Deciding whether or not to outsource work in the early stage of a startup can be a tough call. Outsourcing certain tasks — such as legal, accounting, website hosting, and even HR — obviously make sense. But what about product design, engineering, and PR? There’s no shortage of articles praising the benefits of outsourcing these core tasks and offering examples of companies that have successfully gone this route, but I believe these tasks are better kept in house. Here’s why.
I get why outsourcing is attractive. Building a strong in-house team doesn’t come cheap. And it often challenges entrepreneurs to make hiring decisions they might not be ready to make just yet. Outsourcing seems like a great way to hire a strong team with a proven track record to help you build your MVP quickly and without taking on employees before you’re ready. Why invest in hiring a team when you can probably outsource everything from product design to development to marketing?
At first glance, the costs associated with outsourcing might appear to be lower than doing things in-house, but this isn’t necessarily the case. Agencies are not helping you out of the kindness of their hearts. They’re in it to make money. They might be able to help you build your MVP quickly and for less than it may have cost you if you used an in-house team, but at some point you’re going to need that in-house team. We believe it makes sense to start investing in that team from day one, especially when it comes to those things that will give you a competitive advantage. And there are other issues to consider as well.
It’s hard enough working with a small in-house team to work through the many complex issues that come up during the product development and design phase, let alone trying to communicate your wishes to a team of hired guns. Video conferencing just doesn’t compare with meeting face to face.
It’s also incredibly expensive to work with an agency, as you are financially misaligned with an outsourced team. If they are billing you hourly, they will want to put in as many hours as possible. If they are charging you a fixed rate, they will likewise put in as few hours as possible.
Being able to work with a small team that is personally invested in developing a great product just makes sense. Not only will you be able to directly motivate them with your enthusiasm, you can also motivate them with equity — something you probably can’t do with an agency.
Most (though not all) outsourced shops take a waterfall approach to development: give the team some blueprints and they’ll build you what you want. But considering the need to be agile at this stage, this approach could be frustrating for everyone involved — more so if the team is in another time zone, and worse still if there is a language barrier.
And when you’re ready for the handoff to your internal team, you face another set of challenges. Once you’ve signed a team, the top talent is often re-assigned to attract new clients, so you may find them spending less and less time on your project. Code the “other guy” wrote is always spaghetti to the next developer who takes it on. It’s hard to maintain, much less fix bugs, without being able to figure how how they came to be there in the first place.
PR firms can put a shine on your communications that’s hard to beat. And it could be that someday you’ll need their incredibly pricey services, but I think it’s a huge mistake to outsource the telling of your story in the early days of growing your company. The presentation might be slicker with a PR firm, but it will also lack authenticity.
Many startups outsource human resources, and I can see some advantage to this. But when it comes to recruiting, especially for early-stage companies, I believe strongly that CEOs need to be involved in the process. Those early hires are going to be critical to the success of your business, meaning you have to take on this responsibility yourself. Expecting another company to know who is right for your business just doesn’t make sense.
So is there no way to capitalize on the benefits of outsourcing while eliminating the negatives? We think so, and this, in part, is why Stanley Park Ventures is following the startup studio model. Startup studios typically employ design, development, legal, and accounting professionals, who are made available to the companies under its roof. Our entrepreneurs can outsource tasks to an in-house team that deliver all of the advantages of contractors with fewer of the risks.