Posts Tagged ‘building product’

Startup built from Equity – Think twice.

Friday, March 5th, 2010


Over the past year I have come across several startups that tried to outsource or have a small team build their product without proper requirements and either did not get a finished product or got something completely different.  Now cash strapped, they wanted to build the product as cheap as possible.  Cheap meaning mostly if not completely based on equity.

I try to help startups as much as possible.  One particular example, I was able to line 3-4 developers that were willing to give some of their time for equity and I even started working on high level requirements for equity.  The problem arose that since no one was being paid (myself included) progress was very slow.  There was a lot of wasted time between finally getting requirements done (the concept was still being flushed out and refined) and getting the developers engaged since no one was full time.  The developers, while intrigued by the idea, were not fully bought in due to the fact that this was not paying them so they worked on it in their ‘free’ time.  Eventually the developers got disengaged and the startup had just bits and pieces of their concept.  I tried to get some outsourcing companies to do the work but they wanted at least their costs covered.  While understandably reasonable request, still not within budget.  In the end, the startup was still at square one and precious time lost but in the end they took a chance on trying to get things done for free and it didn’t work out.

I admit I was naive to believe that part time work from non founding unpaid developers working for just equity would be something that could deliver a project.  Simply put I got too caught up in the concept and trying to help but I should have been a bit more practical and I should have listened to the logical side of me that told me otherwise.  I should have pressed for the startup to raise funding to build the prototype.  In my opinion, the valuation they would have gotten with just a prototype and no traction would have been comparable to a PowerPoint valuation. 

I firmly believe unless a startup has is building a product full time by either the founding team or a paid team (in house or outsourced), it is very hard to get their concept/product realized.  I don’t intend for people to overpay to get things built but as the old adage goes- “nothing comes free”.

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