3 guys, fresh out of college, looking for some financial advice on obtaining a developer for our startup
July 16, 2008 12:25 PM   Subscribe

Two college friends and myself are looking to put together a mobile application start-up. We have the business end of the startup covered, but we need to find a developer to help us out. We need some financial guidance on what to do and what not to do. Should we pay a freelance developer, or bring someone on board with us as a partner?

My friends and I have finished college, have great full-time jobs, but we are still looking for something more. We share a passion for technology and innovation. In the current climate, mobile technology seems to be a huge growth area, and a huge area of opportunity for a new startup.

At the current time, we're looking at this startup as more of a serious project than anything. We're keeping our day jobs (in advertising and ecommerce) not only to continue being able to pay our student loans, but to continue learning how the industry works. Business wise -- we're set. Financially -- we can get by. We have a few thousand dollars to invest at the time being. We want to make sure we're making the right investment.

Our current dilemma is that we need a developer. We need to find out whether it's better to hire a freelance developer (which I've seen ads on Craigslist ranging from ~$60-$75/hr), or garner the interest of a fourth partner to join our team. Under the assumption of gaining a fourth partner, he/she would receive compensation, as the rest of us would --- after the applications are launched and sold.

Since this is more of a very serious project as opposed to a full blown business -- I would be more comfortable with a fourth partner, but hey, I could be totally off base about this whole thing.

In the end, we're doing this because 1) we love the industry/would love to be a part of a technological revolution 2) there's huge potential for future opportunities. In order to make our dreams a reality, we need to find a developer -- our missing link. Hopefully you guys have some insight how we can go about doing so in a financially responsible way.

(Side note: if there's a developer out there interested in this sort of endeavor -- send me a message!)
posted by drkrdglo to Work & Money (15 answers total) 4 users marked this as a favorite
ideas are cheap.
coding can be expensive.

If you find someone to do this for free in return for equity remember to value the contributions of actually implementing the product.

Keep track of hours and effort spent by everyone, if someone isn't pulling their weight, it's a hobby not a company. Treat the project accordingly.

If you pay for development, that's a great way to treat it as a real company, though may cost you a lot.

If you have someone code for you, make sure you know who owns the copyright. By default the coder will unless you get proper documents in place.

You may also want to explore the open source world if this is more of a interesting project than something you expect to run as a full time business.

Sounds exciting and interesting, good luck.
posted by bottlebrushtree at 12:42 PM on July 16, 2008

Ok, this is gonna come out as very harsh, and it's not meant to, as your heart is obviously in the right place. But bear with me, because i know of what I speak.

Under the assumption of gaining a fourth partner, he/she would receive compensation, as the rest of us would --- after the applications are launched and sold.

I'm a mobile developer, more-or-less, and that sounds to me something like "Hey, why don't you do all the work and we'll take 75% of the profit!". There's nothing in your post to suggest that you're bringing anything to the table except an idea, and quite frankly, ideas are worthless. Where's your marketing experience, web designer, SEO, business experience, financial backing?

Put another way, the developer is going to spend 6 months writing an application, shoudering all the risk while you guys sit around and do nothing. When it's done, and when it fails (which most mobile apps do), they'll be the one out of pocket, not you.

Anyone inexperienced enough to touch this is going to be too inexperienced to work with. It will be a horrible mess.

On a more general point, I think a lot of people seriously underestimate two things:

1. What complete and utter bastards the telcos are. If you're doing anything even vaguely interesting, you're going to need access to location or call data and that either limits you to a very small subset of phones, or leaves you reliant on the telcos, who will not help you.

2. How hard it is to get a decent number of application installs on the handsets. People are massively resistant to installing phone apps. Again, the telco is the gateway here - I could name dozens of companies that went to the wall with a cry of "if we could just convince Vodafone to pre-install it on the phone!"
posted by Leon at 12:48 PM on July 16, 2008 [8 favorites]

I would lean towards getting the partner, for these reasons:

1) It's cheaper, dollar-wise, up front.

