Mike – thanks for highlighting the distinction. As you point out, paying full retail for an agency (or consulting shop, IMHO) to build your startup can be a killer. A startup with a competent technical founder and a simple enough app can get away with outsourcing overseas (or locally), though I still think that when complexity enters the picture, it’s time to bring that knowledge in-house.

I do want to point out that what you are suggesting is more outsourcing implementation vs. hiring an agency as I’m sure you well know but all your readers might not. The former still requires you to manage your development whereas the latter is a total hands off “build it for me so I don’t have to think about it.”

Companies you’d outsource to are often from India, Pakistan, Thailand and many other countries in the East whereas agencies are companies like ( here in Atlanta) Response Mine, 360i, Search Discovery, Moxie, and Neboweb. Those agencies provide great services for companies like Home Depot, Coke, Delta, UPS, etc. etc. but would be absolutely the wrong ones to build a startup; too expensive and not agile enough.

Again, I know you know this but your readers might not.

To use Digg as an example, you need to take into account that both the founders had a VERY heavy tech background. They were able to throw a lot of exposure at digg early on because of their positions in the tech world. Also key, is that if push really came to shove… they probably could have hacked something together themselves.

My main caution about agencies, was to the entrepreneurs who think they don’t have to know anything about the tech because they can hire an agency to build them a complete site… most good start-ups are never complete. As you mention, Digg outsourced the first version to get something online… and then began tweaking, improving etc.

Thanks for continuing the conversation.

-Darius