Never, ever outsource your core

It’s inevitable that any startup will lack expertise in some key areas needed to grow their business. The question is: should you hire and bring that expertise in-house or outsource it?

Just last week, two startups reached out to get advice on this hire vs. outsource dilemma. The first startup, a vertical SaaS company, wondered if they should bring someone on board to run their paid search marketing campaigns or outsource it to an agency. The second startup was struggling to find good mobile developers and debated outsourcing their mobile app development to an agency.

My advice to these companies, as well as any other startup facing a similar situation, is: never, ever outsource something that is core to your business.

Outsourcing a core function may give you a short-term uplift, but it also means you fail to build the expertise within your company. If you want to build a sustainable competitive advantage, you simply can’t outsource your core functions to another who may not be as invested in your success. In other words, you can’t build a great company on an outside agency’s stuff.

  • For most startups, the core areas to build in house include: product design, product development, marketing, sales, PR, and customer service.
  • Look to outsource the things that don’t create a competitive advantage, such as: legal, accounting, hosting, and analytics.

While those are general rules to follow, there are always a few exceptions. For example…

1. Initially outsourcing a position can help you create good leads for hiring someone full time. For example, you may initially contract your marketing to an independent contractor as a test run, and then bring him or her onboard if it proves to be a good fit. If you do go this route, make sure the contractor you’re hiring is open to becoming a full-time employee down the road.

2. Outsourcing core functionality can also be wise when you have a very specific need and the outsourced hire has the expertise to solve the problem and/or offers greater capacity to execute. For example, startups will want to outsource PR help for a launch or other large one-time event.

Building expertise internally is often the tougher road to take but will pay off in the long run. Focus on developing your core functions in house and leverage outside help for everything else.

  • Robert Cancio

    Outsourcing = poor quality & non-scalable product. Period. End of story.

  • nagibtharani

    I managed extremely large outsourced teams in a former career. Superficially the numbers add up – but you take on less competent staff in general that can take up 5-10x more in time and resources to achieve a given task plus management overheads. Math: if your top domestic salary/compensation is 4-7x the salary of an outsourced unit of resource, but you need far less in terms in of time and resources, you actually come out ahead.

  • http://twitter.com/bwertz Boris Wertz

    good benchmark numbers