for Tier 1 firms typically jump up somewhere between $120 and $300/hr.
That said, you can allocate less money to independant coaches when working with domestic firms who have solid Software Architects and Product Managers on staff.
Lower costs for coaches helps your overall bill, but doesn’t counterbalance the excessive costs of domestic firms.
You will still need all the independent parties for to keep everyone in check, you just don’t need to spend as much on your coaches when working with domestic firms.
Recruit an army of software developers to support your Lead Developer when you absolutely know you have a long term project and enough budget to retain your team.
Internal teams are significantly more complex. You need Project Managers, Product Managers, QA Engineers, Solutions Architects, Devops Engineers, and Designers.
More on building internal teams in Part V.
No matter how you configure you team, your budget should look something like the figure below. Try to swing your spend for guidance folks and coaches under 30% of your total budget if possible.
This is only a rough guideline, every organization and culture is different.
It’s perfectly okay to ask a developer, development firm, or team of developers, to project manage themselves and do their own testing. These activities do not create any conflicts of interest.
Development firms and “CTOs that code” simplify things because they wear lots of hats. But, it’s hard to know how they allocate their time (and your budget) – and that’s what makes them dangerous.
Remember: Allocate roughly 70% of your budget to software developers and 30% to people that guide them.
You may need to spend more on you coaches if you need a lot of help refining your idea early on, or fixing a team that wasn’t set up well. But remember, investors are always watching how well you use your funds. Raising capital gets a lot harder when you have to explain why you paid an arm and a leg for a triage team. It’s worth it to set things up right from the beginning.
The best way for founders to save money is to handle project management and quality assurance themselves.
Finding engineers isn’t that hard – but filtering out the bad ones is a whole other story.
Most leaders make the mistake of writing job ads like encyclopedias – stuffed to the brim with every skill possibly required. Don’t waste your time looking for unicorns or generalists.
This approach only turns away perfectly viable candidates. Successful CTO’s and recruiters understand that job ads should be treated like marketing funnels.
Cast a wide net that selects for 1 or 2 critical skills or technologies you actually need.
Work with a CTO to sharpen your job ads. Examples of powerful job ads and more about hiring developers can be found on my blog JayCrouch.com.
Find someone to supervise everyone and does something you aren’t an expert at.
There are five ways to configure configure small teams with small budgets.
The most cost effective is not the cheapest.
All boats will rise if non-technical leaders have the tools they need to make better choices. Startups will have a higher success rate, and the entire business community will be stronger for it.
Please share my message if you agree with it.
Challenge your friends, investors and coworkers to rethink their approach.