Posse is my first tech company, and I like to draw on advice from a wide range of qualified people.  Outsourcing, it seems, is one area where everyone holds a different opinion.  I’ve tried almost every different outsourcing model — some were successful, some disastrous — and we’re about to build a significant second team in Manila.  Here are some of my stories and what I’ve learned along the way.

1. Outsourcing the development of a minimum viable product.

When I started Posse, I wanted to get a site up as soon as possible to see if the model worked.  I had no technical expertise and didn’t know how long it would take or how much it should cost.  I didn’t have enough expertise to hire my own developer so I outsourced to a dev shop in Sydney who then outsourced much of the work to their team in India.  I paid for a part-time product manager and part-time graphic designer in Sydney and around six full-time developers in India.   It cost approximately $50,000 per month and took around three months to get a minimum working site live.

This got us going, delivering a working site within three months.  It wasn’t great but worked enough to prove that the model had legs, enabling me to fundraise for the next stage.

But the approach was flawed and I wouldn’t recommend it.  Having a team of part-time developers in Sydney meant that no one was focused on the project.  A startup struggling to devise a new model needs focus and commitment.  I wanted smart people who’d wake in the middle of the night with brilliant ideas for the site design and implementation.  But for them, we were a one- or two-day per week project.  No-one cared that much, the design was poorly conceived and riddled with bugs.  The code was sloppy; it wouldn’t scale, and was abandoned when we put our own team in place.  It had to be.

2. Partial outsourcing of development.

As soon as I closed our first funding round, I hired a CTO to run the development of our product right here.  To develop as much as possible on the available budget he decided to hire two other developers in-house and outsource the rest to a different team in India.  The Indian crew were a dev shop that built products to spec.   We spent around $15,000 per month on the Indian team; that gave us six full-time developers including one who managed the rest of the team.  The entire tech team (Sydney and India) cost around $40,000 per month.

This approach worked slightly better as our Sydney team was more focused on the product design.  We started running regular user tests and developed agile processes, and the Indian team were quicker and more responsive in our direct dealings with them.

Again there were drawbacks.  The Sydney team spent a lot of time writing specs for the team in India.  It’s impossible for a technical spec to cover every decision that the implementer has to make.  For every major definition in the spec there were a hundred micro decisions left to the Indian developer.  We’d never met them; they didn’t speak good English, or understand the business problem we were trying to solve.  So, they often came up with wrong decisions.  For instance, they programmed the events database so it displayed events from furthest in the future first; closest to the current time last.  This makes no sense if you’re looking for something to visit next weekend.  The quality of the code wasn’t great and the site was slow as a result.  Developers would take longer to fix it because of the “shortcuts” they’d taken in the past.  The Sydney team members weren’t proud of the product, they were bored writing specs and we couldn’t build an innovative engineering culture as a result.  After about six months, we hired a new team, notably led by Alex North, and brought all our development in-house.

Me with Kaye and Jenny in our Manila call centre

3. Outsourced sales and database management.

One of the biggest lessons I learned from the music site was that we needed a scalable sales process.   I looked for a way to streamline the client on-boarding process so it could be done by anyone from anywhere at low cost.  Now, when you recommend a shop on Posse, a call centre in Manila contacts the store owner, lets them know you’ve recommended them and asks if they’d like to list on the site.  We obtain their details and design a hand-drawn Posse storefront, converting 95% of the shops that people list, and the entire process costs us $3 per store.  We now have over 35,000 merchants on the platform from all over the world.

The process works incredibly well for us.  We started by calling the stores ourselves, managing the whole process from our own office.  Once we had the script working to a point where one caller could onboard 100 stores per day, we outsourced the job to a call centre in Sydney.  They own a call centre in Manila and planned to get the processes running in Sydney first.  Once they could obtain the same result as us they’d train up their Manila team to take over — at a much lower cost.  Within a month we were ready to start handing over to Manila and a month after that we had a team of two callers, two graphic designers, one database researcher and one manager on the job for a total cost of $5K per month.