2) It's more incentive for your developer to contribute quality code with an eye toward future application/business growth, as he/she will directly benefit from the company's success. There's a tendency with freelance/contractor developers to do just enough work to satisfy your requirements, in whatever way will accomplish that goal.

3) If you're developing software, you're going to need a permanent software development team sooner or later anyway. Why not plan for that now?

If you do decide to go with a freelance developer, I recommend only having them take on relatively short-term work. I.e. task them with building a basic working prototype of what you want to do, with just enough requirements satisfied to take the app to potential investors to secure more capital investment dollars; then you can start hiring your dev team to "do it right." And get an NDA from them.

On preview, Leon makes some good points. My assumption with the partner angle is that said developer would be cut in for a fair percentage as a function of the risk being taken on. And likewise, if I was the developer looking at the other potential partners, they'd better be good at filling all of the necessary gaps to having a chance at success (i.e. solid sales/marketing, rock-solid business development, and the right entreprenurial mindset from everyone) for me to even think about joining them. Because without it, there's no chance, and it's just a huge waste of time, with a lot of heartache at the end. And, like Leon, I'm speaking from experience in your space.

That said, good luck! Start-ups are tough, but they can be lots of fun too.
posted by Brak at 1:07 PM on July 16, 2008

At the very least you need someone who understands the code on board. What exactly happens when you have the "finished" post-beta app and your developer takes off? How will you know the quality of the code? Who does the testing? Is this left up to the developer also? He'll just say it passed all his tests. Who will judge the quality of the work and documentation? Who will continue the roadmap to the next version? Who will fix bugs and make changes?

I feel like non-developers doing stuff like this is like saying, "I'm not an architect but a building made of stone which spits fire would be awesome. Lets tell an architect and an engineer to write up the plans and we'll pay them if someone decides to build it."
posted by damn dirty ape at 1:09 PM on July 16, 2008

Response by poster: @Leon: To not offend any coders out there, I 100% understand how long it takes to develop an application. I have a background in web coding, I just don't know Cocoa/Objective-C. That's our issue.

Also, considering the fact that we'd try to take 75% of the revenue would be harshly unreasonable. We're not looking to screw anyone. We value that level of trust and would make sure all compensation is fair and just.

I don't think we're going to run into any production issues since the Apple App store does a great job at bypassing the Telecos (To an extent -- and much better than a normal J2ME marketplace would).

@Bottlebrushtree: Great idea about noting hours from the start!

As for us being useless. We battled with that idea for a while, but what many developers neglect to see is that there's a lot of administration work to actually get the app out the door. For example: a great way to make money and provide an app for free is to have an advertiser sponsor the app. That sponsorship doesn't happen on its own. It has to be sold. And that's where someone like myself comes in.
posted by drkrdglo at 1:37 PM on July 16, 2008

Sorry, but Leon's right. Ideas for mobile applications are a dime a dozen these days. Anyone with any relevant experience is getting pitched new ideas every day by everyone they know. Most likely someone else is already working on the same idea, so you'd need to do it better. A few thousand dollars will buy you a decent development computer, but not much more. Not really enough to get by. You'd be better off with a developer as a partner, but you don't have enough to attract anyone decent, so I suggest you stick with freelancers working on very limited projects, as Brak said. But more than that I suggest just saving up more money while networking in your local development community.
posted by scottreynen at 1:39 PM on July 16, 2008 [1 favorite]

Best answer: provide an app for free is to have an advertiser sponsor the app. That sponsorship doesn't happen on its own. It has to be sold. And that's where someone like myself comes in.

Bootstrap it. Sell the advertising space before you have an application ("This [shows web mock-up] will be ready in n months. Interested?"). Then you can use the agreement with the advertiser as "collateral" (for want of a better term) to raise capital to hire a developer.

Of course, you're the ones who are exposed, then. Are you sure it's going to be a sure-fire success when your name's on the loan application?

