Three Guidelines for Startups to Succeed in Outsourcing

Even though outsourcing for startups has traditionally been stigmatized as condemned to fail, these guidelines will help you choose the right model for your outsourcing engagement.

Today's global IT outsourcing (ITO) industry sees a general trend of smaller, but more focused offshoring deals and increase of IT budgets for outsourcing engagements. Last year, corporate ITO budgets rose 23% at the median in spite of the general economic downturn and reached $251.7 billion globally. This year, global ITO spending is projected to reach $259 billion and many companies report intentions to outsource their web development projects.

No secret that cost saving alone is no longer a major driver of ITO decisions within the corporate world. What really drives companies of all sizes to transfer IT projects offshore is a domestic talent issue – technical resources in Western Europe and North America are expensive and rather hard to find and companies have to put a lot of efforts into attracting the required skills. Startups would definitely love to bootstrap their development function in a garage and hit it big with a homemade IT product after spending sleepless nights fixing bugs, but reality is a far cry from it. As far as IT resources are concerned, startups have to fight harder than their mid-sized and large peers – this is the reality. Looking beyond domestic IT HR markets is almost a must for those who have ambitions to grow.

However, ITO for startups has traditionally been stigmatized as condemned to fail. Common arguments used are:

  • startups don't have strong operational processes put in place to properly manage an engagement;
  • startups don't have legal departments to make sure vendors don't steal their ideas / copyright;
  • startups can't afford to hire a high profile IT head to build the right outsourcing relationship;
  • startups can't afford to partner with well established service providers and are at risk of signing a deal with a small and non-competent organization;
  • and many more

But most of these arguments disappear after a startup realizes that it's not able to deliver a disruptive product's prototype to an investor as there's no IT genius around willing to join an early-stage company without requiring an equity stake!

So, how can your startup company avoid the above while enjoying the benefits of outsourcing?

1. Never offload your IT project to a vendor and expect everything to be great! Manage your project!

Almost 25% of all ITO deals fail because customers rely too much on their vendors. Besides evaluating vendor's nexus of forces (cloud, social, mobile and big data), you need to evaluate them based on their currently employed IT talent and access to skill pools outside their organizations. But you should also prepare yourself for the venture and hire a good software development manager to oversee the outsourced operations. Many startuppers are techies themselves, but it doesn't mean they're good managers at all! A really good software development manager can write specs, train and coach people on tool use, Agile methods, etc, review and understand the code, do risk management, schedule tasks and budgets and more. Aren't sure you can do all of the above? Hire one who can. Even though your technical project / outsourcing manager will be quite expensive, their competence and managerial skills will save you tons of money in a long run.

That said – don't rely on your offshore vendor to manage the project for you and stay away from those who promise to fully manage your project.

2. Build and nurture your own software development team offshore!

Have your vendor source IT specialists to be hired for your project, but always check CVs and monitor the interview process. If you aren't sure about candidates and their skills set, interview them by yourself to get a clear picture of their strengths and weaknesses. Also, make sure that your ITO vendor advertises your project properly via different online and offline channels and applies headhunting strategies to get right candidates to choose from. Mind that highly qualified geeks may be too busy to know about your project, so additional efforts from your vendor's HR may be needed. The best way to control the situation is to sit together with the vendor's HR team and develop a strong candidate attraction / screening plan with the respective time frames, PR and/or ad campaigns, job descriptions, etc. Sometimes it makes sense to participate in some local IT events or developer meet-and-mix sessions to spread a word about your company and its offshore projects to be executed in a given country.

More about mobile app development company.

A well thought-over approach towards candidate sourcing can be pretty time consuming, but will for sure result in higher quality team members and, thus, fewer bugs at post-production stage.

3. Treat rather than control your offshore Agile team!

Once you've compiled a good software development team offshore, start treating it as your own in-house team or as an organic extension of your internal IT department. Be Agile and implement DevOps for your distributed development to achieve synergy between your in-house and offshore IT teams and ensure positive results.

It's not quite easy to keep your team motivated when you're several thousands kilometers away. The human element is reduced when communication between you and your offshore team is only handled via email and skype. Try to visit your team on vendor's site at least several times a year to face each other and spend some time outside the office to get to better know each other on a personal level. It'll always help you negotiate a compromise and get work done faster!

Apply a reward system to give a pat on your developers' back when they perform above expectations and give them some incentives (both material and non-material) to keep them satisfied and motivated to contribute more into your business success.

So, IT outsourcing can either turn your startup into another failed project or help you leapfrog competitors and become a market or a niche leader. And don't believe those who say there're no startups that succeeded thanks to outsourcing. Just prepare yourself for the venture, partner with a cool vendor as part of your long-term IT strategy, and build your own Agile team offshore with this vendor. Need a more detailed recipe of outsourcing success for startups? Contact us and we'll share one with you!

Sources: Gartner, 2012; Information Week, 2012; TechVibes, 2013

Please note that Intersog's CEO Igor Fedulov will be participating in an upcoming live webinar organized by the German-Austrian-Swiss Outsourcing Association (Outsourcing Verband). This free webinar will aim to explore factors driving modern companies to seek IT talent beyond domestic pools of specialists and shed light on

  • how to access the best offshore IT talent available,
  • how to retain and manage your project team members when they are several time zones away without sacrificing quality of delivery and go-to-market speed, and
  • how to solve major issues in geo-separated IT development environment

We welcome you to sign up and attend the webinar. Useful takeaways are guaranteed!

Vik is our Brand Journalist and Head of Online Marketing / PR with 11+ years of international experience in IT B2B. He's also a guest blog contributor to Business2community, SitePoint, Journal of mHealth, Wearable Valley and other IT portals. You can contact him directly on LinkedIn.

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