Manila floods almost every day at this time of year

4. Building our own team in Manila

Now that we’re growing, we’ve decided to launch our own team in Manila.  I went over there last week to scope out the scene and investigate different approaches.  I learned about Manila’s thriving startup scene and was shown two of the largest startup incubators, packed with enthusiastic entrepreneurs and engineers building their own products.  I was surprised to hear how many startup competitions, hackathons and meet-ups there are.  Google has just leased a five-storey building and plans to open a major office there.   It felt a very different culture from India, where developers seem to work more for pay than for passion.  Another advantage of Manila is that English is the main language of their education system, so communication isn’t a problem.

During my time in Manila I found a lead developer, an office and a recruitment company who’ll help us assemble the rest of the team.  For around $20,000 per month we can employ six engineers, four callers, a database and customer support person, a graphic designer and a manager.  We’re building the team in partnership with the Sydney company we worked with to outsource our callers, and aim to have the whole operation up and running in November.  The team will compliment our in-house development, design, community management and sales team in Sydney; we plan to send our lead designer and two lead engineers to work with the new team in Manila, at least for the first month or two until they get going

Encouraging a great Manila developer to join our team

Through trialling different methods of outsourcing and learning from others who’ve done it well, I value the time and effort put into getting it right.  My trip to Manila was eye-opening: I never visited the Indian teams and as a result thought of them as existing in cyberspace, rather than as real people.  I never took the time to understand who they were, their motivations and challenges — I just became frustrated when things didn’t work perfectly.  I never thought of them as being part of our team.

In a startup, every team member makes an impact and a team member in another country is no different.  Now that I’ve spent time in Manila, met the people who make the calls to retailers, and engineers we’re looking to recruit, I’m determined to ensure that the Posse culture is the same for our Manila team as it is for our Sydney team; we’ll all be spending a lot of time there to make sure it works.  I’ll write back in a few months and let you know how it works out!

If you’ve outsourced successfully or unsuccessfully I’d love to hear your experience and tips in the comments below.

Posse was my idea.  I drove it right from the start.  But in the early days, I didn’t know anything at all about running a technology company.  I wasn’t confident that the idea would work and that I wouldn’t end up with egg on my face.  In the interests of spreading the financial and reputational risk, I asked a few friends to help.  After I’d written the plan, fleshed out the idea and who’d be involved, I sat in a cafe and wrote on a napkin how I’d divide up the company.  Different people would have different responsibilities, and for that they’d receive a percentage of the shareholding.

I appreciate that this blog will touch a raw nerve in some people but I think it’s an important story to tell.  I’ve decided to write it because, since I don’t have any plans to start another company, this isn’t a lesson that I can learn from.  But I hope that my telling it may prevent others from making the same mistake.

I meet lots of enthusiastic young entrepreneurs at various events who tell me of some great idea, and they’re starting a company with a bunch of people.  When I ask how they’re dividing up the company they say something like, ‘I own 50% and the other 50% is split between a guy who’s doing the technology and another who’s going to run the operations and raise the money.’  Sound familiar?  Although I didn’t screw myself that badly, the setup is similar for many young companies.  At the very start, no one wants to haggle about shareholding because it just seems silly.  At this stage, the company isn’t even worth anything, so why argue over 30% of nothing.  Right?

Wrong.  The company does have value at the start.  It’s worth the energy and intellect the founding team is prepared to invest.  When I think back to 2009, the year I started Posse, I too felt that this newborn idea didn’t have inherent value.  Now I look back at the colossal amount of work and perseverance I’ve put into it.  I dropped a successful music company and gave up virtually all of my free time for three years.  That level of commitment was the company’s only asset at the start.

The problem is, there’s no way of measuring future contributions so you just guess and split the company.  What usually happens is that one or some people will work incredibly hard to get things off the ground and others will drift, either because they can’t handle the pace or aren’t focused on the project.  This irks the hardworking founders, who try to negotiate the others out of their shareholding.  The slackers say no and everyone falls out. Then, either the company falls over or moves on with a bitter founder (like in The Social Network).

