When should a Startup outsource?

The hectic first days – or years – of a startup can be a stressful time, with tight budgets and time and a drive to get a service or product to market. With that in mind, many new CEOs look to outsource tasks. But how to know what is worth outsourcing, and what’s better done in-house? We reached out to entrepreneurs for their take on when to outsource, what can make the biggest impact to their business growth, and what others who are starting out should know.

When does it make sense to Outsource?

Depending on the size of your business and the product or service you’re offering, this answer can vary quite a bit. For Randall Jamail, Founder and CEO of the parking app Pavemint, it made sense to outsource some of the bigger tasks his company was working on from the get-go.

“In the case of Pavemint, where we chose to go to market with a maximum viable product, outsourcing our development was essential,” Jamail said. “We chose to contract with Silicon Software Group for engineering and development in order to launch with a very robust and deeply developed product that is more consistent with a 3.0 stage or later. Developing and engineering in-house would have required the hiring of a CTO and at least 3 engineers, whereas outsourcing the development to SVSG allowed us to complete the app with our CPO both overseeing development and focusing on user experience. Ultimately, this has resulted in not only significant savings but also an enhanced user experience.”

Georgene Huang, Founder of Fairygodboss, also hired third-party developers right away because she felt it was the quickest and cheapest way to get a viable product up and running.

“To do so remotely cuts down the costs and time for making a full-time hire and I am of the firm belief that speed-to-market and testing your idea with a real product and seeing user reaction to it is better feedback on your business / product idea than time spent on recruiting that first developer,” Huang said. “However, since our early days and to scale up in the long-term, we’ve since brought on a development team in-house as we continue to grow and develop new products.

That’s not a trajectory everyone takes. Paul Koger, Head Trader and Founder of Foxy Trades LLC, said outsourcing more non-core tasks from accounting to legal has been a successful strategy.

“Our company is outsourcing everything that is not related to our core business,” Koger said. “This allows us to not spend time on low impact actions that we really have no business of doing in the first place. Our income comes from doing what we know and doing it better than our competitors.”

Laura Renner, Founder of Freedom Makers Virtual Assistant Services, which provides military spouses as virtual assistants to small business owners, says that as a smaller startup she uses three main criteria to determine what to outsource and what should stay in-house.

“Is there enough work for it to be full-time? If no, then outsource,” Renner said. “For instance, bookkeeping, legal issues, web design, etc., I have outsourced because I do not need them often enough to have them in house at this time. We just aren’t big enough.

“Is it in my wheelhouse? I don’t know anything about marketing strategy but don’t have a full-time need for it, so I’ve outsourced to a marketing consultant. Further, I’m not so good at details when it comes to logistics, so my first hires took on those types of roles.

“Is it critical to my business (or part of my business model)? I made the mistake many small business owners make in the beginning: I tried to outsource sales. At such an early stage and small scale, no one can sell our services better than me. So until we’re bigger, I handle all sales calls but others (still in house) handle the details afterward.”

 

What outsourced services can make the biggest impact on a startup’s success

Where can startups get the biggest bang for their buck when they do outsource? Again, it depends on the goals and products.

“We outsource our SEO manager, which has been truly beneficial for our business since our manager is an expert in that field,” said Dana Case, Director of Operations, MyCorporation.com. “It made sense for us to outsource the position because our manager is driven and works hard to provide us with the knowledge on how SEO works by sending us reports that outline everything going on.”

William Gadea, Creative Director and Founder of IdeaRocket LLC, said outsourcing bookkeeping has had a positive impact for his business.

“Trying to do the books in-house really distorted our hiring: we needed to find someone that either knew how to keep books, or had the personality and disposition to learn how, rather than just looking for someone with the core skills that would serve our mission,” Gadea said. “By outsourcing to a book-keeping company, the time spent on quality control has gone down. The reason it was successful was that there was a clear deliverable that we had visibility over. When outsourcing hasn’t worked for us (SEO, for instance) we didn’t have a view of the process, so there was always a trust and accountability problem.”

