Lesson #175: In-House Teams or Outsourced Services for Startups?

Entrepreneurs have many options to consider, in terms of how they go about building their businesses or seeking help.  Today's post will address the plusses and minuses of in-house teams vs. outsourced services, and when each road should be considered.

IN-HOUSE TEAMS

Let’s face it, where you can afford it, building your in-house team is great way to build your startup.  You can hand-select and train your staff, they are solely committed to your work and you can directly control their pace of work and what they are working on.  And, hopefully, all key employees have an equity-stake in your business, and have a vested interest to work hard and see it succeed.

But, this makes a big assumption:  that the startup founder actually knows how to identify what roles and responsibilities are needed for success, and what desired skillsets would be most needed in filling those positions.  Many first-time entrepreneurs often struggle in this regard, and often end up hiring the wrong founding team, poorly investing their precious startup capital, which may not still be there for them to fix any needed staff changes down the road.

Takeaway:  When you have the budgets and the know-how, building in-house teams is typically the preferred way to go.

OUTSOURCED SERVICES

For a first-time or time-constrained entrepreneur, the allure of outsourcing every aspect of their business carries a certain appeal.  This could include engaging consultants to help with strategy, technology development firms to build their product or marketing agencies to assist with search engines, social media or public relations, as examples.

But, the problems with this route are numerous.  Outsourcing services can often be more expensive, as these agencies layer in their profit margins.  And, because they are not all part of the same employee base managed by a central team, the communications and directions between the various agencies can often by inconsistent and not well-coordinated or managed.

Takeaway:  When you are not sure how to do something and are looking for a quick and easy solution, outsourced services can be considered (provided all parties clear on goals and being tightly managed), until you feel comfortable internalizing such needs.

HYBRID MODELS

Because of the above, some entrepreneurs decide to implement a hybrid solution, a mix of both in-house and outsourced teams.  Typically, they would internalize any mission critical efforts (e.g., their core product development efforts), and outsource functions that are less important (e.g., the CFO who closes the financial books at the end of each month).  This seems to be a very practical way to go.

Or, oftentimes, good startup entrepreneurs will try to surround themselves by key advisors, mentors or peers, to complement their own skillsets.  This obviously is much easier in big startup city ecosystems with deep bases of talent (e.g., San Francisco, Boston, New York, Chicago).  And, if not easily created on your own, many startup accelerators and incubators have created that network for you, at the cost of giving up equity in your business to participate, having to locate your business at their location or being required to participate for some minimum period of time (e.g., 12 weeks).

Takeaway:  It is not all or nothing when it comes to talent.  Internalize what is mission critical and outsource what is not.  And, when outsourcing, decide if professional service providers (do-it-for-me) or startup incubators and accelerators (do-it-yourself), makes best sense for your business.

NEW MODEL

Based on Red Rocket's involvement with the Ensemble Alliance, we are starting to see a new category beginning to emerge.  There are startups that don’t have the time or willingness to give up equity to a startup incubator or accelerator (or did not get accepted), and don’t have the budget for multi-month outsourced startup excubators, but need a swat team to quickly and cheaply come in and make sure they are heading in the right direction (because they are not in a big startup ecosystem or do not have an adequate mentor/advisor network of their own).  Ensemble launched its one-day Presto bootcamp, to fill this void with professional digital experts who have made themselves available at an affordable price (e.g., $5,000, with no equity required) and a quick turnaround (e.g., one-day bootcamp and business plan, so you can get back to focusing on your business).

Takeaway:  Now there is a solution for everyone and anyone that needs help, not just the lucky few who get accepted into startup incubator or accelerator programs.  Especially, if you are more of the "do-it-yourself" mindset, but are looking for experts to "sanity check" your stand-alone plans.

CONCLUSION

There is not one correct answer here.  Each startup is different based on the skillsets of their founder and robustness of their entrepreneurial community.  But, one thing is perfectly clear:  startups need help.  And, you should make sure you are getting it, from whichever model works best for your business.

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