Never before have startups been able to do so much with so little. Cloud servers, database solutions and the cost of infrastructure has plummeted. What you used to need several full-time employees for has been replaced by APIs and SaaS tools have turned what used to be a large upfront fixed expenses into cheap monthly subscriptions.
Each of these shifts is a game-changer but the most empowering change of the past decade is access to high quality talent on demand. That’s why it’s no surprise that some of the largest startups in the world leveraged outsourcing when they were starting up.
Alibaba made worldwide headlines when it went public in 2014 with the largest IPO in history. Since its inception the e-commerce giant has opened an avenue for all kinds of companies interested in outsourcing production to China, but in the beginning Alibaba itself actually outsourced much of its development to a U.S. firm before finding its own developers in China.
Alibaba is one high profile example of a company who utilized outsourcing during its development, but they’re not the only one to find a competitive advantage by relying on outsourcing to build their tech.
Take for example the e-commerce design company Fab.com. While the company was in its infancy they found that hiring people in the U.S. at that time was unaffordable and eventually discovered a talented and capable team in Pune, India. The company went on to reach 1 million members faster than Facebook, Twitter or Groupon.
Or look at Skype. Much has been made about the popular internet phone service’s use of an Estonian development team to get its business off the ground. The company continues to challenge the dominance of telecoms across the world and in 2011 sold to Microsoft for US$8.5 billion.
Many companies start with a simple idea, but they need a team of professional programmers to execute in the early stages.
In 2013 barely anyone had heard of the team collaboration tool Slack. It was around that time that the company hired a design firm to help turn their early prototype into a polished product. The outside company designed Slack’s logo, web and mobile apps, and marketing site in about six weeks and most of what you see now remains largely unchanged from those initial designs. Slack is now valued at nearly $3 billion and has more than one million daily users.
JPay is a U.S.-based company that allows users to set up video visitations with inmates in Department of Corrections facilities, county jails or federal prisons. The service also allows anyone to send money or emails to roughly 1.5 million inmates in 35 states. The company was started in 2002 and was helped along by outside developers who built their technology and infrastructure. Workers in India, Israel and China were hired for quality assurance, engineering and hardware development along the way.
For companies like Slack and JPay.com, the outside company handles everything from backend mechanics to frontend design. But for some startups their founders prefer to take a hands-on approach. Joe Fernandes is the founder of Klout, a social media platform that allows users to measure their online impact. In 2008, when he was putting together what was to be his third company, he outsourced much of the development, going so far as to travel to the offshore team’s workplace and sleep on one of the developer’s couches. He stayed there for three months before returning home with a working model. Much of the operation of Klout has been outsourced to other developers while the company’s actual employees number only 40.
Some founders may have a breadth of knowledge in a specific field but not the practical means to pull it off. These founders’ experience helped inspire the initial conceit of the company, but it won’t help them get a working app to market. Squawker is an online negotiation tool that allows users to anonymously negotiate and execute institutional trades. From the beginning their core team had decades of practical experience in the financial world that allowed them to concentrate on the practical applications of the project while they brought in an outside team to develop the functionality and design.
Opera, MySQl, Github and more
These are just a handful of companies that have used outsourcing on their road to success. We could mention many more. Internet browser Opera and open-source database MySQL each relied on outside developers from different countries. Github and Basecamp both used freelancers to see their visions through and the list goes on.
Like anything, there are benefits and drawbacks to using outside talent but the strongest argument for startups are that both the costs and time it takes to hire new employees are too high when you’re in the early stages of getting your idea off the ground.
Each company will approach outsourcing differently regardless of whether it’s IT, app development or some other department. For startups, what it comes down to is what will help the company get to the next stage faster. No matter how much we might think so, in this day and age doing something right doesn’t necessarily mean doing it yourself.