Why 99% Of New Apps Developed By Outsourcers Fail

“Dave” (not his real name) sat across from me at a cafe in Kiev, nearly falling out of his chair with excitement. He was a very fit, middle-aged London banker who had an idea for an iOS app and had hired an outsourcing firm in Kiev.

$150,000 into his yet-to-be-launched app, he kept saying “I’m certain.”

It doesn’t occur to many first-time product founders that the outsourcer’s entire business model is to code to spec, get paid the second half of the deposit (before releasing the code to the client) and move on to the next client as quickly as possible.

Or that code is only 40% of what makes a project successful.

The truth is, outsourcing is a grueling business with 10% to 20% margins at best, and that doesn’t account for all the dead time your engineers are not working, the constant churn as engineers leave you for better-paying positions, nevermind the sales and marketing costs.

If outsourcers could build successful products, they wouldn’t be outsourcers. That’s why 99% (likely more) of new apps developed by outsourcers fail.

Dave became upset when, instead of joining in his excitement, I told him “Dave, you’re a great guy but if I could short startups, you’d be first.”

I know, I really got to work on my bluntness.

However, a few months later Dave sent me a Facebook message with the all too common, “John, I should’ve listened to you… hey can you meet up for coffee?”

Call it luck or psychotic determination, but both of my startups have had profitable exits and nearly all of my clients who I’ve been a growth advisor to have had: an IPO, a Series A investment, or been acquired.

When I think of why luck has been on my side, my belief is that it has to do with one core habit I’ve developed with my colleagues over two decades of building, advising and investing in new software projects that I call the CMP model:

Every successful project is a product of consistent mini-pivots based on a relentless collection of data. This is antithetical to the very essence of the outsourcer model.

Too often I hear younger founders say something like, “We failed because of _______ but we learned a lot!”

I don’t believe failure is anything to celebrate, and my belief is that many project failures could have been averted through a concept I call “Consistent Mini-Pivoting (CMP).

When I think of my first company Five9 (where we competed against startups who had collectively raised over $200 Million dollars) I’m reminded of one thing – the art & science of the CMP model.

At Five9 we were the David versus the Goliath, so we had to come up with a 10x better product with a 3x better marketing strategy.

And once we were able to do that 10x improvement over competing products, we were able to run ad campaigns on search and social media that read, “This Call Center App Reduces Long Distance Bills 70%.” That was our 3x better marketing campaign, and the combination of the two was potent.

Based on this 10x product + 3x marketing combination we grew from $0 to $10 Million in annual recurring revenues within 24 months. Quite frankly, it felt easy. It was fun (while our competitors used words like “grinding,” to describe their lives).

It was a classic example of winning against bigger competitors by having an engaging growth marketing campaign that leveraged a 10x better idea with a 3x better marketing tactic. A result that was made two orders of magnitude more probable through the CMP model.

The CMP model allows product-experienced managers to lead moderately skilled teams to achieve impressive results.

It just happens that this is the exact opposite of how outsourcers become profitable.

So my two technical partners and I set up a dev shop in Ukraine so that we could partner with outsourcers for their low-cost labor, but manage the teams directly ourselves for our clients.

We treat your new project or outstaffed developer office like it’s our own startup.

I was also the growth marketing consultant to Odesk (now Upwork) and on average the Ukrainian, Belarusian and Russian engineers were slightly but noticeably faster.

There are no guarantees with any project, but I believe the CMP model gives a project multiples more chances of success, and in this gambler’s game – it’s all about playing the odds by reaching for the best hand.

Contact us at JetBridge if you have a project in mind and I’ll tell you how we used CMP at our second startup DoctorBase to compete against a company that raised 30x more money. And won.

10 Things You Do After Your StartUp is Acquired.

John Sung Kim Net Worth

Selling your baby company is somewhat bittersweet. The money and sense of accomplishment with your team is undeniable, but at the same time it’s odd to go from CEO to employee. Half of my former employees kept asking me, “You ok, JK?” and the other half would give me an occasional look like, “Don’t you dare tell me what to do – you ain’t the boss!”

I came into the office on a Thursday evening – first clue we were acquired – no one was in the office at 6:30pm. I gathered all of my belongings in a CostCo box, turned the lights out and left DoctorBase for the last time.


1. Said goodbye to competitor. Most of my career I’ve heard VCs say, “We like you, but ABC Co. has raised so much money…”

So one of the first things I did was gathered my core team and danced in front of the grave office of my closest competitor who had raised 30x more money (yeah, 30x)! At the time of our exit we had about 2.8x their ARR (Annual Recurring Revenues) with far less churn (percentage of cancelling customers).

