Don't outsource things you don't understand

J Matthew Pryor

J Matthew Pryor / January 24, 2022

2 min read––– views

Outsourcing isn't a universal solution and if it's used as a substitute for understanding it won't end well.

There is a big difference between getting someone else to do something because it is more efficient and getting someone else to do it because you don't know how to do it yourself. Founders sometimes confuse these two reasons and it has a big impact on their future.

You can't manage what you can't (or don't know how to) measure.

Outsourcing is not a tool for core competencies.

A common example of this is outsourcing software which in my experience is rarely successful.

As a founder, you may not know how to write software. What you do need to know is how critical software is to your startup's success. When we were starting our journey into venture capital, it was disturbingly common to hear the advice that the administration of the fund is best outsourced to dedicated fund administration firms.

Our view was that if we aren't world-class at managing money and financial administration, what is the point of being world-class at identifying and supporting amazing founders - we have to be both.

First, understand, then strategically align, then seek efficiency

Software is never done and it is expensive to build and maintain.

If your value to customers relies on software, even if there are significant other aspects to your business, you are in the software business. If you don't know how to design and build software then you are not in control of your customer's happiness.

Before you decide to outsource anything, make sure you have taken the time to:

Understand from first principles. What area of expertise are you relying on; tax law is one thing, user experience is entirely another.

Focus on competitive differentiators. Develop a clear understanding of how each subject area supports your competitive differentiation and scalability.

Be mindfully efficient. With a baseline of understanding and a sense of priority, you can seek efficiency in non-core areas through well-managed partnerships.

You can't know everything, but deferring to others without careful analysis of what and why risks your future.

Take the time to understand enough to know what to double down on and where to seek efficiency.