The budget

It seems like early stage custom software development project budgets are almost always set the wrong way. If I had a hundred bucks for every prospective client that has come to Terralien with a $10,000 budget, I’d probably have enough money to fund my own startup.

How do so many of them end up with this same exact number? I think it’s a combination of several things:

  • a gut feeling (what they think it should cost),
  • some informed opinion (their cousin’s friend said most apps cost $5,000-$10,000 and “don’t let anybody tell you otherwise”), or
  • a calculation based on the going rate for freelancers ($100 bucks an hour X 100 hours [that should be plenty, right?] = $10,000).

As interesting as all these are (and there are probably many more), I’d like to explore the last one first.

h2. The rate

What’s in a rate anyway? With all the available coders out there, I just need to find the cheapest guy I trust – right? Wrong.

I’ve had lots of people ask me to explain why they should work with a company like Terralien instead of just finding a freelancer who will work for a lower hourly rate. The fact is, there’s more to the overall project budget than just the hourly rate.

It’s never just one…

There are some really great freelancers out there. For most entrepreneurs, though, it isn’t a question of finding just one awesome person. The average project takes at least 2 and often 3 (if you’ve got a web and a mobile component) people.

When you have to build a team of technical and design aces you’re going to have to weed through a lot of individuals and – hopefully – avoid the ones that spell disaster for your project and your new business.

And then there’s the ‘cost’ of your time…

Working with freelancers seems to be a cheaper option because their hourly rate is lower. Most entrepreneurs who focus on the rate miss the fact that their time costs something too. It’s easy to downplay the value of your time but every entrepreneur has the same 24 hour limit to the day. Making sure you’re getting what you need, keeping track of how much you spend and resolving differences within your patchwork team can be time consuming and distract you from building the core of your new business.

5 questions you should ask

Here are 5 questions you should ask yourself before deciding the lower freelance rate is actually cheaper than working with an established team:

  1. Do you personally know and trust enough awesome freelance web developers, mobile developers, user experience designers and graphic design pros to assemble an amazing team?
  2. If you’re managing those freelancers and the project details, who’s building the business?
  3. Who will you call when the server goes down and you can’t reach your freelancer?
  4. What options do you have when your designer and developer don’t agree?
  5. How much time do you have to find another freelancer if the one you picked doesn’t work out?

You can work through these questions with just about any freelancer. Ultimately, if you pick the wrong one, you always have the choice to pull the plug since you’re paying the bill.

Think I’m suggesting freelancers are a bad option? You’re probably missing the point.

If you do find one of the great ones, you should absolutely work with them. Not based on their rate – but based on how awesome they are. Just realize that awesomeness comes with a price tag that’s above average.

The real question

Are you building an application or a company?

The reality of starting a business is that there’s more to it than just building an application.

If you’re going to be successful, you’ve got to fit in more than just managing your technology processes. You’ve got customer development, business modeling, relationship building, funding and a host of other critical pieces.

The choice to pay a little more for an experienced team of aces might just be worthwhile if it gives you the time to create a successful business in addition to your really great website, iPhone app or web application.

Posted by Dave Bates on Mar 1st, 2011

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