Start-ups and early-stage companies often face the same problem: how to cost-efficiently construct a high-quality tech team. The choice between insourcing and outsourcing – whether through nearshoring or offshoring – isn’t necessarily simple. That’s because in those first few years your company’s tech needs won’t stay the same for long.
Each solution has its own advantages unique to those different stages. Here we debate exactly when they’re most appropriate.
Insourcing is arguably vital for companies at certain inflexion points. To be a viable candidate for Series A investment, it’s crucial that a company – particularly a SaaS company – can show that it owns its product. Many venture firms would go as far as to cite insourcing as a condition of investment. This doesn’t necessarily mean that the company has only ever insourced. It may well have completed the proof of concept externally due to budget constraints, but then brought the product itself in-house to have full control.
Insourcing has proven particularly popular amongst SaaS companies, as technology is the core IP of their business. Elevaate.com’s cloud product, Dibbz’s advertising solution, Currency Cloud’s payment engine and Quill’s content management software have all stemmed from an in-house approach.
This method also has its benefits for older companies. Insourcing can be an important step for those looking to transition smoothly from more old-fashioned SOW practices towards more flexible, agile models of working.
Keeping your team entirely in-house, however, is expensive – both in terms of money and time. For businesses going through a period of flux or rapid growth, nearshoring is often more suitable. That’s because it gives you the chance to flex up or down as and when needed. As well as having obvious cost advantages, it also reduces the impact of change on your team. It’s far less damaging, for example, to flex down than to make redundancies.
One company that’s nearshored in response to a period of rapid growth is Just Eat. It wanted to work on a significant platform consolidation programme without compromising core product development, which proved difficult to accomplish with a team of only seven. That’s why it turned to Ciklum, who allowed them to temporarily grow their team with 24 more tech professionals.
Dacadoo wanted to reduce their costs by outsourcing. They still, however, wanted a team in the same time zone and close enough to make travel possible, which was why they decided to nearshore with a team in the Ukraine. This allowed them to successfully deliver their project of developing their apps without such high overheads.
Sage took a similar approach by using SMT software to create a document-exchange portal. This helped it to expand its capabilities without building the technology in-house.
But what if you have fewer financial resources to draw on? For companies operating within a very fixed price range, the T&M nature of nearshoring can be a disadvantage. Offshoring is generally run on an SOW basis, making it much easier to set a fixed price for a project. Burst Media (now RhythmOne) took this approach for its cross-platform advertising tech, needing to work within a set budget.
Offshoring is particularly useful for projects that have a clearly defined end product that won’t need refinement throughout the process. This is largely because a collaboration with a team that’s both geographically and culturally distant often requires working to a rigid stage-gate or waterfall-style workflow.
Offshoring tends to be most common at inflection points of multi-directional expansion, when a lot of non-core projects need to be realised.
Web3Mavens also uses offshoring to keep to a strict budget. It works with trusted tech companies in India to counter the problem of finding low-cost software engineers. This lets Web3Mavens augment the in-house dev team quicker – and more cheaply – than it could through insourcing or near-shoring.
So should you insource, nearshore or offshore?
This is really a question of what stage your business is at in its development and of how important the technology is to the core business IP. Are you working towards Series A investment, or have you just completed your proof of concept? If so, insourcing is likely to be the smartest choice, putting you in the strongest position to raise funding for your next period of growth. If you’re in a flux period or have BAU work such as platform maintenance and have sufficient budget, near-shoring is ideal for getting your tech capability to where it needs to be without over-resourcing internally. If you have financial constraints, offshoring can be a sensible solution, but it’s essential to know exactly what you want – and be aware: quality is not always consistent.
Whichever option you choose today, the key is to recognise it might not be the one you need a year from now. To develop a truly cost-efficient, scalable tech team, you need to interrogate your priorities on a regular basis, ensuring your recruitment solution fits your current problem.
Post produced in partnership with James Goodrich at Albany Partners.