I suggest an alternative.  Say you have three founding partners.  A has the idea, will raise the money and lead the business, B is the engineer who’ll build the product and lead the engineering team in the future, and C understands the industry, will run the marketing and be the face of the company.  You agree that, if everyone commits equally and does a good job in their field, a fair split of the equity would be 50/25/25.

If you want to know the viability of a startup, you can’t just commit to a six-month trial.  It’s highly likely that your first idea won’t be bang on.  You’ll iterate, learn, and try a few models before you know if the company will succeed.  If you look at most successful tech companies like Twitter, AirB&B, Groupon, or TurntableFM, they each took around two years to strike on the right model, so the founding team must be committed for 3 years.

You start with 100,000 shares in the company all valued at $1 each.  The company then loans the founders money to buy shares in their own company (Founder A gets $50,000 and founders B and C $25,000 each).  The loan just sits on the company’s books so no actual money need change hands.  The company would then have the right to cancel a founder’s loan and buy back the shares at any time if voted for by the other two founders (or a majority).  Further, the company has an agreement with each founder that an equal proportion of shares become ‘safe’ each month over three years.

If, after twelve months, the marketing founder wasn’t working out and had started his own side project that consumed most of his time, the other two founders would have the right to cancel 2/3 of his shares.  If everyone commits equally and works to the same level of ability and integrity over three years, then all founders retain the equity that was planned at the start.  The same rule should apply to anyone you want to give shares to – directors, commercial partners, suppliers and team members.

Many people have been involved in making Posse a success.  Some have contributed far more than their shareholding would suggest.  As a founder, you must value people who contribute to the company generously – especially as they’re backing a project where success is not guaranteed.  There’s nothing more frustrating than wanting to reward hard-working superstars with shares and being restricted on account of a few who did very little but happened to be around at a time when you were naive or forced by circumstance to hand over equity.

It’s the one mistake I regret.  I hope that by sharing it I’ll help prevent others from making it too.

This made me think about my strengths, and those of my entrepreneur friends and mentors.  I know I’m not the best manager of people, I’m not great with details and accounts and I can’t write a line of code.  You have to be someone who takes risks, just does it and works hard but there’s more to it than that.

As you might have read in my previous blog posts, I’ve made just about every business mistake in the book.  But, two years after I quit music to launch Posse we’re still here and, finally, starting to make real progress.  To answer the student’s question I reflected on core strengths I think are critical for all entrepreneurs.  This is what I came up with.

1. Winning people over.  

It’s hard to build a great business on your own.  Whether you need to raise investment money, recruit team members or gain customers – every entrepreneur needs to have or acquire the ability to win people over.

I honed my skills in this area working as an artist manager in music.  I had to convince the industry, the media and then an audience that the new artist I represented was great and worth supporting.  You’d think this would be easy; people would hear great music and fall in line to be involved.  Not so.  I shopped my first artist ‘george’ for two years to record labels and even longer to commercial radio programmers before we got a break.  Every label passed on Evermore and knocked back great success stories like Lisa Mitchell and Matt Corby many times before signing deals.  In music, I learned that the biggest opportunities didn’t always go to the best artists.  It was about the number and credibility of the people who wanted to be involved, the momentum of the project and the excitement about the future.

It’s the same in tech.  You might think that when someone hears a great idea they just want to get involved – not so!  My pitch isn’t about the awesome features on the site.  It’s all about the team, our momentum and inspiring the person to share our vision.  Winning people over is an art and it’s critical to all aspects of business.

2. Creativity.  

Entrepreneurs see everyday problems and dream about solutions.  They’re interested in people, ask probing questions about the way they do things now and jump to ideas of how to make things simpler, faster, better or more fun.

I have a whole book of unused business plans dating back to 1998.  When it became obvious that my first idea for Posse in music had scaling issues, I immediately saw a new and bigger opportunity.  My team and I spent months designing a strategy for this new direction and then dreamed up creative ways to both solve problems and engage our audience.  We took what we learnt from the old business and designed something much stronger for our second attempt.  Looking back on this time now I can’t help but wonder what would have happened if we hadn’t been able to come up with a better idea!

