Should A Startup Consider an Outsourcing Model?

Most startups go through a few challenging years, which is why it is crucial to make all the right decisions from the very start.

As most of them are run by a small number of employees due to initial cost reduction strategies, it's only normal for the employees to take on several roles at the same time. However, this approach only works up to a certain level, as it could lead to an overwhelming workload and, consequently, burnout and mistakes.

This is why an outsourcing model could be a smart move for a startup to consider. The question is - should it be done?

Types of Outsourcing

First of all, let's differentiate between several types of outsourcing. Each one of them brings its own specificities and benefits into a startup business.

Outsourcing represents a transfer of various activities done by a specialized supplier. Outsourcing would aim to reduce the number of services inside the company by shortening the supply chain. The main goal is to save money, especially in the areas of development and production.

Offshoring, on the other hand, means certain activities are relocated to another country, anywhere in the world. Depending on the distance between the employer and the contractor, offshoring is divided into two subtypes: nearshoring, which refers to outsourcing to neighboring countries only, and farshoring which means reaching out to remote countries.

Nearshoring is a common practice among companies who outsource their IT processes and the goal is to maximize work efficiency. 

The third option, onshoring, is the exact opposite of offshoring because it stays within the national borders, as certain processes are located nearby. This enables flexibility and improves the cost structure.

Benefits of Outsourcing

Startups need to be economical at the beginning, and outsourcing helps them save money and allows the rest of the in-house team to focus on what they do best. In other words, employees don't have to waste time on mundane activities or processes they are not experienced at, but rather on the activities that are a part of their job description. In the meantime, the right person for a specific job can be found on the other side of the world, sometimes even at a lower price.

Among various benefits of outsourcing for startups, we include easier scaling, which is a necessary move if a startup needs specialists for performing complex tasks. Again, this requires time and money if done internally, and outsourcing can help eliminate these issues, equipping you with a workforce that can complete everything that needs to be done.

Yet another benefit of outsourcing reflects in the fact that one person cannot be the master of all skills. This means that, at some point, a startup will require hiring a specialist with rare expertise. Unfortunately, it is not always possible to find an experienced professional in the area, which leaves outsourcing as the only way to discover the right person - and do it fast.

Similarly, outsourcing provides access to a larger talent pool - no need to look for talented employees locally when the whole world is an open market, overflowing with people with great potential.

Issues to Watch Out for

Although outsourcing brings many benefits, it's not a decision that should be made lightly.

First of all, control is something a startup owner partially gives up on when they hire an external specialist. This person or team doesn't work on-site, so full control at all times is simply not possible.

Communication issues can arise, as well, especially if the contractor is in a different time zone or doesn't have a reliable internet connection when it's most needed.

The security risk is always present to a certain extent when it comes to outsourcing - everyone’s private information and business safety could be threatened while sharing data with people outside the company. This is why caution at all times is necessary.

Lastly, the fact that the startup owner hires external employees can have a negative effect on company culture. The in-house team may feel confused with this move or simply believe they have been replaced.

Roles and Processes for Outsourcing

In general, there are several roles and processes that are most frequently outsourced, and for a good reason.

The first on the list would be the accounting team. Usually, a startup doesn't need a full-time accounting team until it experiences significant growth. Only when there is a major shift in the organizational structure will outsourcing become unnecessary.

HR is yet another department where it is easier to outsource the team members than to look for employees who could take on all the aspects of the job. The same goes for recruiting - startups usually find it difficult to get the best people for specific positions due to the aggressive competition. In fact, around a quarter of employees leave the startup within the first year, so outsourcing a recruiting agency is a much simpler solution than trying to find and recruit people on one's own.

Customer service has also developed greatly in the last few years, becoming a complex communication channel for customers. Luckily, numerous high-quality outsourcing platforms provide startups with this service and the necessary staff.

Real-life Examples

A firm proof that outsourcing can be one of the essential factors of a startup's success is the success of some of the biggest companies in the world today. They all used or still use outsourcing in certain aspects of their business, which helped them thrive, earn profit, and claim their position on the market rather quickly.

Google is perhaps the most famous company that relies on outsourcing. When they decided to outsource phone and email support for AdWords, it became one of their most successful products ever.

Skype, too, made an excellent decision when they decided to outsource the back-end development of their app. The three Estonian developers helped make Skype what it is today - a global business tool.

And let's end with Alibaba - this Chinese company wouldn't have made it if they hadn’t outsourced US-based website developers. At the time they needed high-quality, reliable developers, there simply weren’t any available in China, so they opted for outsourcing the development of their platform and we see how that turned out.

Bottom Line

A startup doesn't have to necessarily be open to outsourcing in order to succeed. However, it is safe to say that outsourcing the right activities or roles at a right time can significantly increase the chances to thrive and prevail.