Having your own full-time, fully flushed out in-house development team is great—if you can afford it. As most funded startups have limited funds, the question then becomes at what point does it make sense to bring on a full-time in-house team such that you maximize the bang for your buck.
The big challenge
In short, it is “Time & Money” that is the big challenge. You need to get to market, if not first, as soon as possible and funds are typically not unlimited.
Long time to market (Yup, about a year )
Marketplaces are simple in concept and complex in execution. There are many moving parts all of which must work flawlessly. Users are both hard to get and unforgiving once gotten. They are easy to lose and almost impossible to get back. You have to get it right—out of the gate.
Since time is money. Everyday you are not launched, you are paying out cash with no revenue. That runway has a very definite end. You need to get this baby out the door as soon as you can.
How important is it that I have “top” developers, really?
Very. The core of a marketplace is the concept and the execution. If you have a great idea and the execution is substandard, you will be hurting, if not killing, your chances of success. And failure in this context is particularly tragic as it will leave you with no funds and very vulnerable to someone else coming in and learning from your mistakes and building a better mousetrap—ouch.
Top developers cost real money
Putting together a good team for any business is a challenge but it is a particularly so when dealing with developers—especially good ones.
Good programmers are at no loss for work—good work. So in order to get a programmer to commit to pouring his/her talent and time into one project it needs to be super interesting and/or have amazing benefits. RSU/stocks, great medical plan, significant paid vacation—sign up bonuses and then, of course there’s the usual overhead of offices, equipment, software and taxes.
If you’re a startup, every dollar counts so you can’t afford to have substandard work done as time and resources are not on your side. You can’t go back and redo work if it is not done well. So you need to secure top talent but that costs big bucks.
Once you’ve hired an in-house team, you are paying salaries and it is time to start figuring out what exactly will be built. The clock is ticking as you are paying the team and they start getting up to speed, get the systems in place, etc. So far, you’ve built nothing but have already laid out and committed to a significant amount of cash.
Trial and error
A year you say? These are talented developers. They can do it in less. And no doubt they would agree in all earnest. The concept of a marketplace is as old as mankind. You have something to sell and you find a buyer. How complicated could it be? The answer is: Very. Every marketplace has its unique complexities in addition to the complexities of marketplaces in general. Basically, if you are not experienced in specifically building marketplaces, then you don’t know what you don’t know.
It’s natural that as the developers run up against these unexpected issues, such as planning for how people will attempt to scam your marketplace, or how to handle currency exchanges to avoid market fluctuations, they will need to figure it out. That takes time and thus money. So there is a learning curve specific to marketplaces that you will be funding. Tick, tock.
Post-build burn rate
You built it! Done. Well… not really. Obviously, you will need to iterate on the marketplace but with hardly any users at launch, do you really need the same size team to “iterate and maintain” your marketplace as you did to build it? (If you do, then you may have other problems.) No, you don’t. But, the issue is that you hired salaried employees and you can’t just let them go because hopefully in a year you will need them again. But from having gone through the hiring process you realize how expensive it is to find and retain good talent so you need to keep them on.
The result? A high post-build burn rate that, rather than decreasing now that you have the build in place, is actually increasing as you add marketing and advertising to the mix. Further putting pressure on you to deliver quickly for investors.
Can’t I have it all?
Can’t I find talented developers who are experts in marketplaces, won’t have a big lead time to get up to speed, work well together, and won’t cost me a fortune? I want to be able to access them when I need them but not pay salaries out when I don’t. Is that so much to ask? Maybe not. See Working with a specialized development team.
If you have $5M–$10M in funding to start to put towards development, an in-house team makes sense.
If you don’t consider going with a specialized specifically in marketplace development. Let them be your SWAT team. They significantly lower your risk, lower your burn rate and get you to market much much faster. And if they are good, they will offer to either stay on as your team as you iterate going forward or they will get your new post-build team up to speed so they can take over. They may even help you vet your new team to make sure they are the right fit for you and your marketplace to be successful and make your investors very happy.