Hiring vs. Outsourcing: How to Recognize the Right Moment to Add Talent to Your Team When deciding whether to hire or outsource, there are a few key considerations.
By Vitaly Alexandrov •
Opinions expressed by Entrepreneur contributors are their own.
One of the many problems startups typically face is a staff shortage. To remedy this, founders can either hire a team or outsource to fill the gaps. While over 300,000 jobs are outsourced annually in the U.S., small businesses are 66% less likely to outsource than large corporations.
There are pros and cons to each option, but there are a few key considerations when deciding whether to outsource or hire.
Assess where to allocate your hiring resources
The hiring strategy for the early stages depends on the market and your company's current stage of development. However, it's vital to build a solid team as early as possible. There are two reasons for this.
First, all founders have skill gaps, and you want to fill these gaps as quickly as you can. Second, you cannot grow without delegation, and you can't delegate if you don't have a strong team backing you. This is a big mistake that I made initially. I thought it was best to do everything myself to save money, but I've since learned that 13% of startups fail because founders try to do too many things at once.
Knowing where to begin the hiring process can be tricky since you have limited resources. In my experience, it's best to hire based on your primary goals. If you're building a unicorn, hire the experts first. If you haven't determined your MVP yet, focus on hiring creatives who will build the product alongside you.
Additionally, even though it might cost a bit more at first, it's often the right move to hand off things like basic accounting, marketing and PR to outside professionals. Research shows that smart outsourcing can increase productivity up to 100-fold, so letting expert agencies handle these non-core functions is a good allocation of resources.
Related: Top 10 Hiring Platforms for Small Business
Recognize that outsourcing is a temporary solution in the early stages and look for in-house hires to replace future outsourcing needs
Deloitte found that 70% of companies that outsource do so to minimize costs. Currently, at least 20% also rely on outsourcing to fast-track speed to market. However, outsourcing shouldn't be a permanent solution.
For Food Rocket, I hired an outside firm to develop our Android app. It was not feasible for us to try to develop this in-house at the time, so I decided to compromise. I chose a reputable firm and onboarded them as a part of our company.
We included them in all important calls, and I ensured they felt fully integrated with our in-house team. Though they were an independent firm, I did my best to help them feel tied to our mission and success so that we ended up with an excellent end product.
It's important to note that this strategy worked, but the cost was about 2.5 times higher than if we had done it ourselves. Did I make the right choice? I think so, but the lesson here is that outsourcing is not a panacea.
I was fortunate that our outsourcing strategy paid off this time. Still, I have also had experiences where outsourcing brings unexpected setbacks. In a previous position, I had to spend an additional two months rewriting outsourced code that was poorly designed.
That experience helped me understand that even when outsourcing is necessary, it's vital to spend that time searching for an in-house hire to bring the outsourced tasks back into the fold.
Related: 5 Reasons Why Hiring Is the Single Most Important Skill for Founders
Hire when passion meets potential in the recruiting process
Analysts estimate that it can cost well over $5,000 to recruit, train and keep a single full-time employee, so you must choose new hires carefully.
The recruiting process can take some time, but don't rush it. The time and money investment is significant in my experience, but the result pays for itself many times over. Because so much of my company hinges on writing code, I'll use this as an example of how to recognize when to hire versus when to outsource.
If you're looking for a product developer and don't have a CTO, then your best option is to outsource to a development company. Not only will it be faster and more cost-efficient, but you will also almost certainly get better results. Brands need qualified CTOs to manage in-house code development, so working with on-demand development firms is a cost-effective solution until you can hire a CTO.
Companies that do have a qualified tech expert on their team should focus on hiring a developer. The process can be long and expensive up-front, but the result is a person who is fully committed to your mission and invested in your success.
Related: What to Consider When Hiring Employees
Remember that right now, ideas and purpose are competitive currency in the recruitment market. When you can find a person whose passion and search for meaningful work dovetails with your mission, that is the right moment to hire.
There's no magical formula that dictates the exact right moment that startups should hire. It will be a slightly different path for every founder, but I think that my experiences can help new businesses avoid some of the pitfalls I encountered along the way.
Remember that outsourcing is a practical solution for startups in the beginning. However, there is plenty of value in seizing the right moment to hire, so don't be afraid to take a risk and expand your team when you meet a skilled recruit that meshes with your company's values.
