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To: Elroy who wrote (67596)	4/14/2005 1:10:27 AM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 77400

LOOKING OFFSHORE INVESTORS VC firms push for outsourcing There isn't a board meeting that goes by that we don't ask, 'Why aren't you being more aggressive (with software development) in India and China?' '' said Jim Breyer, managing general partner of the Palo Alto venture firm Accel Partners, which has backed more than 200 companies. And Accel is not alone. Other VCs are sending the same message, and entrepreneurs have heard it loud and clear. Many are rushing to embrace the offshoring trend. sfgate.com (I would love to know how the US economy is supposed to "innovate itself out of this" since these are STARTUP COMPANIES in silicon valley that are staffing offshore- notice nobody calls this comparative advantage anymore)

To: Elroy who wrote (67596)	4/14/2005 2:31:00 AM
From: Amy J	Read Replies (1) \| Respond to of 77400

Elroy, we were as far as I know the first startup that did offshoring of sw dev. I painfully had to educate VCs on offshoring. Once one does it, the others see, then copy. But initially, you would not believe the pure look of surprise when we told VCs we had a development team overseas. Shocked. We had to educate them about what offshoring is (the word offshoring wasn't even around, so we called it overseas development) and why we are doing it. Initially, there was real resistance to offshoring too - I remember being informed how many times they would expect us to visit the overseas site to ensure the company would work seemlessly. No one else is doing offshoring so why are we doing it? It was truly novel for them to understand it - there were debates about how cohesive a company could be if it were located in different places, and back then the VCs perceived risk in offshoring. It's interesting how slow they were to come around, when you look back. VCs don't like to be first with a new trend. As one spouse of a VC said, you can't get fired for following a trend, but you can get fired for doing something new. In a nutshell, VCs have a herd mentality. Of course, now that offshoring is all the vogue, they are in my opinion overdoing it, blindly so without detailed thought and consideration of some very important key aspects that can sink a company if it's not done right. Additionally, it's a decision that actually shouldn't be made at the board level, because at that level they will not fully grasp the details of what ground work is necessary to put in place before doing offshoring as well as what is appropriate to send overseas and what is not. A VC should simply hold a team to their numbers and grill them on why or why they aren't doing something but not micromanage the specifics. I heard from a startup CEO that he feels so much pressure to offshore purely because he is afraid he will get fired by their VCs if they don't offshore. He just wants to be able to say, yes, it's done. You can tell there are people out there that don't care enough about their companies, only their short-term jobs. So these CEOs just run right into offshoring without thinking it through like chickens without heads, just so they do not lose their jobs. I get annoyed when I see this because the motivations of these types of CEOs (acting like hired hands rather than owners) are purely for themselves in an immediate fashion, rather than what's good for their company and for building value - which means they are putting their company at risk by not doing offshoring in a very careful manner. It's really disrespectful to the founders and employees that want to see their companies do well. There are still too many CEOs in the system that are short-term. Offshoring needs to be a really well thought out strategic move, not an unplanned initiative simply so the CEO doesn't lose his or her job. Offshoring is absolutely not something a company's ceo should run off and do without having the real hardcore ground work layed out that you absolutely must have in place before executing. You absolutely must have certain things in place. I'm not going to list out all that needs to be done in order to have a successful offshore, because I'd like to see a few of the self-serving ceos of some startups get filtered out of the system after they lose their jobs for not getting the ground work in place. They are like chickens running around without heads and that's disrespectful to the entrepreneurs and employees out there that have spent a lot of hard work getting their companies through this downturn successfully. Is offshoring good? Yes. Is it 'blindly' good? No. Do you have to put ground work into place? Absolutely yes, certain ground work is absolutely mandatory. Do ceos know what this is? No. Do you do offshoring without carefully figuring out specifics? No. It's interesting to hear how some ceo's basically fudge their plans to their vc's. You ask a ceo a couple specifics to their plan, and you can tell they just put one together and have absolutely no ground work layed out. I'm sure Lizzie is hearing this too because it's a pattern in the Valley. When VCs poke, I think they are told some great lines of bull. I am very empathetic to a ceo's pressures, absolutely am, but not to self-serving approaches that are disrespectful to building long-term value in a company. It is annoying when a ceo is disrespectful to building value for the people that founded a company and the employees that built it. There's too much of that going around. OTOH, sometimes they are so self-serving, they manage to right-size just in the knick of time. You asked Lizzie this, RE: "It can't be both a long term trend and not cost effective. If it isn't a superior method, companies will revert to the old method. If it is a superior method, then you're wrong." I believe startup ceo's that don't know how to do it right, will get weeded out of the system. VCs are focused on offshoring because it's still relatively new to them. But once it becomes old and more importantly, once the VC's returns are back in the 40s (last year VC industry had around 20% ROI), they will focus less on it as their be-all solution. Right now cost cutting is still an obsession, rather than innovation. I'm absolutely positive the ceos of stem cell companies don't have their VCs breathing down their necks asking them to offshore their RND. I believe the large companies do not fully understand all of the intangible costs in offshoring, especially IP cozts and future industry catalysts, possibly not really understanding who is where, what is what, and what country is at what phase for what things and so will simply continue fast-forwarding their offshoring in a blind fashion. As a point of reference, one Fortune 500 CEO visited his offshore site located at one of the super power countries and unknown to him, the entire offshore site was told (mandated) to tell the CEO "everything is fine", even though there was a problem. Heads down. You just gringe and hope these CEOs get more on top of it. They truly don't understand the offshore culture. Regards, Amy J

To: Elroy who wrote (67596)	4/14/2005 7:11:59 AM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

Elroy, it's because IT departments aren't very good at measuring long term costs of outsourcing. All they and the Finance departments see is the fact that wages in India are 1/3 of what they are here. So to them it is a no brainer. But the real problems come later, when you realize the number of bugs per code unit (e.g. bugs per class) is much higher in India. Then there are other hidden costs, such as technical architecture that is completely inflexible and won't stand up to repeated requests for new functionality. The smarter companies (my own included) typically get our American engineers to do the architecture including detailed object models, class diagrams, data flow diagrams, etc. Then we offshore the coding part, the fleshing out of the architecture, to India. But if companies are leaving the architecture to India, then they will be disappointed, because there are a lot of hidden costs involved there. They will find themselves having to rewrite entire architectures and all the code that goes with it to accommodate future new functionalities. This is where lower wages start to get offset by increased maintenance costs over the longer term. Again, however, IT depts and Finance depts don't typically included maintenance costs in their final analysis of whether outsourcing was worth it or not. Thus the false sense of money savings.

To: Elroy who wrote (67596)	4/14/2005 11:41:35 AM
From: pfalk	Read Replies (2) \| Respond to of 77400

Elroy, Of course it can be both a long term trend AND not cost effective. You are assuming there are NO inefficiencies in the economy. To see that this is not always the case, just look at corruption in Latin America - Corruption is both long-term and inefficient. The reason it is long term is because once the Venture Capital firms have decided to demand that all startup do their develoment in India, then there will be very few startups that can disprove the wisdom of this strategy (because they will not be funded). This trend could easily last a decade, that's long term to me. Peter