Being passionate about continuous creativity is an essential quality of successful entrepreneur.  It’s rare that the first idea is bang on and if you can’t innovate then you’re dead!

3. Tenacity.

I would say this is my personal biggest strength.  Someone recently asked me if I thought I was tough to which I replied, ‘no, but I’m tenacious.  I’m like a cockroach – you can’t kill me!’

I’m not sure where this comes from, but throughout life I’ve started and run quite a few major projects.  None of them has been easy; I can name times in all of them when things looked grim and I thought I’d fail and lose lots of money.  But each time I stuck at it and every time things worked out well.  Posse has been the hardest and longest slog yet but knowing that I’ll never give up gives me a lot of confidence that we’ll make it.

These are my three strengths and I think they’re all you need to be successful.  So long as you can keep bringing onboard great people, keep winning customers, keep raising money, keep innovating and keep going.  You might not get there the fastest, but I don’t see how you can lose.

- The Serenity Prayer by Reinhold Niebuhr

A few weeks ago I wrote about my pain and frustration surrounding the launch of our platform.  It’s now been eight weeks and things haven’t become any easier but I’m starting to learn how to manage the process with some kind of order.  I’m still waking up at 4am in the morning every single day with a million things flooding through my head.  We user test at least once usually twice or three times per week in various ways, and we carefully monitor analytics showing how people use the site.  There are always a hundred things that need to be changed: new features that we think will improve engagement and retention, and then there’s the half-built core product!  Our team work hard but there are only so many hours in the day. You see, my head is not a fun place at four in the morning.  It’s been very stressful.  Too stressful.  Yet, I’m starting to find order through chaos.  This blog is about our new challenges and the techniques I’m developing that help me make steady progress.

Our development of Posse is based on the feedback loop theory championed by ‘The Lean Startup’ and featured in many books on management theory.  Teams design, build and launch a minimum viable product to test how people interact with it, then design improvements.  They build and launch a second version, test again, design improvements and so on.  In theory this makes a lot of sense but in practice it’s hard and extremely frustrating.  Naturally, the team want to be proud of the product they’re releasing, so too much time goes on designing for perfection.  But it’s impossible to predict how many times you’ll need to build something before its good enough to move onto something else.  No-one likes building the same thing over and over again and everyone gets disheartened when improvements don’t work!

An example of this for us is the method of on-boarding new users.  We originally designed the site so new users landed on their town first, then Elvis (our guide dog) conducted them to their own street page where they could start adding places.  Our objective was that, through being able to find favourite places of their friends and wider social connections, users would understand what Posse is about, and would add places to their own street.  They’d be inclined to come back and use the service, sharing it with friends because they understood its purpose and had an emotional connection to their own street.  This, after all, represented their taste and knowledge of good places from around the world.  The site analytics from the first four weeks showed that 15% of users couldn’t work out how to get to their street to add places, and if they did, another 15% didn’t then go on to add a place.  A huge percentage of users never discovered that they could use search, the key utility of the site, and our returning user numbers weren’t great.  All this showed that people didn’t understand the site’s usefulness.  So we designed improvements.  We added three informative splash screens between sign-up and the first page so users would understand what the site was about, and we switched around the user flow order so new users landed on their street first where they’d be prompted to add a favourite place.  These all seemed like good improvements – our designer Nathan and engineer Aaron spent a week designing and implementing the new process.  What happened? 15% of new users gave up during the first 3 splash screens and of the 85% who made it through, only 60% of them added a place!  We used www.usertesting.com to figure out what was going on and when we saw the videos of new users trying to work out the process it was obvious we’d made huge mistakes.  And so we designed it again and a new process will launch this week.  If that fails we’ll keep designing again and again until we get the completion and retention numbers we expect.

Aaron going crazy implementing on-boarding over and over!

