Finding the Right Balance: Hiring or Outsourcing for Your High-Potential Startup Team

 

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This article is co-authored with Sera Evcimen of The Builder Circle by Pratik.

Considering whether to hire or outsource is an exciting time for any startup founder. It signifies that you have the necessary funds and a well-defined development and growth plan, and now you require additional manpower to execute your vision. This article aims to explore the advantages and disadvantages of both hiring and outsourcing, providing you with trigger questions to help you make an informed decision.

Before delving into the details, it is crucial to ensure that your product development plan has matured in terms of time and product requirements. Additionally, having a clear understanding of the skills available in your current team versus the skills required for your envisioned product development is essential. If you haven't yet addressed these areas, it would be beneficial to invest time into roadmap and skill planning. For insights into effective skill management, you may refer to "Composing a Team: It's All About Skills" [link].

Whether you choose to hire permanent team members or opt for outsourcing, it is important to acknowledge that recruitment and onboarding demand time and attention. Contrary to common belief, outsourcing can require a significant amount of effort, unless you already possess a well-established network of reliable consultants.

Photo by Tim Mossholder on Unsplash

So, when should you consider hiring?

Hiring should be your first choice under the following circumstances:

• The required skills are vital for the core development of your product and contribute to the company's intellectual property.
• The position necessitates a long-term, full-time commitment or a long-term mutual part-time commitment.
• The new employee is expected to shape the long-term strategy within their area of expertise, be it engineering or management.
• The team has consistently hit blockers or had headaches due to shortage of the role. Making sure it is a consistent problem that's being solved instead of a short-term issue that could be solved with a consultant.
• A candidate possesses the perfect fit in terms of culture and attitude, demonstrating the willingness and ability to pivot, lead, execute, motivate, and inspire. Skills can be trained, but attitude cannot!

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On the other hand, outsourcing might be a suitable option in the following situations:

• The work to be outsourced is a one-time standardized development task, such as a specific component, which can be clearly defined and executed independently from other development activities by establishing clear interfaces.
• The required skills are highly specialized and not needed on a full-time or long-term basis, but rather at an expert level.
• Short-term access to expert knowledge is necessary, including on-the-job training for your internal employees.
• Time sensitivity is a key factor, requiring immediate availability of manpower and specialized skills, either as a temporary solution until a permanent employee is onboard or due to peak situations.

Recommended steps for decision making

Risk Assessment: Analyze the risk associated with the development of a certain component in terms of quality and time. Joint development for complex and critical components can be less risky and faster with leveraging partner's knowledge. It will also upsmart your own team when the skills are not yet sufficient in this particular area.

• Assessing the risk associated with the development of a specific component in terms of quality and time is crucial. Joint development with a trusted partner can be a less risky and faster option, especially when your team's skills in that particular area are not yet sufficient.

Build a Resource Network: In any case, you may want to start building a trusted network of potential outside partners, get some quotes, ask your advisors, mentors or peer founders for references. It will enable you to cost-compare easily in the future and adds flexibility since it allows you to upscale (and downscale) more easily.

• To ensure flexibility and cost-effectiveness in the future, it's advisable to start building a network of potential outside partners. Seek quotes, ask for recommendations from advisors, mentors, or other startup founders. This will enable you to easily compare costs and scale your resources up or down as needed.
• Before outsourcing, assess your team's ability to communicate with and manage contractors and consultants. Clear communication is crucial when outsourcing to ensure your vision is understood and executed correctly.

Cost Analysis: Evaluate your budget and do a cost comparison for the position or work package in question. 

• Perform a detailed cost-benefit analysis that takes into account both short-term and long-term factors, such as quality, expertise building, legal arrangements, and time. This will help you make an informed decision on whether hiring in-house or outsourcing is the more advantageous option for your startup.

Variants of outsourcing

Work packages

Classic engineering work, defined in a Scope of Work with a defined deliverable e.g. development of attachment brackets, development of environmental protective case for electronics

Contractor

Special know-how induced into your core team e.g. unique simulation testing of your design, (independent) supplier quality check, hiring support. Make sure your contrator is motivated and skilled to work hands-on!

Interim Management

Time-restricted part-time or full time hands-on management e.g. in case of sudden quality run-away, peak project management, peak manufacturing surveillance

Photo by Tim Mossholder on Unsplash

Last but not least

To put it with Sera Evcimen words - a large workforce doesn’t tell anything about a healthy hardware company, it may even tell the opposite.

Start asking yourself 3 simple questions:

Do we need manpower due to poor, inefficient processes?

If yes, work on the process optimization - you may consider temporary outside help in form of interim managers who work closely and hands-on with your team.

Hiring permanent employees would manifest inefficiencies and you’ll lose your competitive edge and reduce your runway.

Do we still work on Product-Market-Fit and MVP with pivoting likely required?

If yes, consider short-term outside support on the most urgent challenges until you have figured out a firm product development strategy when looking for expert skills. Hiring an expert who is specifically aligned with your current strategy may become disillusioned if your direction changes significantly.

Do we require the associated skills / manpower only for a short period of time or only at certain development stages?

If yes, consider spot-on outside help, pre-arranged and thoroughly contracted over your project's development time. While an expert with the necessary skills might lack motivation and enthusiasm when constantly asked to work outside their area of expertise, a contractor or interim manager could joyfully mentor your internal team and enhance their skills while working hands-on to solve your challenges.

Have fun building your internal team and network of outside supporters. And feel free to reach out to Nicole Noack and Sera Evcimen in case of any questions - or when looking to outsource!

And if you'd like some more inputs, listen to The Builder Circle by Pratik podcast episode featuring Bridget Hunter-Jones in "Navigating the Full Product Development Lifecycle"