Learn and engage on various business topics and lessons with the Partners at Red Rocket. This blog serves as an executive's strategic "playbook", with actionable "how-to" lessons on a wide range of topics, including business, strategy, sales, marketing, technology, operations, human resources, finance, fund raising and more. Click the index link below to dig in by topic.
Monday, April 28, 2014
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.
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.
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
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.
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.
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.
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.
For future posts, please follow me on Twitter at: @georgedeeb.