Outsourcing Can Be Awesome, But It Can Also Suck

May 29, 2014

11:00 am

This post includes extra content from Startup Mixology, my upcoming book on starting up – including how to prepare yourself for the harsh reality and celebrate positive moments along the way. Go here to pre-order the book (due July 8) and subscribe to updates!

When first starting out, you’ll surely come to a fork in the road where you need to decide whether or not to outsource. The most likely candidate for outsourcing in tech startups is the development team, but it could include other key roles like design or HR. There are pros and cons to both options. Let’s start by talking about development/production outsourcing.

On the positive side, outsourcing is usually cheaper. It’s helpful for tasks or skills that you aren’t an expert at – and if you’re a business person who can’t find a tech cofounder, outsourcing can sometimes be necessary. Skype, the hugely popular VOIP app, was founded in Sweden but originally created by developers in Estonia. Digg, the community news site, was created by a programmer from the outsourcing website eLance. AppSumo, the daily deals company, was built in a weekend for $60 using an outsourced team from Pakistan. Outsourcing can be relatively inexpensive and shockingly fast.

Jinesh Parekh, the CEO of Idyllic Software (a company that does outsourcing projects), explains the benefits of outsourcing with a sports analogy.

“The most important benefit of outsourcing is that you can pass the ball to Michael Jordan to shoot that important milestone for you,” he says. “As long as you pass the ball to Mike, the chances of your success increase exponentially. Hire the expert who can get it done right.”

On the negative side, whomever you outsource to is less invested in your business than a cofounder or employee would be, since outsourcing companies have multiple projects. And if you outsource key roles, it may be harder to create an integrated company culture. In particular, you shouldn’t outsource the key competency of your startup, whether that’s the technology, the content, or the relationships. You may be outsourcing to remote locations, with random people, far from your actual startup. This can be a big negative.

Whether you should outsource also depends on how confident you are in your ability to find the right outsourced team. Here is where your gut-level response again comes into play. How good are you at reading people? Do you know enough technology to distinguish between talented and untalented developers? Have you had experience selecting teams or hiring before? If you feel like you have weaknesses here, enlist an experienced friend or colleague to help you out. They can help you review candidates and decide on the right firm and individuals for your project.

When it comes to other types of outsourcing, like HR, accounting, and legal services, most early-stage startups should outsource. Whether it’s finding a local lawyer or accountant to work with on an ad hoc basis, or working with a professional employer organization to manage payroll/taxes and benefits, you’ll want to benefit from the best experts out there and leverage their resources as much as possible. Talk to others in your local tech community and ask for recommendations.

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Frank Gruber is the cofounder, CEO and Executive Editor of Tech.Co (formerly Tech Cocktail). He is the author of the book, Startup Mixology, Tech Cocktail’s Guide to Building, Growing, and Celebrating Startup Success. He is also a startup advisor and investor to startups. Find Frank Gruber online and follow him on Twitter at @FrankGruber.