Startup outsourcing – Not advisable at early stages.
- Mar 04, 2016
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- In Outsourcing
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Much is said about how outsourcing is the best option for an early stage startup to build their product and make it scale but that’s merely 30-40% of the time when outsourcing succeeds. Nearly 60% of all startup outsourcing efforts usually end up in a failure. Compound this with the case of an early stage Indian startup.
Yes, the above metric is quite impressive and brings good news for all. Most news reports about startups are usually regarding their funding rounds. Such startups can afford outsourcing and have teams of people to work with outsourced resources. But there’s a flipside to this. Let’s not forget that most if not all early stage startups in India are bootstrapped. They don’t have enormous budgets to spend on outsourcing or the resources to manage such projects. They are trying to build a product in one of the most competitive markets today where quicker time to market is a necessity and then there’s the daunting task of finding the best resources for your startup.
Have you outsourced before?
It’s not a game changer but it helps a lot. 75% of development shops in India come with a learning curve. They learn as they work on the project and that’s something you don’t want if you’re bootstrapping. Of the 20-25% remaining companies which are good, the teams need proper guidance in order to develop a meaningful product. Very few development companies offer the kind of advice that a savvy CTO would.
It isn’t always the case that a team with lower billing rates and lesser experience is the worst choice for your product. Here’s where a tech co-founder or engineer with a product development background would come in handy. Such people would be essential for micro managing low experience teams and getting the job done. On the other hand, the absence of such people would make a compelling reason to work with dev. shops having business savvy people. They’re usually more expensive but bring more experience to the table.
Price Comparison between Outsourcing & Hiring
If we were to take a very rough, statistical average on the pricing of design and development resources in India, we would hit the $18/hr mark. The entire range would be anywhere between $8/hr in the high risk firms to $50/hr from some of our country’s elite design firms. Calculating based on the current exchange rate, that’s a ₹200,000 spend on 1 resource for 1 month.
More on current pricing and other trends in the world app development market in our annual report here.
In contrast, the salary you would be paying a resource with a similar skillset and experience is almost one-fourth of that or less. So you pay a premium when you outsource but what is it you’re actually paying for? You pay for the reduced project risk with experienced resources and in turn, save time while going to market with your product. Startups have known to take almost 2-3 months finding the right resource to start building their product. On the other hand, there have been cases where startups have built their prototype or first build in the same time frame.
All isn’t lost yet. With the right recruitment process in place, good resources can be hired. Roping in professional help to get the recruitment done is a good option if engineers are absent in the founding team. Hiring the right people takes time but such resources are worth waiting for. Outsourcing usually works out for startups with the budget and the resources to manage outsourced teams. An early stage startup is better off building their product with a small but effective in house team or outsourcing only a part of the project to keep costs low. The right prioritisation of product features for the first build can also help keep project risks and budgets in check.
Author Bio: Pravir Ramasundaram is our content writer here at ContractIQ. Keep dropping by to read more by him about mobility and outsourcing.