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

Bye Bye, Panda

DoctorBase Founders

In 2009 my buddy Mischa and I wanted to make a ding in the healthcare universe. We were both pretty fed up with the status quo for consumer health, and felt like we could build a communications app that made it much easier for doctors and their patients to communicate digitally.

Man, we learned some really harsh lessons about the American healthcare system. Namely, the folks who control our national healthcare policies at the highest levels make Russian mobsters look like pussies.

  • If you work for the Russian or Ukrainian mob, please know that I have the highest respect for your craft – no insult intended.

DoctorBase was also a lesson in competing with better funded competitors by sticking to your passion for building the best damn product and ignoring the VC hype machine. Our closest competitor HealthXXXX had raised 30x more money than we did, but at the time of our acquisition we were a totally employee-controlled company and was doing almost triple their revenues with nominal churn.

healthtap competitors

This took 5 years to build out completely, and by then it was one of the dominant apps in the market with very little funding or marketing. Of course, VCs passed on us because, well HealthXXXX had raised much more money and that meant they were going to win. A very famous VC said he felt that “HealthXXXX is going to run away with the market.”

Many folks assume my first startup Five9 was more important to me because it became a much, much larger company, but in truth my time at DoctorBase were the best five years of my life (even better than college!). I think it was because we all felt like we were on a mission, and the team was small enough to feel like family.

At the time I sold the company we had about 18,000 doctors communicating electronically with nearly 9 million American patients. We were small, but we were a bad ass gang. I mean, not as bad as Russian mobsters, but still.