Development
vs.
Products

This presentation is made possible by the support of the American People through the United Stat...
Business Types
Sets strategy, sales, marketing and growth potential
Development
Outsourcing

Product
Companies

Strategy

...
The Outsourcing Economy
• History
– Traditionally corporations owned, managed and directly
controlled all of its assets an...
Outsourcing

• Accelerated in the 1990s
– India, Ireland and others

• Reasons:
–
–
–
–
–

Headcount and cost reductions
F...
Primary outsourcing economies
G20

Mid-size
Economies

Developing
Economies

India

Pakistan

Armenia

Russia

Ukraine

Cz...
Example: Software Outsourcing Consultancy

• Developing software programs for others by spec
– Common in Armenia and other...
Issue: Scale

• Business scales with number of engineers
• Can only grow by adding people
• No revenue leverage

People

R...
Outsourcing
Maximum revenue per year is limited to:
(number of consultants) x (hours worked per year) x (billing rate)

CE...
Building an Outsourcing Business
• Find revenues immediately and stay profitable
• Deal flow and sustainable customers
• I...
Product-based Business

• Using capital to develop a product or service
• High risk and potentially high reward

• Works o...
Product-based businesses are Scalable

•
•
•
•

Business scales as a function of marketing and sales
Requires cash to get ...
Product Company

CEO

Admin

Sales

Marketing

Engineering

Completely different outlook than “Consulting”
Potential to sc...
Financing a Product Business
• Seed fund through other projects or through Friends & Family
• Develop Minimum Viable Produ...
3 outsourcing vs. product
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3 outsourcing vs. product

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Many companies start with an outsourcing model to employ engineers and generate cash-flow. This presentation explores the fallacy of that model.

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3 outsourcing vs. product

  1. 1. Development vs. Products This presentation is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this presentation are the sole responsibility of Rick Rasmussen and do not necessarily reflect the views of USAID or the United States Government.
  2. 2. Business Types Sets strategy, sales, marketing and growth potential Development Outsourcing Product Companies Strategy Employee-based Leveraged Sales Referral CAC or Viral Marketing Local Global Growth Potential Linear Exponential
  3. 3. The Outsourcing Economy • History – Traditionally corporations owned, managed and directly controlled all of its assets and processes. – In the 1950s and 1960s companies for ways to broaden their base and take advantage of economies of scale. Diversification became a popular strategy. – As competition became more global in the 1970's and 1980's, organizations found that diversification had actually bloated their management structures. – Outsourcing became a way to offset corporate bloat – Shifting focus to their core processes, they handed off noncritical (non-core) procedures, to be managed by third parties.
  4. 4. Outsourcing • Accelerated in the 1990s – India, Ireland and others • Reasons: – – – – – Headcount and cost reductions Focusing on core competencies. Gaining access to world-class capabilities Freeing resources for internal R&D Requiring specific expertise for functions that are either timeconsuming or are currently out of control – Sharing risks and costs with a partner
  5. 5. Primary outsourcing economies G20 Mid-size Economies Developing Economies India Pakistan Armenia Russia Ukraine Czech Republic China Spain Romania Canada Netherlands Poland Brazil Ireland Hungary Estonia
  6. 6. Example: Software Outsourcing Consultancy • Developing software programs for others by spec – Common in Armenia and other developing countries – Leverages talent and capability of engineers • Done for hire – Typically by contract for fixed fee or hourly rate – Occasionally share in revenue upside
  7. 7. Issue: Scale • Business scales with number of engineers • Can only grow by adding people • No revenue leverage People Revenues
  8. 8. Outsourcing Maximum revenue per year is limited to: (number of consultants) x (hours worked per year) x (billing rate) CEO Admin Engineer Engineer Sales Engineer Engineer Engineer Engineer More revenue? Just add more engineers (minus overhead, efficiency, etc).)
  9. 9. Building an Outsourcing Business • Find revenues immediately and stay profitable • Deal flow and sustainable customers • If capital is needed – Bank loans based on: • Revenues • Cash flow • Accounts receivable – Government grants • Programs to encourage employment • Tax breaks • Free enterprise zones • A good “family business” that will likely never exit
  10. 10. Product-based Business • Using capital to develop a product or service • High risk and potentially high reward • Works on the principle of leverage – “Develop once, sell many” – Product can be delivered to multiple customers with sufficient resources • Perseverance and planning is required
  11. 11. Product-based businesses are Scalable • • • • Business scales as a function of marketing and sales Requires cash to get started Grow by adding products Can be highly leveraged cash $0 time
  12. 12. Product Company CEO Admin Sales Marketing Engineering Completely different outlook than “Consulting” Potential to scale and leverage resources Can be much higher revenue per employee Operations Finance
  13. 13. Financing a Product Business • Seed fund through other projects or through Friends & Family • Develop Minimum Viable Product (MVP) and engage with customers • Identify areas of traction and validate your business model • Seek sources of capital from risk-takers – Angel Investors – Government grants • Programs to encourage employment • Tax breaks • Free enterprise zones – Venture Capitalists • With work, you stand a good chance to make money and scale

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