Startups can’t always rely on internal tech talent — here’s when to outsource

This article was originally published by Built In.

The way companies get stuff done is changing, and for startups especially, the rate of change is accelerating. Call it lean, call it agile, call it low code  —  all types of businesses are starting to do more with less.

And they’re doing it by outsourcing everything from sales to human resources to leadership.

Startups are usually forced to rely on outsourcing to manage functional areas of the company when the complexity of those functions outgrows their expertise. I always say that every founder should be able to run every part of their company —  the tech, the finance, the sales, the support, all of it  —  up to a certain point. But once the founder’s vision for that part of the company has been established, the founder’s time spent on these areas becomes a liability.

So what happens when the functions of a role become too much for the founder to take on, but not quite enough to hire a full-time employee?

A common mistake is to hire cheap: Bring aboard a recent graduate, maybe an intern, maybe someone looking for a career change, and pay them less than market rate to offset their lack of experience. This is usually a recipe for disaster, because there’s no law that says a startup doesn’t have to be as good as an established company at things like software development, accounting, or customer service.

A better solution is to create “fractionalized” roles and fill them with outsourced talent  — experts who can handle the most complex functions of the role and have available free cycles to work on a part time or contractual basis.

Here’s how to make those outsourced hires work for your company, no matter what stage your company is in.

Early stage: How early is too early for outsourcing? 

A common mistake early-stage founders make is hiring too many leaders and not enough workers. This usually leads to a fully staffed executive team with lots of vision and no execution.

Why does this happen?

Well, there could be a lot of reasons, but the one I see most often is that the founder or founding team lacks the confidence to lead those functions in which they’re not an expert. In other words, the technical founder isn’t comfortable leading the sales effort. Or the business founder — you know, the one with the MBA — has a lot of ideas but might not have a clue about what kind of tech stack to build on.

The truth is that, in the early days of a company’s life, 90 percent of leading a function is making sure that function aligns with the vision for the company. Thus, the founding team, the ones bringing the idea and the company into reality, should be leading that function.

It doesn’t matter if it’s technical, financial, sales, marketing, support or anything else. There is enough of a knowledge base on the Internet and enough software-as-a-service available for next-to-nothing to bring those functions under the domain of a founding team, or even a single founder, at the beginning.

Now, the second reason I hear most often as to why founders don’t lead other functions of the company is because they just don’t want to. Some technical founders just hate Quickbooks; sales-oriented founders don’t care whether their tech stack is running on AWS or Azure or oh my God my eyes are glazing over.

But if the founders don’t sink their teeth into every part of how their company operates, they will cede control of very important things like costs, pricing, margins, technical debt, security, privacy, quality of hired talent, and on and on.

It doesn’t matter if this happens because they don’t know or they don’t care. Either way, it kills the company.

So, if no one on the founding team knows finance, don’t run out and hire a CFO. Do the same thing you would with software development. Hire a fractional accountant to do the books. But do this only after the founding team defines how the financial side of their company should operate and how the changes that any expert will invariably recommend will flow through the rest of the company.

Growth stage: An over-reliance on outsourcing

At the growth stage, the most common mistake is the reverse :  leaning on outsourced solutions for too long. So when do you bring outsourced talent back in? Someone gave me this advice once and it stuck with me forever: You know how when you’re cooking something and the directions say bring to a boil, then cover?

That’s when.

There will be a point in the growth stage when the business starts to move fast enough that instant and thorough communication becomes critical to the effectiveness of the company to execute. When this acceleration begins, a startup needs to bring talent in-house, starting with leadership.

When technical development is outsourced, the boiling point is when new versions begin to fall into sprints and releases on more than an occasional cycle. This is when you bring in your CTO or VP of technology, and they become the authority, taking that mantle from the founding team. Then let them start to siphon responsibility away from the outsourced vendor, building their own team until all the technical operations of the company are under the company lid.

The same strategy works in all other areas of the company  —  sales, finance, marketing, support, HR  —  all of it. Hire someone to lead the way, transfer the leadership and knowledge from the founding team to this new leader, and slowly pull those functions back in.

Late stage: A return to outsourcing

Once the company has grown into something that no longer looks or acts like a startup, the final mistake is taking on bloat. This is when the company starts hanging on to duplicative functions within an area or keeping a team in-house that is now pretty much reinventing someone else’s wheel.

Going back to technical outsourcing one last time, this is more like a situation where we used to have dedicated servers running all our tech. Then cloud computing advanced to a point where this strategy didn’t make sense anymore. Outsourcing at this stage is less about growing too big too fast, and more about certain evolutions becoming mainstream to the point where it doesn’t make sense to have a whole team dedicated to that functionality on the company payroll.

This is true of a function like, well, payroll, which is an area where SaaS solutions have sprung up over the last 10 years that will handle almost every aspect of that function. Another example is marketing automation, which has taken chunks of grunt work out of that function. In fact, there are services, and in some cases just software, that can handle a lot of the low-level tasks of most company functions. And they do it better because it’s all they do.

The key here is to keep leadership on board. And at this point in the company lifecycle, there is plenty of vision and authoritative work to keep at least one employee, if not a whole team of employees, on the payroll managing and growing that function.

You might notice that nowhere in this model  —  early stage, growth stage, or late stage  —  is there a mention of middle management. What if I told you that middle management is a concept that was only invented a few decades ago, and its usefulness has long since diminished?

So don’t hire the middle. At any stage. Don’t hire gatekeepers, don’t hire stop-watchers, and don’t hire wranglers. Hire players, hire visionaries, hire coaches, hire floor generals. Outsource everything else.