Should Tech Startups Outsource Product Development?

When startups ask me whether they should outsource product development, I usually advise against it. If they’re desperate to save money, they should outsource some testing or ancillary-product development, not core products. That’s because the developers of innovative technologies need to interact with each other and be close to customers and markets. In my book, outsourcing is for corporate I.T. departments and for large companies with global operations, not for small tech companies. I said this in my BusinessWeek column, three years ago. I also cited research that showed that the tech industry has never constituted more than 15% of the outsourcing market (banking, finance, and insurance accounted for 40%; telecom, 17%; and manufacturing, 12%)—and this includes the product development that companies such as Microsoft, Adobe, and Cisco perform in their offshore locations.

When I wrote that BusinessWeek piece, Peter Harrison, CEO of outsourcing services provider GlobalLogic—who happens to be a good friend and someone I have mentored over the years – tore into me. He insisted that I was wrong and offered to prove it by introducing me to his customers. I ignored him (as I often do). But Peter is persistent. Last week, he roped me into his customer conference to have dinner with Mike Moritz of Sequoia Capital, who is a GlobalLogic investor. Peter also had me meet some of his customers.