(BTW, I mis-read your question - could have sworn you said 25% shares. Sorry about that).
posted by Leon at 1:59 PM on July 16, 2008

Wait, three of you want to start an application company, you're barely out of college, and none of you are developers? That's two, possibly three too many people on that end.
posted by mkultra at 2:05 PM on July 16, 2008 [1 favorite]

Best answer: Also speaking from experience in both projects similar to what you are describing (in that somebody had an idea they wanted to implement, but no money, as well as experience in the world of mobile apps) I think Leon is pretty spot on.

Another way to think about this - do you have a business plan? One thing I would be sure of is that you know what you're going to build is worth and if it's even cost effective to build and see if you can get validation that this is the case. This can be difficult to estimate, but do you have realistic numbers based on how many of these apps you're actually going to sell, or what advertisers are willing to pay for mobile ad space? Do you have a lot of contacts in this world? What do you really bring to the table as partners? Do you have experience selling ads, selling ads online, selling ads in the mobile space? How will you get advertisers on board when you haven't sold any apps? What will you use to serve the ads? (just some questions that come to mind, I don't need to know the answers) In the past, at least, mobile advertising has been a bit of a tough sell - maybe this is changing with the iPhone, but even if there are 10 million iphones out there (this is a guess, I have no idea), how many of those can you realistically expect to download and regularly use your app enough so that advertising is a sound business model? What does that translate to in terms of inventory (how many impressions will you have available to sell)? What's are people willing to pay for mobile ad space? Are there already apps out there that perform similar functionality? Has anybody sold an iphone app in the way you're suggesting?

Anyway, my point is that you might be best served by treating this as a business - if I were you, I would see how much seed money you and your friends can come up with to hire somebody to prototype the app for you - not finished product, but enough to get started and prove that it can be done, that you and your friends have the business sense to see the product into beta. Maybe you do this as as an equity/cash deal. Try to get the beta onto some handsets - that will give you and potential investors (whether a dev partner or otherwise) some confidence that this has potential.

Then with business plan and prototype in hand try and raise some money to get this thing going. If the app isn't worth doing this much, I doubt anybody's going to buy it from you unless it generates a significant amount of revenue, or at least shows potential. What I'm trying to say is that having the developer take on all the risk is a tough sell - unless you can come up with some way to prove that the app is going to make enough to make up for the cost of development, it's going to be tough to make the sell on a partnership, and really isn't much of a business anyway.

My experience with projects like this is that unless the developer you find is extremely excited about what you're doing, they're not going to want to do this for equity. If you can tell the developer with confidence that the app is going to generate x revenue and is worth y, I can't see getting on board with it. It also goes a long way to have raised some money first. I can see a developer discounting for equity (like many start-ups). I've worked as a freelance developer for a while, and these projects come up from time to time, and even when the idea seems like a great one, that's just a small, small part of what makes a business a good one. It's been tough for me to take on this kind of work unless there's clear upside.

On preview - Leon's next post is a good idea too - one sure way to show that you're serious about this is to take on some risk. Do you have credit cards?
posted by drobot at 2:14 PM on July 16, 2008

OK, it's great that you have a background in coding; that instantly elevates you well above the naive "hey I have a great idea for an app/site" people who get ripped into on here. However, you still need to keep reminding yourself that working code is everything; you don't just have a 'missing link', you have nothing without this crucial person.

I reckon you perhaps should pay someone a small amount and get them on board as a partner, to balance out the risk on both sides.

If you can put together a pitch/specification that impresses/reassures developers (i.e. it contains a few of those little what-ifs and details that demonstrate expertise and rational, in-depth thought) then you'll pay a lot less overall. A big part of deciding how much you need to charge for something is based on how clueless the client is.
posted by malevolent at 2:23 PM on July 16, 2008

Best answer: Leon's next post is a good idea too

Jeez. I'm starting to think I should do this for a living. Any business types out there want to partner with an experienced developer? ;)

drkrdglo: you'll encounter a lot of naysaying. Don't ignore it, overcome it. For every negative we can throw at you, figure out a comprehensive answer - if you can't, there's a hole in your business plan. For example, if I say "it's hard to get apps installed, do it as a website instead", don't just handwave about the iPhone store, come back with hard numbers.

