New venture outsourcing blog

Even if you think you’ve decided already, the final decision may not be up to you!  Venture capital firms are continuing to push their portfolio companies to outsource, which just another indication of how important it can be to improving valuations, time to market, and productivity of a startup.

Ann Grimes, who now works at Standford, wrote Venture Firms Seek Start-Ups That Outsource in the Wall Street Journal about six venture backed startups in 2004 who were using outsourcing: Solidcore Systems Inc., July Systems Inc., 24/7 Customer, ServGate Technologies Inc. (acquired by Cirond Corp. in 2006), ReaMetrix Inc., and Open-Silicon Inc.

These companies and their investors were all quoted in the article saying that the additional value provided by globalization and outsourcing were on the rise.  They fully anticipated (correctly) that the outsourcing trend would gain momentum as communication & other infrastructure barriers were removed.

John Shinal wrote in VC firms push for outsourcing that the VCs are not just accepting this or monitoring it from the outside, they’re aggressively pushing it on their portfolio companies!

“There isn’t a board meeting that goes by that we don’t ask, ‘Why aren’t you being more aggressive (with software development) in India and China?’ ” said Jim Breyer, managing general partner of the Palo Alto venture firm Accel Partners, which has backed more than 200 companies.”

The majority of startups that receive investments from the Menlo Park venture firm Kleiner Perkins Caufield & Byers have operations in India, Kleiner partner John Doerr recently told a group of Indian entrepreneurs in Santa Clara.

Now, nearly all the business plans that [Peter] Barris and his colleagues evaluate for the firm’s new venture fund include an offshoring component. “It’s not an unusual event anymore,” said Barris.

It should go without saying that a VC who’s got any kind of agenda, including an outsourcing agenda, that the startup firm doesn’t want to explore is a bad fit.  There are very good reasons why outsourcing for startups isn’t appropriate, but for well prepared startups the list is getting shorter every day.

As we mentioned in our previous post about outsourcing providers moving up the value chain, the trend of improved focus on opportunity-oriented outsourcing is likely to continue.  I would urge startups that are inclined to keep everything local to ask themselves why the trend seems to be so strong?  Perhaps your business is different from all the others… but probably not.  Look at this chart from R&D magazine to see that the number of outsourced functions is pretty broad now.  It’s not just customer service and tech support.

More likely, you just haven’t found the right partner yet, and as you look be sure to keep your eye out for firms that specialize in helping startups like we do.  As we all know, startups are defnitely a different breed of company!