Extending the runway of a startup is the unglamorous work every startup has to do if they want to give themselves enough time to get their product from the runway up into pure air. While it would be nice to think of a world where good, value-driven startups were so successful from the start that they didn't even need a runway, but that's not how it works. Even the best startups need this time to prove their product and shake their coffers for investors. It could mean years of plodding ahead, and lots of money spent.
Some entrepreneurs offset the money they spend on development by working full or even part time. But others feel that the only way to give their startup wings is to work on it full time. For either entrepreneur, it's crucial to find ways to make money last as long as possible because the more money they have, the longer they can sustain the building phase of their product. For this reason, many tech entrepreneurs are turning to freelance developers in other countries to help build an awesome mobile app for the least amount of money and time possible. Need a viable product with money left over? That's like an instant runway extension for a startup.
What is a "runway" anyway?
A runway is the amount of time a startup has before it goes out of business due to running out of cash assets. The runway is calculated by dividing the startup's current holdings by the current burn rate.
Example: After the last round of investments, our company now has enough runway to last us through the next phase of development.
The burn rate is the amount of cash that a company spends or loses per month in order to continue their regular operations. Some startups will use burn rate to refer to their total expenses, but more commonly used to refer to the negative difference created when cash in is less than cash out.
Example: We have $3 million in the bank account and have a net burn of $150,000 per month, giving us a little more than an 18-month runway.
Confused about how to start calculating your current runway? We find that this Agile Planner has a comprehensive spreadsheet that you can download.
The benefits of outsourcing product development
The benefit of outsourcing product development really comes down to the financial relief it gives.
Many startups that outsource their product development to a country for a cheaper cost call it bootstrapping. Some young entrepreneurs who have nothing to lose even go so far to move overseas to build their startup and develop their product on a shoestring budget. The sacrifice slows the startup's burn rate, increases the runway and allows for more time to develop, test and market something like a mobile app.
Chiang Mai, Thailand became a beehive of activity for the digital nomads of the world for this very reason—tech entrepreneurs needed a place to play and build where their money would go further. Now the community there is alive with freelance developers, UX experts, designers, writers and digital marketers.
Many startups need a mobile app built but can't afford the team required to build the mobile app of their dreams. Or they don't have the in-house technical skills to create the app properly.
Startups that don't have the kind of runway that would allow them to build their own app in-house—it would take too much time or cost too much—will typically look for a development team to work with.
It's not unusual for non-technical founders who have a great idea to go on to raise capital, release a great app and rack in millions of downloads. The smart ones among them were able to extend their runway by having their app developed elsewhere for cheaper.
Note that cheaper doesn't mean dirt cheap. If you've heard the saying if you're going to throw peanuts, you'll only attract monkeys, it couldn't be truer for mobile developers.
Tips for outsourcing your mobile app development properly
Tip 1: Save for your first version app
Doing the first version of the app yourself means that you get an early prototype of your product without being responsible to shareholders yet. As soon as you secure funding, the runway doesn't get shorter but you do move along it at a faster clip because now you have to prove that your product has wings, and fast.
If you have to, borrow first from friends, family and credit cards—any sources that will give you more flexibility to pay back the loan. Once you start talking to career investors, you will meet a group of people who have made it their job to see their money come back to them, safe and sound.
Tip 2: Review your developer prospects thoroughly
When you are working with a freelance developer, most of the communication will be via e-mail, Skype and perhaps a collaboration tool, such as Basecamp or Slack. Sooner or later you will want to talk to them by phone to speed up development.
Your chosen freelancer should have plenty of previous work to show you. Here are some important issues and questions to bring up when you are communicating your needs, requirements and terms.
- Will they design the graphical user interface (GUI)? If so, what do you need to deliver to them in terms of graphics? You can purchase your icons and other art cheaply from stock photo sites, like shutterstock.com.
- Where are they located? Location isn't critical except to develop times and methods for communication. Communication is what keeps mobile app development projects well-oiled. Will you be able to get a hold of your developer during your work hours or do you have to compromise on some common times when you will both be awake and "on-call"?
- Can they do everything you need to complete the build (including backend, GUI, social media, etc.) within your timeline?
- How many members are on the development team? Working with a team, rather than a sole freelancer, will get you where you want to go a whole lot faster.
- How long after releasing the app will they support bug fixes and upgrades? Some companies have a policy for this, and other work on an a-la-carte basis.
- What will the cost be to add features and functionality later on? Is there a separate pay scheme when it comes to building the app out?
Tip 3: Develop for Apple first
Build for Apple only at first because they will review it, check it for bugs and ensure that it fits within App Store Review Guidelines. The limitation, of course, is that your application will work on iOS devices. That's OK because building outward for other operating systems will come shortly.
Starting with Android is problematic because it is an open source platform. That means while you are free to create as you will without having to adhere to Android development rules, you will need more time with Android to customize your app for all of the compatible devices. That could majorly shorten your runway if you insist on launching for both Apple and Android at the same time. Now you see why other start-ups stagger the releases—it's not because they prefer one over the other!
What does this mean for your revenue? Android has a bigger market, but Apple apps make more money. More money means more runway. If you choose to develop for both platforms from the start, it will help you make more money earlier because your app will be available to a larger market, but the initial cost will be hefty.
Tip 4: Focus on your app's core value proposition and remove all the nice-to-have features
For example, when Instagram got its start, the team put the sharing functionality above all else. There were no filters in the first version of the app because while they were nice to have, they weren't the core functionality of the app. Once investors saw the stability of the core function (and that it was backed by a developer who would drag a laptop around just to fix bugs on the fly), the runway to success lengthened substantially.
Other ways to extend your startup's runway
Tip 1: Curb personal expenses
Every dollar you spend on extraneous entertainment, gifts and eating out is another dollar out of your runway. Cut it out, already. If your product is truly good, the sacrifices will pay out in spades when you're through.
Tip 2: Edit your budget with impunity
Quick rule: Don't spend a penny on items you will be embarrassed about if your company goes out of business in one year. That means: don't get your car wrapped in graphics, don't buy your team matching mopeds and don't offer all those perks that Google gives their employees—they can afford them, you can't (yet).
Tip 3: Free time is for non-entrepreneurs
Stop worrying about weekend plans. If you are going to have a successful startup, you will need to put in time on your weekends too. Make sure your family and friends understand your objectives and are supportive of them. Good friends won't tempt you away from your dreams. Tailgating and cottaging are luxuries for when you have a financially sustainable company that has lifted off the runway.
Tip 4: Stop being a "perfectionist"
When was the last time your inner perfectionist ever let you complete a project? Yeah, never.
Tip 5: Lose your pride
"Entrepreneurship is living a few years of your life like most people won't, so that you can spend the rest of your life like most people can't."
Being an entrepreneur is about sacrifice, stripping down everything you can to create the thing you dream of creating. Why are so many successful entrepreneurs are so financially modest? They built themselves that way out of habit. Follow their lead.
So, you see that outsourcing the development of your app is not just a strategic move. It's one of the many instincts that tech entrepreneurs have ingrained in them to seek out the best and most operation-friendly way of doing things. If they didn't have this instinct, their start-ups would never leave the runway and they wouldn't be very resourceful entrepreneurs anyway.
How many months of runway could outsourcing your app development add on to your runway?