Good luck, and remember, failures are valuable too.
posted by Leon at 3:22 PM on July 16, 2008

I'm a freelance software developer and I cut the conversation off immediately when I'm approached by a client who is offering me partnership benefits in lieu of cash. The only way you will make this work is the hard way: with capital to pay a full-time developer.

Don't think of that as a bad thing -- venture capital is a built-in check on the feasibility of your idea. Remember what happened when banks stopped checking whether people could pay their mortgage?

By the way, if your idea has anything to do with storing data somewhere (especially if it's mobile web), you're going to need hosting, and if it's popular it's going to need to scale. That is real money too, in the thousands even with commodity or cloud hosting.

For example: a great way to make money and provide an app for free is to have an advertiser sponsor the app. That sponsorship doesn't happen on its own. It has to be sold. And that's where someone like myself comes in.

Yesterday I launched an app that I coded up in a few weeks and today a company offered to sponsor it. No middleman required.
posted by nev at 3:50 PM on July 16, 2008

Since you're stressing that you need ObjC/Cocoa, you're obviously going for the iPhone - I don't know if that makes Leon's comments less or more relevant. The fate of a startup beholden to the collective cell providers can't be any worse than one caught between the dual whims of Apple and AT&T. (Neither of which have a super-nurturing reputation.) I wonder about somebody who's talking about basing an entire startup on an application for a very specific, small phone platform(*).

On the other side, has anybody mentioned Android to you yet? If you really do have an amazing new concept, I imagine that $100,000 of Google money could really get it to grow...

(*)Compare Apple's iPhones sold to date with Nokia's 22.4 million symbian phones sold in the 4th quarter of 2007 or the 5 million Palm PDA/phones sold to date.
posted by Orb2069 at 4:01 PM on July 16, 2008

Leon pretty much said everything relevant I was going to say. But I'll share some recent observations that I've had from working with startups:

The benefits of working with a contractor are 1) They are only on staff as long as you need them and then cut them loose when you're done. Software developers are great for this since after it's built, there is often little for them to do. 2) You can buy the skills that you need for your project and don't have to rely on the skills of whoever is willing to work for imaginary money. 3) You don't have to give away a percentage. The downsides are 1) It's a significant up-front cost 2) A contractor isn't as invested in the success of the business as a partner.

The benefits of a partner are 1) Low up-front costs. 2) invested in the success of the business so they are more likely to make sacrifices, work through holidays, etc to make it work. The main disadvantages are 1) You won't find many experienced skilled people who are willing to take a risk like this. The experienced, skilled people who like to take risks are already contractors making a good hourly rate. 2) They are doing more visible work up front while everyone else is doing their work after the product takes shape. This causes lots of friction and suspicion about inequity in a partnership and can cause lots of acrimony, especially if the business fails.

I'd personally get a contractor. Or, after doing all my due dilligence (business plan, market research, etc) I was convinced to go forward but I couldn't afford a contractor outright I'd work out a deal where I would pay them a fraction of thier rate for a certain amount of future revenue. For example if their usual rate was $30K for the project I might propose $10K now and 30% of revenue up to a total of $40K. (Or whatever.) I would never pick a business partner off of Craigslist or simply based on technical skill.

An anecdote: Recently a startup hired a contractor to create thier core product, only to be unable to pay his final invoice. This left the company with a big hole in thier bank account and software they were unable to use.
posted by Ookseer at 6:29 PM on July 16, 2008 [1 favorite]

The amount of money you guys have is not even enough to hire a lawyer to structure a 4-way partnership agreement, even if you knew what the terms of that agreement should be. None of the three of you have any skills or talent relevant to the tasks you're trying to accomplish, and you all have full-time jobs, which means you shouldn't expect to be able to plan, manage, administrate, coordinate, or implement any part of these tasks. That takes time - lots of it.

A programmer capable of implementing your idea without any technical input from you is not going to be advertising on Craigslist, his hourly rate is going to be well over $75, and he is going to have the good sense not to sign up for this kind of project, because you have nothing he needs.

Keep your couple of thousand bucks. Your time is not now.
posted by ikkyu2 at 11:03 PM on July 16, 2008

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