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Should I contract a programmer or offer a stake in the company?

esilvaesilva subscriber Posts: 4
edited June 2008 in Building A Website That Works
Hey Guys,
I`m starting out my online business and have a friend that`s designing it but need a programmer/developer to make it functional. The site after it`s functional needs to be updated and have support on the site all time. Should I contract the work out or find someone with the same vision as me and offer that person a piece of the company so I don`t have to come out of pocket off the bat.
Thanks if anyone can offer me any advice.
-Eric
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Comments

  • vwebworldvwebworld subscriber Posts: 40
    The answer to that depends upon a few things.
     
    (1) Do you want to offer a piece of the company?
    (2) How much time is needed?
    (3) and the relative cost for hiring vs. outsourcing.
    (4) Your cash flow / funding resources vs. expected income from the business.
     
    BTW - It may be harder to find someone to do the work you need in exchange to a piece of the company only.
     
    ~Roland
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  • VideographyVideography subscriber Posts: 401 Silver Level Member

    BTW - It may be harder to find someone to do the work you need in exchange to a piece of the company only.

     ~Roland
    I have been approached many times by someone who wants me to produce an infomercial for them "in exchange for equity".  Most did not have a product yet, let alone a business plan, and they wanted me to invest thousands of dollars of my time and materials based solely on their enthusiasm. 
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  • infiltainfilta subscriber Posts: 8
    As for me, I would take an offer if you paid my hard cost in cash and the rest in shares or equity if it`s a promising project with a business plan.
    In fact, a few companies do that. I believe that was the deal between Aliph and Fuseproject when Fuseproject designed their first Jawbone headset, for example.
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  • esilvaesilva subscriber Posts: 4
    I don`t want to offer a piece of the company but I know it`s better to have a good team with passion than just one. Time would just be part-time for the moment. Main reason I think I should have a partner is that it`s a brand new company with not much start up capital at the moment which will be different when the company starts to get members/customers in beta. There would be no capital involved for the partner just his/her time without pay until the company starts having a cash flow.
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  • infiltainfilta subscriber Posts: 8
    It`s great if you know someone who will do this for you for free. Down side might be that depending on the scale of the project, it might take too long for one person to complete it.
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  • esilvaesilva subscriber Posts: 4
    It seems we are definitely in the same boat here. I would rather pay someone than bring them aboard but like you said low capital in the beginning that it might be better take on one person. The only thing we`re missing is a programmer/developer. I have a feeling that if we bring someone they will be pre-qualified/screened to make sure they have the vision we have and the passion and if we pay someone they might not have that. Also, the site needs to be updated, looked after daily which costs money and we would have to come out of pocked just to bring it to beta.
    Please let me know what you and your friend ends up doing Lori just email me on here or something.
    Thanks,
    Eric
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  • sddreamweaverssddreamweavers subscriber Posts: 5 Member


    BTW - It may be harder to find someone to do the work you need in exchange to a piece of the company only. ~Roland

    I have been approached many times by someone who wants me to produce an infomercial for them "in exchange for equity".  Most did not have a product yet, let alone a business plan, and they wanted me to invest thousands of dollars of my time and materials based solely on their enthusiasm. 