This is what’s going on with every aspect of the site and business.  We’re building sales and marketing processes as we’re building the product, so we’ve got real customers to try things out with.  Imagine being our designer Nathan who laboured over the splash pages for days only to see users not understand it and it need complete redesign again and then again at the same time as you’ve got a million other things that need design.  Imagine being Aaron our engineer who spent a week implementing the new call outs to have to redo them the next week and then again the week after.  Or Clarissa who runs marketing and has promotions lined up.  They can’t start until the on-boarding process is fixed.  Or me the entrepreneur, who gets asked for user numbers and metrics from investors every day.  It’s hard going!

Here are a few things I’ve learnt so far:

1. Accept mistakes as part of the process.  There is no point getting frustrated and losing sleep when things don’t work.  Building a new product is a process and we don’t know how long it will take to get things right.  But…

2. Encourage the team to work fast.   This is tough because great people want to be proud of their work.  In hindsight I should have encouraged Nathan to prepare basic versions of the splash screens, rather than design beautiful pages that were discarded as soon as we saw the first users try to interact with them.  We have an awesome team of engineers who like to test everything thoroughly (as they should) but in our case it’s more important to get the feedback loop spinning fast so we can learn and iterate than it is to produce perfect code with no bugs.  Although we’ve got no idea how long it will take to get the product right, we do have a limited amount of money and time, so moving fast is imperative.

3. Focus on things that move the needle.   Everyone wants to fix the things that annoy them most, however these may not be the items that make the biggest impact on users.  One of our engineers really wanted to be able to move things about on his street, which I agree would be fun.  But is this the thing that’s going to make the biggest difference to Posse succeeding or failing?  I argued that it wasn’t and we agreed to leave it until later.  With time pressure and limited resource it’s vital that every team member is focused on the things that make the biggest impact to improving the product.   Right now, Alex is building an amazing social search engine (the core product), Aaron is fixing on-boarding, Mike is implementing automated emails to users that’ll encourage them to come back to the site, Nik is making new store dialogue pages (our current ones don’t work very well), Hamish is building the retailer’s dashboard that eventually will earn us revenue, Glen is building the infrastructure that will enable people to add people’s streets to their town who aren’t their Facebook friends (key to engagement and growth) and Nathan is designing the next version of our street and towns, which will be personalised and animated.  Jen is outsourcing our store listing process so we can get new retailers interacting and designed stores on the site quickly, Clarissa is running the user tests and is responsible for signing up new users, and I’m working on our next round of fundraising to ensure we can stay alive.  I’m confident everyone is working to capacity and working on the right things – but it’s still difficult when we know there are so many other things we just can’t get to yet.

4. Test and measure everything.   I’ve mentioned before that I’m obsessed with talking to users, watching user tests and checking the analytics of our product.  This is something we didn’t do well when we were a music site, and looking back knowing what I do now it was like we designed that product in the dark.  Equally, if not more important than testing and measuring a product, is talking to users and asking them open ended questions about themselves, the product and how it fits into their lives.  I try to do two sessions per week with users and spend the first hour just asking general questions before we even look at the product.  They won’t tell you what they want, but an insight comes from every session that helps shape the future of the product.

5. Meditate.   I find it easy to run on adrenaline, in fact I enjoy it.  When we first launched this new platform in June, I went straight overseas, worked day and night, and then continued the regime when I came home.  I got a lot done in this time, but after a while I noticed that I wasn’t totally on my game.  Ideas weren’t flowing like they normally did.  I became impatient and frustrated easily when things didn’t work as I hoped, and was always tired cause I wasn’t sleeping properly.  I learnt to meditate several years ago and I started practising again twice per day.  I went back to yoga.  At first, all the problems with our site streamed through my head like a freight train.  Remarkably, it only took a few days to return to normal.  Everyone has their own methods of stress relief, yoga and meditation are mine and they’re always the first things to go when I feel under pressure.

These are my current methods.  If anyone has any other suggestions please write to me and let me know!  I’ve enjoyed the process of writing this week because it’s helped me to focus on what I need to do to cope with the immense stress and pressure associated with building and launching this product.  I still find it all very hard and look forward to the day when I can re-read these blog posts and reminisce about how much I learned, and how it all worked out in the end!

P.S Please visit www.posse.com to test our new on-boarding process.  I’d love to hear your feedback!