Outsourcing for Startups: Which to Choose and Why

Outsourcing for Startups: Which To Choose And Why

5 mins read

While the concept of outsourcing has been around for over 70 years now, it hasn’t been seen as an attractive business strategy until 1980. Ever since outsourcing became quite popular among businesses and the rise of the digital era, IT outsourcing began playing a crucial role in business. While there’s no “one-size-fits-all” type of outsourcing, there are a few options available for the type and needs of a business.

Due to technological advancements, offering us plenty of communication and collaboration tools, IT outsourcing solutions are more accessible and cost-effective than ever. Although millions of businesses have already jump-started projects through different types of outsourcing, two types are most popular and well-known to this day.

We’re talking about IT Staff Augmentation and Dedicated Teams outsourcing. Businesses have been able to quickly develop high-quality software solutions tailored to their specific requirements thanks to these two types of outsourcing. Now, without further ado, let’s take a quick look at each one of them.

Staff Augmentation

What is it?

Staff Augmentation, also known as team expansion, is a type of outsourcing that enables you to acquire highly skilled technical talent quickly. The provider’s company will be introducing you to team members who can fill in your startup’s technical gaps. Then, you conduct interviews with candidates to determine which ones meet your needs.

The team member you select will integrate into your existing in-house team while adhering to company culture and working toward your strategic goals. Depending on your needs, you can scale up or down your augmented team.

Usually, IT staffing is done under a time & materials type of business model, meaning that costs can vary according to the project scope & workload. Another possibility is that a fixed price requires a fixed budget and a well-defined project scope.

What are the benefits of staff augmentation?

If you are a startup owner, you might already have a few talents in your team looking to deliver, on time and budget, the promise you’ve made for your investors. A few weeks into developing the product, you realize that you need some extra talents, but you’re running out of time. What would the best option be? Simple: staff augmentation. Now, you might ask us “why”, and here are some of the advantages:

It’s cost-effective

Staff augmentation helps businesses in reducing costs on various levels. Financially, you can pay augmentation workers for the time they work, you don’t have to pay taxes, offer employee benefits, and so on. When it comes to time: there will be less time spent on recruiting, training, or acclimatization. You’ll have lower training costs for new professionals overall because augmentation workers are chosen based solely on their expertise in that particular field, thus requiring smaller adjustment periods.

Higher Adaptability and Flexibility

Staff augmentation services improve your organization’s scalability significantly. Staff augmentation allows you to scale the size of your workforce based on demand. It also allows you to diversify your services and provide high-quality solutions by leveraging the expertise of temporary workers.

More control over your project

Staff Augmentation enables you to maintain complete control over your project and monitor its performance regularly. When you completely outsource your project, you will be unable to track its progress, and the quality of your project will be entirely dependent on the outsourced team. Staff augmentation, however, allows you to place augmented staff at any requirement to improve project efficiency. It also helps to reduce the privacy and security risks associated with standard outsourcing.

Prevent Attrition

Most times, the need for staff augmentation arises as a result of unanticipated attrition, as it enables businesses to avoid stagnation during critical project management and delivery times. Staff augmentation may be the ideal solution for both parties, as companies will always be adequately staffed at all times, and professionals will be able to apply their skills and expertise in a larger arena.

Access to engineering talent worldwide

Your startup can opt for local, nearshore, or offshore companies for outsourcing. If you can’t seem to find talent in your local market, you can always research and find someone nearshore or offshore. Eastern Europe, more specifically Romania, Ukraine, and Poland, has been one of the most popular outsourcing destinations, with over 1M software engineers specializing in various technologies. Needless to say, with the cost of living being lower than that of Western Europe, it might be a bit cheaper than in other countries.

Are there any disadvantages?

Of course, there are, otherwise there wouldn’t be a balance. But they’re not available for everyone, some depend on the way staff augmentation is used while others are available only for specific types of projects. Let’s dive right into it and we’ll discuss it afterward.

Can be expensive if used inappropriately

A common mistake startups make is that they’ll use staffing as a way to avoid hiring full-time employees, or hiring a dedicated outsourcing team on an ongoing basis. If done incorrectly, staffing can end up costing more in the long run than a longer-term in-house solution.

