It doesn’t matter if a startup is housed in a garage, a dorm room or at a kitchen table, but there is one rule: there is no better situation than people being physically present.
However, some rules are meant to be broken and with this one, there is both room and reason to do so.
Local talent is costly. While it is ideal to have your employees working in one place, it is also the most expensive option. Competition for the best talent—and high salaries that result from that—make it especially costly in Silicon Valley and New York. Startups are hard-pressed for cash and outsourcing some of the non-core work could be a way to save money.
Physical presence unnecessarily limits you to a specific geography. Talent is all over, so you could argue that an entrepreneur should find best talent wherever it is. With access to employees worldwide, you also may save money, because you won’t have to pay a premium for employees within your geography.
Of course these solutions are not without risk.
Outsourcing comes with overhead. There will be more interactions online than if someone were in the office, because working from a distance requires more communication about expectations and progress. What’s easy to identify in person—the progress on a project, the mood of a team — is harder to discern at a distance. You still have to provide governance and oversight, but management doesn’t come from walking around an office; you have to implement other checkpoints.
New challenges are introduced. In many cases you will have to overcome time differences, language barriers and the challenge of operating at a distance, which makes seeing what is happening more challenging. Very likely, there may also be some quality challenges to address.
So what do you do? You need to figure out what’s core and what’s not in order to determine what you can outsource versus keep in house. In the early days, you should not outsource mission critical sales, engineering or anything that gives you traction. (However you may consider outsourcing work like bug fixes or pieces of quality assurance).
There are functions that make sense to initially outsource and then ultimately bring in house. It’s not necessary to hire an administrative staff on the first day. You can outsource legal, HR and some of the financial functions such as accounts payable, accounts receivable, etc.
And, finally, there are functions that you should outsource. Most of the companies in our WIN portfolio outsource the majority of their computer operations staff to manage their data center to vendors like Rackspace or Amazon Web Services. It makes complete sense to outsource this functionality rather than build your own set of servers.
Outsourcing should be done to enable you to go farther faster, not at the expense of the innovation and magic required to actually create a new business. Because clichéd as it may be, that still happens most frequently when you’re working together at an odd hour of the day or night.