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There’s a dangerous, misguided train of thought that first-time entrepreneurs often follow when it comes to technology. Dangerous because it leads them to make costly decisions that will haunt them for the lifetime of their venture. Misguided because it rests on a bunch fallacies that I’m hoping to clear up here.
The train of thought goes like this: Your business idea needs something technical – a public-facing website at minimum, maybe an app, a clever algorithm, some machine learning, a blockchain (shudder), or whatever. You don’t know about this stuff, and frankly you’re a bit scared of it. So not only do you need to get someone else to build it for you, you need someone to tell you exactly what it is that needs building and manage the building process. Now, you know that people with that sort of knowledge are expensive, and you don’t have much money yet. So the only way to be able to afford them is to convince them to take a big chunk of equity and an over-inflated job title in lieu of salary.
And just like that, you’ve talked yourself into hiring a Chief Technology Officer. But you’ve also just created for yourself more problems than you’ve solved. Since you don’t know about tech, it’s going to be really hard for you to know how to hire someone who has the appropriate skills. And taking on a co-founder not because they are someone you want to co-found a company with but because it’s the only way of getting a particular job done means you could be lumped with someone who is simply not the right person to work with, in a position that means it’s almost impossible to get rid of them without ripping your organisation apart.
(And that’s before you get to the realisation that most CTO types expect both chunky equity and a decent salary, so your friends and family round will now only last a couple of months and you need to drop everything and start trying to raise angel capital just to support your ‘co-founder’.)
Getting a CTO early on is expensive, and often you realise later that you’ve brought the wrong person on board. At the risk of being controversial, I believe that the majority of startups in the UK do not need a CTO prior to Series A fundraising. I’m going to spend the rest of this post first explaining why I believe that to be the case, and how you can build a startup that thrives without one.
Let’s start with an analogy: Most businesses, when they reach a certain size, find themselves using a permanent office space. And in such an office space, it is absolutely essential to have functioning toilets. Really. You cannot have a functioning business if there are no toilets available at your HQ. Furthermore, the vast majority of founders do not have the expertise to install and maintain decent toilets themselves. This requires a combination of plumbing skills and knowledge of cleaning products and processes that most founders do not have, and do not have the time or inclination to learn.
How many early-stage ventures prioritise hiring a Chief Plumbing Officer?
I hope it’s clear that simply knowing that you will at some point require certain expertise does not mean you have to open up an early spot in your C-suite.
My assertion is that as for CP(lumbing)Os, so too with CTOs. Those who disagree with me are likely to point out three differences. They will argue (1) that for most businesses, plumbing is not a core function for the business, even if is in some circumstances essential, while technology really is core; (2) the plumbing problem only comes up later in a business’s journey, when the chicken-and-egg of funding and product validation has already been solved, whereas tech is a problem at the very beginning; and (3) plumbing and facilities maintenance are easy to outsource to trusted third parties, while the development (and the management of the development) of the company’s core product is not. I disagree with all three of these, so let’s look at them in turn.
“Tech is a core function”
Let’s be clear about this: Just because you have a website or an app does not make you a technology company. I’ll go deeper on this in a later post, but for now, here’s a good heuristic: If you are having to solve unique and novel technical challenges in order to deliver your product or service, you can claim to be a tech company. If, on the other hand, you are simply reliant on technology to deliver your product or service, you are a tech-enabled company. The vast majority of startups fall into the latter category. In which case, there’s no reason why you shouldn’t outsource your tech problems in just the same way you’d outsource your plumbing problems.
“We need tech from the very start”
This is the number one mistake I see entrepreneurs make, and they make it time and time again. Again, I’m going to go deeper on this at some point. But the short version is this: To set up a company that does something new and different, you need to do three things: Validate the problem, validate your solution, and validate the business model. If you don’t do those three things, and if you don’t do them in that order, then your risk of failure escalates exponentially.
‘Validating the problem’ means confirming that a significant number of people have a problem, need or want that you propose to solve, and that they experience it acutely enough that they’re interested in hearing about new solutions. Tech needed to do this bit: Little to none. The best way to do this is to go out and talk to people. If appropriate, do some surveys using free online survey tools. Just possibly you might consider buying some banner ads and counting click-throughs. But that’s really it. If you don’t validate the problem first, everything you do from that point on may be a waste of time.
‘Validating the solution’ means confirming that a chunk of the people who have the problem you’ve validated consider your product or service to solve that problem in a satisfactory way. Tech needed to do this: Far less than you’d think. You’ll need to have some sort of early version of your product, but here’s the thing, it can be held together by string and sweat. Don’t have smart algorithms and rich databases; have a person and a spreadsheet. Don’t have a beautiful bespoke UI; use Typeform. Don’t have push notifications, chatbots and multi-stage forms; send emails. All you need to do is give your users an approximation of the experience you hope ultimately to provide, and be fanatical about measuring usage and gathering feedback.
Finally, ‘validating the business model’ is when you confirm that you can sell your product or service sustainably at a profit. You need to work out your demand curves, your marginal costs, your fixed costs. You need to see how much you can automate, where the bottlenecks are when you scale, what problems you need to devote serious resources to. This is the point where yes, you need your tech in place. This is also the point where, if you’re doing things the traditional way, you’re often also looking to raise your Series A. If you’re just starting out, you’ve got a long way to go before you get to this point.
“It’s hard to outsource tech”
Ok, confession time. There’s a little bit of a pitch coming up. You see, I’ve been looking at tech outsourcing for a few years now, paying attention to when it works and when it doesn’t. I’ve seen really great relationships where a business offloads all of its tech problems to a third party and everybody is happy. I’ve also seen really terrible relationships where a business has been ruined by outsourcing their tech in the wrong way to the wrong people. And based off those experiences, I’ve come to the belief that it doesn’t have to be hard to outsource your tech, so long as the people your outsourcing to know what they’re doing, both in terms of understanding the tech, understanding the product and understanding the relationship.
So with that in mind, I’ve just set up a company whose sole aim is to worry about the tech so that entrepreneurs don’t have to. We’re called Rambunctious, and this is our site.
But whether you work with me or not, what I want you to believe is that, so long as you find the right people, you can outsource your tech without compromising your business. And for all the above reasons, if you are a tech-enabled, pre-series A startup, you should think long and hard before taking on board a CTO.