It’s why as a hobby micro-angel investor, I never underestimate a roomful of creative people who are die hard about winning.  Having connections is great, but scrappy often wins the day in the long run.

best email tracking for outlook

 

2. Visit Africa. The first trip I made was to go to Morocco to ride camels and haggle for things I didn’t want.

The pictures look great but believe me, the desert is cold, boring and filled with cats. Yes, cats.

John Sung Kim DoctorBase

Which in a way made sense to me because the Sahara looked like a large litter box. However, the people of Morocco were quite lovely and I highly recommend going shopping through the maze like streets of Marrakech – a bucket list worthy experience.

I returned home to San Francisco after ten days in Africa and ate a super burrito every day for a week.  God is great, truly.

3. Buy a bunch of stuff you’ve always wanted (obviously).  In my case, motorcycles. I always wanted a different bike for each day of the week, and a house with a garage in San Francisco big enough to house them all. Dream = fulfilled.

Best StartUp Blog

And if you really like a particular model, why not buy two?

Best StartUp Blog

4. Buy your (ex)employees things that make them happy. Because let’s face it, without them I’d be a monkey with a powerpoint presentation. No offense to monkeys, I love animals.

best email tracker for outlook

5. Throw fun parties. And this being San Francisco, most of my guests will be smarter than me and way more accomplished. Note the tall handsome dude in my kitchen is Coach Mike Brown (former head coach of the Cleveland Cavaliers, my Los Angeles Lakers and now with the Warriors).

john sung kim coach mike brown lakers cavaliers warriors

Some of my guests (after I explicitly asked them not to) asked him questions like, “Who was worse to coach – Lebron or Kobe? Tell the truth Coach!”

In Silicon Valley for some reason we lack social graces.  #Aspergers

Or have dinner with celebrities. Not because they like you but because you paid for a fundraiser dinner benefitting a charity you actually know very little about. 

“Yo Yao!” I said, but I don’t think he got my sense of humor. Man I love basketball.

Leading email marketing vendors

And have a real convo with your childhood idol. When I was a kid I loved Janes Addiction. Being able to talk about the music industry with lead singer Perry Farrell was a dream come true.

best email tracking for outlook

6. Retire your parents. It’s an Asian thing I guess.

Free Email Open Tracking

Send family members on vaca. Also, Asian thing.

Best Email Sequencing Software

My baby cousin and her husband are both so smart and good looking and young they make me want to puke.

7. Speak at your university and drink beer with students like you’re still an undergrad. And actually puke.

Email Sequence Software Vendors

Or people from far off countries will ask you to come speak about startup life, which was also great for me considering I would never had gone to Norway otherwise.

Insidesales.com competitor

And for some reason after you have an IPO or exit, people who own boats invite you onto them. I never knew some many people owned boats. And you know what? Everyone is in a great mood on a boat. You never hear of a fistfight breaking out on a boat. Am I right?

Best Sales Software App

8. Do “VIP” stuff like become a judge for a foreign country’s Miss Universe pageant.

Best competitor to outreach.io and salesloft

One of my (ex)employees saw this pic of me “judging” on the event’s Facebook page and she slacked, “JK, I’ve never seen you look so content.” She was joking, I’m pretty sure.

JetBridge

Or get invited to the White House and chill with politicians.

best software tools for sales

Charlie Rangel may have left his office with some controversy (after decades of public service) but he’s still one of the best sales professionals to ever pitch. I wish I could’ve gone drinking beers with him afterwards.

Best email sequencing software

Traveling the world for a year makes you very bereft of potential girlfriends dates (ok, so I didn’t have a lot of dates before then either) so my friend Kyra packed her dress, hopped on a flight to D.C. and came to my rescue as my +1 for the White House gala. Thanks pal – I’m lucky to have friends like you.

What is better than insidesales.com

9. Become an angel investor and support other amazing founders by hustling hard for them. Cliche but true, in this town you must add value to get into good deals when you’re writing checks as small as mine.

John Sung Kim investor

10. Start to miss your desk at work. When you had a job. And purpose.

Best Email Tracking for Outlook

Also, even your friends at Facebook seem to be working on interesting projects, and so inevitably you get back to f**king work like a real grown up.

Still, my year off the grid was memorable and I’m glad I had it. Whenever people say crap like, “I wish I could have a year like that, JK,” I always tell them, “if you really want it, then –

Best Email Tool for Outlook for Sales

I Fought One Of America’s Most Powerful Law Firms, And Won.

In 2009, I started a digital health company. One of the first people I hired was a sales rep who I’ll nickname “Bruiser.” 

Our company’s big idea was to get doctors to message with patients by rewarding them not with money (those attempts by earlier startups had mostly failed) but with verified reviews instead.

