A common issue for startups is where to find software development services to create a minimally viable product. In lean startup methodology, a minimally viable product is a product with the minimal feature set needed to gauge customer needs. Generally speaking, startups have three options if they do not already have a software developer on their team:
1. Find a Technical Co-Founder – A startup may consider finding a software developer that would be a good fit to take the role of a technical co-founder. This would typically require finding a software developer willing to make a full-time commitment to your startup. Startups should also look for a good alignment of values, personality, and interests with a potential founder. The trouble with this strategy is that it might take time to find, and become comfortable with, a suitable co-founder. The diligence needed to find a co-founder may be inconsistent with a startup’s timing for developing a minimally viable product. The main benefit of having a co-founder capable of leading the development of a minimally viable product is that it is easy to make the necessary iterations to the product based on what a startup learns from its customers. A technical co-founder is typically initially incentivized with founder’s equity, subject to a standard vesting arrangement.
2. Use Independent Contractor Developers – If a startup does not have a technical co-founder, or if that co-founder needs additional assistance in creating a minimally viable product, a startup can often engage individual software developers through an independent contractor relationship. These programmers should sign an independent contractor agreement or software development agreement with terms covering IP assignment, deliverables, and payment. This relationship benefits the startup because it provides quick software development services for a minimally viable product, yet doesn’t commit the startup to a long-term relationship. Also, because these independent contractors will be familiar with the startup’s technology, they may be available to tweak and improve the code based on customer feedback. Independent contractors can be compensated with pay or with relatively small chunks of equity. An additional benefit of this arrangement is that it could serve as a trial run for a potential technical co-founder.
3. Use of Professional Software Development Providers – There are also companies that specialize in software development. These companies range from high-end providers with extensive software development bandwidth and expertise. These providers may take equity compensation from certain clients but will typically require monetary compensation in the ten’s of thousands of dollars. Smaller development firms may be less expensive or more willing to accept equity a full or partial compensation. The drawback of using a development firm is it might be harder and more expensive to use that firm for the necessary iterations required after customer feedback. Most firms will use their own developer-favorable agreement to cover the services they will provide, IP ownership, and payment terms.