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Two Crucial Mistakes Founders of Early-Stage Software Startups Should Avoid

April 19, 2023
Written by Golden Section


Founders of B2B SaaS startups are often involved in the painstaking details of product development at the early stage of their company. We’ve seen two paths that founders at this stage tend to follow: either they invest heavily in building their own product dev team or go the cheaper route of outsourcing. 

Both strategies are wrong.  

Early-stage founders should only build full-stack development teams once their revenue can support it. Also, pursuing cheaper off-shore options tend to lead to lower quality software outputs and technical debt which will be extremely costly further along the founder’s journey. 

Let’s discuss why. 

Your Goal: Capital Efficient Development 

Imagine this scenario: You’ve just had a successful funding round and now have a sizable chunk of money in the bank. 

But that money wasn’t given for free — in fact, you had to give up something very valuable in order to get it: equity. So you have that money, which you need to develop, launch, and expand your startup — but you don’t want to burn through it. You want to use it efficiently. 

Efficiency, in our world, is a loaded term. In fact, for early-stage startups, we use capital efficiency as an indicator of sustainability and long-term success. 

Capital efficiency is a mindset that focuses on a startup’s ability to use its funds smartly. It has nothing to do with the amount of funding founders raise or how much revenue they earn in the first year. Running a startup with a capital efficient mindset helps founders focus on activities with a high return and promotes sustainable growth.  

Inefficient Methods of Product Dev 

After a successful fundraising round, founders face the test: what will they do with their funds? 

At this early stage, many founders opt to:  

  • Build their own product team 
  • Outsource product dev to cheap, low-quality dev talent 

Unfortunately, these are inefficient uses of the funds you raised. Here’s why: 

Building an in-house team can result in: 

  • High costs and overhead 
  • A lot of time training an in-house team (time that is not spent building your product) 
  • Less focus on the core business of the company 

Outsourcing software product development can lead to: 

  • Communication challenges 
  • Inability to control the pace and direction of development 
  • Loss of quality control 

In short, both of these options may be tempting but have a slew of issues that can lead to inefficient use of capital.  

Fortunately, we have a different solution. 

Insourcing: A Capital Efficient  Solution to Product Dev for Early-Stage Startups 

It’s easy to look at current practices and offer a counter opinion. What’s not easy is offering a solution. At Golden Section, however, we are in the business of offering founders solutions, and our strategy is based on combined decades of experience as founders and venture capitalists.  

We’ve learned from our successes and mistakes to design a solution to help founders get a quality product to market quickly and reliably.  

Our solution is Product Development as a Service, or as we call it, Product Guidance. We’ve taken an innovative approach to provide development services that render outsourcing and internal product dev teams unnecessary for early-stage software startups. Our Product Development as a Service is a form of insourcing, except instead of insourcing to your own startup, you insource to Golden Section, your fractional partner. We work on software development delivery from an end-to-end basis, across all stages of creating and designing a product from concept or idea through research and roll-out. 

Our ultimate goal of Product Dev as a Service is to give founders what we built for them and hand it over to their own team once they have the revenue to support the cost of an internal product development team

Our service addresses the challenges of internal team building by: 

  • Reducing the cost and time it takes to create, train, and maintain an internal development team 
  • Freeing up founders and C-suite executives to focus on the core operations of their business 

It also addresses the challenges of outsourcing by: 

  • Hiring product managers in North America to reduce miscommunications and eliminate time zone issues.  
  • Allowing founders to set the pace and control the direction of their product development. We do this by following an agile methodology, so nothing moves forward before aligning with founder expectations and first planning out the features and user stories. 
  • Maintaining quality control. Our full-stack product development model, which includes UX, UI, business analysis, is engaged before any code is written. Once the coding is done, our QA team steps in to make sure that you get a viable and complete product. 

We offer full-stack product dev services to both portfolio and non-portfolio companies. If you’re a B2B SaaS founder who is struggling to figure out how to build, or improve your product, we can help. Moreover, this approach sets you on the path toward capital efficiency, a crucial prerequisite for and indicator of long-term success. 

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