Choosing the right vendor if you decide to offshore cannot be stressed enough and the 2/3rd failure rate in getting the right match is perfectly in line as well. There are some tricks in recognizing the right people which you will learn along the way.

The most important thing that in my experience has not been called out has been the understanding of the culture of the place you outsource to. For example: if you outsource to India, culturally most people there tend to not speak up too much unless asked. Knowledge of the place helps a lot in understanding the people generally and hence benefits a lot in communicating with your team.

Following your other articles will be interesting Matt as it seems we are in similar situations.

Excellent article.

I must add that in my own opinion outsourcing your business is something I would greatly avoid.
I am not a big fan of outsourcing and the reason is because I think there’s no one more passionate than yourself or your founders to actually build the product.
Outsourcing your development require you to be very precise and have a complete document as you stated, since the development team is on a monthly or project payroll, they will need to know where they’re heading, what to do and what should be the final product.
There’s little room to shift focus in the middle of the project [for some reason] or tune up or redefining. Each major change would usually bring the development cost to higher levels and make the whole process longer and slower than developement in -house.
I’ve seen it many times, outsourcing usually keeps you from changing and redefining the product on the fly [Forget about using Extreme programming methodologies], It might keep your team focused but your development less flexible and adaptable.

Having your own development team is like a test lab, you can run any test you want, implement some complex process in many ways and pick the best one.

There’s also a lot of positive energy running between the developer regarding your product, usually 50-70% of the best features/ideas comes from your team during or after the development, some of them you address during the development process and implement them immediately, some will end in your road map for future implementation.

When you launch your alpha/beta/gamma product, you usually end up having to do a lot of tweaking, debugging and features implementation, it’s always good to have your own team dealing with theses, being able to be involved on a daily basis in such a crucial stage is always good. There’s no arguing that having all the developers [or at least most of them] in the same location enhance the communication and improves the rate of success of your own startup.

Hope that helps,