    I actually just axed a potential business deal (for selling Art) for the exact same reason.  They wanted the world in exchange for not very much in return.sddreamweavers6/17/2008 8:42 PM
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  • esilvaesilva subscriber Posts: 4
    I understand what your saying SD. I don`t want the programming partner
    to invest any money and just part time for the moment until everything
    gets underway. There will be a BPlan and they will get a stake of the
    company. The person I`m looking for has to be excited about what we`re
    doing and share the vision plus it`s all voluntary. What would you
    recommend instead of taking on a partner? Contract the work out but
    what about keeping the site updated and maintained?
    Thanks for any feedback at all!
    -Eric
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  • john146john146 subscriber Posts: 0
    I understand what your saying SD. I don`t want the programming partner
    to invest any money and just part time for the moment until everything
    gets underway. There will be a BPlan and they will get a stake of the
    company. The person I`m looking for has to be excited about what we`re
    doing and share the vision plus it`s all voluntary. What would you
    recommend instead of taking on a partner? Contract the work out but
    what about keeping the site updated and maintained?
    Thanks for any feedback at all!
    -Eric
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  • robertjrobertj subscriber Posts: 0 Member
    I am not a fan of paying for services with equity for many reasons. Here are a few:
    1. As the entrepreneur - you are pretty much married to the service provider - forever.
    2. In order for them to "get paid" for their services, you have to create some kind of liquidity event.
    3. If their situation does not allow them to continue to work for "free" you may have trouble getting the support you need long term.
    4 Since the company is a start up, it`s very difficult to establish a valuation and thus determine a "fair exchange". This means that you usually over pay for the services.
    If you don`t have the financial resources available - I would suggest acquiring the capital then contracting with your service providers.
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  • jccameronjccameron subscriber Posts: 3
    Hi Eric,
    I`ve built a couple of software startups and have run a few Internet consulting companies but each situation is unique so take my advice but in the end, go with what your gut is telling you.
    It is very hard to build an online company without having a technical developer who is actually working for the company.  It can certainly be done and is most often successful when the work *AFTER* the launch is pretty simple and straight-forward.  So, if you have the option, finding someone who:you know and trustis excited about your business conceptis willing to work at reduced rates for equity
    is the ideal approach. The question you have to ask yourself at this point is...can I find that long-term partner and convince them to join us at this time?   If you cannot do that VERY quickly, put that on the back-burner for now and find an outsourcing partner.  You don`t want to spend several months (or more) looking for that person while your new idea withers on the vine.  You`ll have much better luck finding the right people *AFTER* you`ve built a working prototype and have improved your overall business model (which building the prototype will certainly do).
    In any case, good luck with your effort. 
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  • esilvaesilva subscriber Posts: 4
    Hey!
    These are all great points you all are saying and excellent suggestions. Ant I`ll definitely look into companies out there like yours and ask some questions. Robert I`ll check out what the service providers have to offer.
    JC I really like what your saying! I have a web designer working that aspect and just need the programmer/developer to make it functional. I like what you said "You don`t want to spend several months (or more) looking for that person while your new idea withers on the vine" which is very true and have been difficult and taking quite awhile. If I then outsource the programming part what`s the best way to fund it if my funds are low? Gather up money from family/friends or take a small bank loan? Kinda off subject on that part but just wondering since a lot of you have been there before through experience.
    Thanks again for any feedback!
    -Eric
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  • esilvaesilva subscriber Posts: 4
    Does anyone recommend any outsourcing sites for this kind of work (programmer/developer)? Other than the obvious elance, guru etc....
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  • vwebworldvwebworld subscriber Posts: 40
    I`m not a big fan of elance and the like... in that there are a lot of unbelievable low prices.
    So, if you go that route, you need to be able to check out the person/firm... their work and especially references.  Obviously, a contract would be important too (specifying the deliverables and penalties for not delivering.
     
    You can go to any number of forums and post work too... like on webproworld(dot)com
     
    ~Roland
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  • jccameronjccameron subscriber Posts: 3
    Eric,
    I cannot really answer that question as I don`t and cannot fully appreciate your situation.  However, the common approaches would be a cash advance on credit card, loans from friends and family, loan from a local bank, an SBA loan if you have halfway decent credit.  Heck, even a prosper.com loan would be possible depending upon the amount. It comes down to risk management.  If you fully believe in the idea, how much money are you willing to risk.  If you don`t fully believe in it, is it really fair to ask friends and family to share in that risk?  When I do friends and family, it is always as a loan and not as an investment unless they are an accredited investor because the fallout is too great and not worth it otherwise.
    As for finding good firms, again, I don`t have enough data.  Elance can be very effective and it can be a waste of time...sometimes, even if you work with the same company because most of those low-cost offshore companies have huge turnover and you don`t know what you are going to get.  This is especially true for smaller projects (as it sounds like yours is). 
    For most programming efforts, you can find individual developers in the US at $40-100 an hour and professional firms with rates from $75-$150 an hour.  Oversees, the final rate is likely to be somewhere between $20-60 an hour but generally has a significantly higher risk associated with it (communication, language, time differential, etc). 
    So, if your work requires say 200 hours, that would be US costs of $8-$30K depending upon how lucky you are in finding the right person versus overseas costs of $4-$12K.   So, it comes down to risk management again and financial resources.  Whenever possible I use local resources because the risk is significantly decreased.  Local projects fail for less than 20% of the time for me (perhaps even less than 10%) while oveseas projects are roughly in the 50-60% failure range (this is based upon personal experience not industry numbers). 
    Good luck with your effort.
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