 

How do you define what a successful outsourced project is?

Gadea’s point about a clear deliverable is one parameter startups can use to determine how effective a third-party’s work has been. Another is the pickup in business.

Kristina Oates, an entrepreneur working in the Twin Cities area who owns and operates Tidy Touch, says when she realized the importance of digital marketing, she quickly decided to outsource the job to another small business working within my region.

“I knew that digital marketing required a unique kind of expertise and that learning to master it might not be the best use of my time,” Oates said. “Since bringing on the company that does our marketing, we’ve actually had to slow down our efforts since we’ve been operating at capacity. I think that it makes sense to keep marketing in-house while your company is growing. At that point, you can spend time on learning the ins and outs of it. However, once my company grew, I knew that my time would be better spent somewhere else and that I wanted my employees to focus on what we’re great at – operations and execution.”

Steve Pritchard, Founder of Cuuver, says outsourcing content writing has made a noticeable difference on his website’s traffic.  “We have outsourced our content writing to an agency to provide web content and blog articles; currently, they are writing three a week for us and this constant uploading of fresh written work has already seen our rankings improve,” he said.

 

Lessons Learned

Sometimes outsourcing work isn’t cut-and-dried.

Christian Muntean, Principal with Vantage Consulting, says he’s learned a few lessons around when it makes sense to outsource, and things to keep in mind when a business does choose to outsource:

  • “Invest In Financial Information and Management: For your financials (bookkeeping, accounting, etc) get the best professionally qualified help you can afford. Whether this is outsourced or in-house. Many start-ups try to go cheap here. By doing so the spend far too much time to, usually, do a poor job. Get a professional.
  • Let Revenue Be Your Guide: Generally, don’t bring a non-revenue generating position in-house unless overall revenue justifies it. In a business, a non-revenue generating employee should measurably allow others to generate more revenue.
  • Cost or Reliability?: There is a difference between outsourcing to an agency or to an individual. An agency might cost more but they are more likely able to offer you the reliability you need. An individual may cost less but at the cost of reliability. Either can be fine. I have individuals do graphic design gigs. I hire an agency for bookkeeping and admin support.
  • Protect Sensitive Information: If there is proprietary, confidential or sensitive information involved, make sure you take precautions. Hire & outsource to reputable providers. Ensure that you’ve had both in-house and out-sourced help sign appropriate non-disclosure agreements. You can’t prevent either from leaking or stealing data or intellectual property. But you can make it easier to resolve the issue if it happens.”

 

Jeff Kear, Owner of Planning Pod, says he learned two crucial lessons when deciding on whether to outsource tasks and responsibilities.

“First, you should create a specific, exhaustive list of needs and goals regarding the tasks you need completed and then determine how much you would pay a full-time employee with the experience to complete that work (I used https://www.glassdoor.com/ and https://www.indeed.com/ to find salary estimates for my area),” Kear said. “This gives you good sense of how much to spend on the outsourced talent, as you can back out your budget from here. Second, you should use this list to thoroughly vet potential firms or contractors and not settle for anyone unless they meet all the criteria.”

Marcus Harjani, Co-Founder and Chief Operating Officer at Famemoose.com, said an important distinction to make is that between independent contractor and employee. “While this topic is a large one, a basic understanding of when a worker labeled as an independent contractor may nonetheless be construed as an employee can get a company into some troubled waters,” Harjani said. “We address this problem by having an explicit focus on the nature of the outsourced work and processes in place to ensure compliance with our policies.”

Outsourcing can be a great way to get all of the myriad tasks that are so important to a business running smoothly under control. If your startup or small business does decide to go that route, take the time to define what the goals are for that position, how to measure success, and for how long you plan to outsource. That way everyone will be on the same page and you’ll accomplish at least one important goal – maximizing time spent doing what you do best and boosting your business.

 

 

 

 

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