Technology startups CAN effectively leverage an offshore partnership

Start Ups: The struggle to find Talent
March 13, 2018
Madhu Hittuvalli

Our combined experience in working with Global startup companies including technology startups at various stages of their life cycle reaffirms the hypothesis – that startups can significantly benefit by co-innovating with the right partner.

Starting up:

Lets take the example of Andy, who has been a successful technologist and a business executive who has just recently started a company with a great software product idea. He has done his research and feels confident that his solution can help solve a critical business problem and has a great value proposition for his target market. Only thing now left to do is translate his idea into an elegant, scalable, robust product as quickly as possible. Andy has deep product expertise having worked in similar domain and has the required industry contacts for marketing and sales of the product, once it is ready. The only challenge is to find the right team to execute his vision with the minimal investment dollars he has budgeted for.

Andy has the desired software architecture and design experience and knows exactly how it needs to be architected. He has some idea on the ideal technology stack, but would love to have a team of developers and senior technologists with whom he can share his thoughts and also get new ideas from – both on the technology choices and architecture and design aspects. Andy is ambivalent towards using partners for development support, especially offshore partners, as in his past, he has had mixed results and that too with highly repetitive and well defined tasks – not something as dynamic and mission critical as he is embarking on now. Offshore development support is not exactly known for innovation, design and value creation just yet.

Co-innovation with offshore partners is possible:

Over the last two decades countries like India, China and Philippines have become a back office to the world working on the IT and business processes. In this context, Thomas Freidman in his book world is flat postulates that high-end design and innovation happens in the western world and the so-called routine low-level repetitive work gets offshored. Visible innovation or innovation for end users – Google and iPhone kinds – might not be happening in India yet, but Innovation can be of different types. Economist Joseph Schumpeter’s defines Innovation as Novelty in how value is created and distributed. If one views innovation from that definition and to paraphrase London Business School professor Nirmalya Kumar’s paper, there are four kinds of invisible innovation happening in the Indian context. They are broadly categorized as a) innovation for business customers b) product development innovation c) process innovation and d) management innovation. Global product companies in pharmaceutical and software industries employ about 400,000 professionals in their 750 plus R & D centers in India. Product development innovation with outsourced partners has become mainstream. Their outsourced innovation partners have developed two mission critical systems for Boeing 787 dream liners. Similarly outsourced innovation partners have developed embedded and software systems for heart pace makers.

Need for startups and software product companies to co-innovate with partners:

This is an age of digital economy, where speed of execution, accelerated time to market and value realization are critical to success. It is imperative that companies shorten the time cycle from product drawing board into the hands of the consumers. Sometimes it even helps to get customer feedback from live usage to better the products in the next version. Even technology giants like Apple and Microsoft get initial versions of their products and do multiple subsequent releases to enhance and fix the bugs. In our experience we have found that co-innovating with a partner helps companies to focus on core product and engaging with the partner to enhance, add functionality and test the product in an iterative mode. Co-Innovation partner can sometimes bring new ideas for the same product or new market for the same product, from their previous experience on different projects. While developing a cloud based Electronic Medical Record / Electronic Hospital Record (EMR/ EHR) system for one of our startup customers, we suggested that one of the ambulatory modules (for outpatient consultation) be developed for iPAD, which would help doctors to provide their diagnosis and recommendation right when they are with the patients, which helped them reduce rework. This became a big factor in the success of this product. Another example was when a very dynamic startup that we continue to work with had decided on their technology stack and wanted to get started, but we suggested going with open source technology stack helping avoid costly licensing costs into the future while addressing other performance and security issues the founder of the startup had. In less than 2 years, the solution today has more than 60 customers and more than 6000 users and is gaining new clients every week.

How do you choose the right partner – POC (Proof of Concept)/Prototype? How do you test the waters?

Choosing the right partner is not just important, it is the most important decision in this journey for Andy and can make all the difference between success and failure

From our experience working with startups and understanding their challenges, we feel these are questions that Andy can use in identifying the right partner for co-innovation.

  • Does this partner have a capable leadership team, here in the US that I can meet face to face when required. Can they help me with the thought leadership and ideas and be a good sounding board for my own ideas?
  • Will I get the right amount of attention and focus – in other words am I really important to them as a customer?
  • Do they have any IP and reusable components that can help my product – both in terms of value/features and time to market? Does the partner have a co-innovation toolkit?
  • Will this partner be agile and fast in responding to my demands (at times unexpected and unrealistic due to market needs) – a simple test here is “Can the partner start work on my POC in a week’s time”?
  • Can they scale – When my product takes off, can they be trusted to handle the demands of rapid growth and scalability
  • Have they really built products in a complex industry vertical that actually were successful in the marketplace? Can their past client references vouch for them?
  • Are they entrepreneurial and willing to share my risks and rewards – or, are they just interested in how many hours they can bill me?
  • Can my pricing be partly or wholly subsidized until my product is able to generate some revenues?
  • Can they execute a POC at no risk to me so that I can be totally convinced that I have the right partner?
  • Will they be flexible enough to even do a BOT (Build Operate Transfer) for me so that it ties in neatly with my exit plan for the business

Areas for potential co-innovation with a partner

The ideal innovation partner can be a partner for any or all of these things that Andy has to accomplish to ensure his products’ success

  • Core product development – Andy wants to full leverage the partner for the entire build out and support
  • Enhancements and new features – Andy and his business partner have the core product already built out but need help with the various new features and functionality to be built and handling the multiple releases throughout the year
  • Independent testing support
  • Mobile expertise – building the mobile app for the product or mobile enabling specific use cases from the main solution

Whatever be the case, it is important that the partner satisfy the list of questions for choosing the right partner and is able to demonstrate expertise and a track record.

Possible models of engagement for Andy and his co-innovation partner company

  • Subsidized fixed bid for defined scope and Sweat Equity in the venture
  • Revenue sharing
  • Managed services model – pay as you use
  • BOT with risk and reward sharing options

Understand your Partners’ Perspective for enhancing the co-innovation model:

It is important to understand the Partners’ perspective to make the co-innovation work. Some things that can really help the partner in this joint co-innovation journey

  • Clarity in the vision for the product from the entrepreneur
  • Shared vision of mutual success with the partner
  • Timelines and business milestones planned including exit plans if any
  • Communicating expectations on deliverables and regular feedback to the partner

In conclusion, startups need to look at co-innovation partners to accelerate value creation and reduce time to market. Startup should have clarity in terms of their vision and be willing to work with a partner who is as keen on their success as they are. Startups need to be driven, driven and expect more from co-innovation partner. Startup expectations should be driven not by their IT budgets but rather by their shared vision and confidence of success and growth with co-innovation partner. They should also build transparency to a degree that is truly being seamless between the two companies and this takes the partnership to a whole new level. We encourage technology startups to make co-innovation partners part of their strategic planning process.

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