Not necessarily ideal for ongoing projects

Staffing isn’t ideal for long-term projects or finding the talent you require regularly. Staffed workers may be required to take on additional projects or leave the supplier’s company for a more permanent position before the project concludes. Moreover, staffing increases are frequently billed on a time and materials basis, which means you may incur unnecessary costs in the long run.

Institutional knowledge-based projects might not be a match

If a project requires a more in-depth understanding of the business, there might be a longer induction period and acclimatization. Hiring more people often leads to longer training periods and unproductive time.

There’s a risk of developing dependence

Sometimes increased staffing employee use may increase reliance on the third-party vendor. If you are increasing staff to access the same expertise across multiple projects, there is no guarantee that a supplier can provide the required talent. If you constantly need a particular skill, you should hire in-house staff or establish a long-term contract with your outsourced service provider.

When should you use Staff Augmentation?

If you are a startup that has already hired a few talents for the IT department but there are still some gaps needing to be filled or, if your company’s talents are busy working on another project and something is needing to be completed quickly, then it is recommended to try out staff augmentation. However, there are multiple contexts when you should maybe consider hiring staffing workers. After all, it all depends on your business objectives, timeline, and budget.

Now that we’ve analyzed one type of outsourcing, we’re going to move on to the next popular type: Dedicated Development teams.

Dedicated Development Teams

What is it?

A dedicated development team is a type of outsourcing in which a company provides you with a remote development team that will be entirely focused on your product and business goals. Outsourced developers are hand-picked based on your specifications and requirements, and can be managed by you.

A dedicated team addresses one of the most obvious limitations of outsourcing: an absence of individual leadership and a spirit of cooperation. White other IT outsourcing models can provide a good product at the lowest possible cost, you cannot lead the team that brings your vision to life. You don’t have much to say about who should be working on the project or how it should be managed. A dedicated team eliminates this problem by enabling you to be the leader of your team and also take part in the hiring process.

Moreover, a dedicated team’s sense of unity is especially important for startups and innovative products, where creativity is a key success factor.

What are the benefits of hiring a dedicated team?

Clients often pick this outsourcing model when looking to upskill to take on new projects, or meet rising demands, but lack the resources to find, hire, and train skilled workers. So, you may intuitively already know some of the benefits a dedicated team type of outsourcing can bring to the table, let’s see if we think alike:

Facilitate the collaboration between internal and external teams

If you opted for local or nearshore companies, dedicated development teams can easily collaborate with your in-house development team and work as a unified, distributed department.

Predictable Costs

Working with dedicated development teams provides organizations with predictable costs when compared to staffing. Because they pay the same flat rate each month, customers have more budget control.

Scale up or down as needed

You can easily scale up or down by adding or removing team members. Customers can use different contracts to add additional developers to their current plans to reach short-term rising demands or to access a skill for a particular project without the cost or potential labor law violation of doing so from home.

Are there any disadvantages?

Working with a dedicated team of software developers offers a plethora of compelling benefits. But this model, requires extensive planning, collaboration, and a clear picture of how your outsourced team will help you achieve specific goals.

Because this strategy requires customers to invest time and resources in integrating external developers into existing teams, it is not always the best solution for organizations that are short on time or money.

It may not be effective for short-term projects

Oftentimes, you will sign a contract to work with a dedicated team to add permanent or long-term capacity. Thus, external teams frequently maintain a consistent pace and are ill-equipped to meet short-term needs. Using dedicated development teams in this manner is similar to what happens when your internal team is spread too thin.

Compared to other pricing models, it may be a bit more expensive

When it comes to short-term projects, keeping a follow-up group could be more expensive than picking time & materials or fixed-price contracts. You will have to outsource a certain amount of work to get the most out of your invested money.

Managing dedicated teams is crucial

While the supplier is in charge of recruitment, calculating rates, and matching customers with the right people, businesses using this model should expect to spend a significant amount of time managing external teams.

When should you use a dedicated team?

For startups, dedicated developers and teams work well, allowing you to find programmers quickly without investing heavily in the recruitment process. Furthermore, if your product is still in the discovery stage, such a collaboration model takes time and keeps you consistent without overspending. As a result, the internal team can concentrate on core activities, while your dedicated team can deliver additional activities and processes quickly.

Dedicated teams are best for long, complex projects. If you require ongoing assistance, dedicated teams are a dependable and cost-effective alternative to staffing. This model will benefit projects that involve a contextual understanding of the business, and its goals, as well as those that involve testing, adjusting, and constant improvement.