Whenever we encountered problems Bruiser would declare, “I’m an immigrant from the toughest part of the world — this is nothing.” His confidence gave the rest of us confidence. 

But the more successful our SaaS company became, the more difficult he became. At each growth milestone, he wanted to renegotiate his position with clauses like “anti-dilution guarantees.”

Meanwhile, the business was gaining traction and soon hit $1 million in annual recurring revenues. Before we could celebrate, Bruiser called. He wanted to renegotiate.

I let him go on the spot. “Let’s chat on Monday and figure out your exit package,” I said.

He agreed saying, “I love you but you’re too difficult to work with.”

I remember thinking, “Well that was cordial! I thought he was going to break something.”

On Monday I got a letter from his attorney demanding $750,000.

We didn’t have the money, or an attorney. The closest thing I had was a friend who had just started his own law practice. It was so new I had designed their logo a few months back.

On Monday I gathered my team with my friend the attorney and explained the situation. “I’m worried,” I admitted. “But he’s muscling us and I don’t want to settle. What do you guys think?”

“No. I can’t settle,” said my Operations Manager without hesitation. The others nodded.  We were officially embroiled in my first lawsuit.

We responded letting Bruiser’s lawyer know we were fighting.

And then something unexpected happened. Bruiser’s attorney dropped out of the case. But why?

Using the power of positive thinking, I told my team that Bruiser was likely getting a cheaper lawyer.

A week later we got a letter from Cotchett Pitr McCarthy. They were Bruiser’s new attorneys. Known as “CPM,” they had successfully sued companies like Eastman Kodak and Citigroup. Their founder Joe Cotchett was described by a popular legal website as “The Bully of Bullies” with the subtitle “Why does Joe win so often?” 

So much for positive thinking.

CPM introduced us to their firm by sending in a wheelbarrow of documents four feet tall containing every email, contract or anything thing else that could produced from a commercial laser printer. 

“Total intimidation tactic, so CPM,” marveled my attorney. 

We had an open floor plan and we stared speechless with looks on our faces like the primates in the movie 2001, where the obelisk suddenly appears and confuses the monkeys.

I broke the silence by getting up slowly from my fake Herman Miller chair and announcing, “We’re going to win. I promise you.”

I’m not sure anyone believed me, but I packed my laptop and went home early. I didn’t want anyone to see me looking stressed. Later that night I brought half of that pile home (my attorney graciously took the other half).

It was time to ping my network. My friend Jay was the former in-house counsel for Twitter. A Harvard educated attorney Jay knew technology and the law, he was brilliant.

“John,” he said, “if you were in a knife fight, with CPM Bruiser just brought a gun. You sure you don’t want to settle?”

But I had told my team too much about standing our ground to settle now. If I settled I would lose all credibility.

We continued on as if I was running two operations – my company and this lawsuit. Evenings after work I sifted through documents until I passed out drinking a glass or two of scotch. Maybe three. 

Also, I picked up smoking.

My life kept going on like this until my phone rang at 3:00am one morning.

“Get up!” My attorney was shouting like he just discovered who killed JFK. “What year did you incorporate?”

“2009, I think,” I was still groggy. “What time is it again?”

“And when did you buy the .com domain name for your company?” he asked. “Look at the sales contract that Bruiser signed with a customer. What year did you buy the .com name?!”

To me, it looked like a regular sales contract.

“You incorporated in 2009 but bought the domain name in 2010,” said my attorney. “So why does this sales contract from 2009 say the agreement is with the .com name you bought in 2010?”

“Because he forged these sales contracts,” I said, flabbergasted.

There were other sales contracts with the same error. But why would he do this?

“Because Bruiser plans to show that he was instrumental in the success of the company,” my attorney said.

I immediately called my Operations Manager. “Get up!” I shouted when he picked up the phone.

About a week later we demanded an early deposition of Bruiser from CPM. One of the lead attorneys at CPM asked if we really wanted to do this, saying it was unusual to call such an early deposition. But we called their hand and at the deposition, we presented Bruiser and his attorney with the evidence.

Another week passed and we got a call from CPM. They wanted to settle.

“It’s a fraction of the original demand amount,” my attorney reported.

I balked. “I’ll pay to cover their clerical costs for printing that pile of crap they sent to our office, but that’s it.”

I don’t know a large law firm’s internal cost structure, but I’m guessing Bruiser and CPM walked away with about that and not much else. 

It was also a lesson for me about surrounding yourself with the right people from day one. When I told my managers we were being sued that Monday morning, even though I could see the fear on their faces, not a single one of them sold out their sense of morality for practicality.

And when that inevitable time comes, maybe you shouldn’t either.