Outsource things you don’t care about

A fundamental principle of business is that you do things in house that you think can give you a competitive advantage and outsource things that you don’t. At an early-stage technology company this means you do in house: product design, software and/or hardware development, PR, recruiting, and customer relations/community management. Ideally, most of these activities are led by founders. You should outsource legal, accounting, website hosting, website analytics etc. (Unless you are starting a company where one of those activities can give you a competitive advantage, e.g. a securities trading startup would need to have in-house legal).

A lot of startups over outsource. A few years ago, you’d sometimes hear tech startups say they were going to outsource software development. Thankfully, founders have gotten smart about this and it rarely ever happens except as a stopgap. It is still common for startups to hire outside PR firms. If you decide to hire an outside PR firm, that means you don’t care about PR. Just because you are willing to spend some of money on it doesn’t mean you think it’s important. You probably shouldn’t hire an investment banker during an acquisition unless your company is later stage. And you might occasionally use an outside recruiter but the core recruiting activity needs be done by founders.

http://wearenytech.com/64-mark-birch-investor-entrepreneur-trader Mark Birch

I agree with the specific examples, but not sure if you can simply say outsourcing something is due to not caring about it. I would say that there are many reasons to outsource, the main one being that you realize someone else can do it better and faster that you can. PR is one of those things, but so are some operational components of a business like benefits, payments, and accounting.

But there are other reasons, such as the need to scale and the need to bring in specialized expertise on a project or event basis. In the end, founders need to assess the cost / benefit of each possible outsourcing engagement to see if it makes sense.

http://petegrif.tumblr.com/ Pete Griffiths

I agree. A classic example might be visual design. At first you may well not have enough such work or cash to entice a tip top designer but that doesn’t mean you don’t care. Far from it!

http://www.cdixon.org chris dixon

Of course it depends on the startup, but if you e.g. creating a consumer-facing website, I think UI is essential and needs to be done by the founding team.

http://petegrif.tumblr.com/ Pete Griffiths

I agree. Which is precisely why I said ‘visual design’ not UI.

http://www.cdixon.org chris dixon

But if you really care about something and need to bring in a specialized expert, shouldn’t you hire someone full time, given him/her equity etc?

http://wearenytech.com/64-mark-birch-investor-entrepreneur-trader Mark Birch

You want to be giving out equity to everyone? But the real issue is about time. When everything is important, nothing is important, and I see that play out quite often in early stage startups.

http://needforair.com/ Charles Migli

I disagree because at the beginning you can always find somebody to make a better job as you do in almost any discipline. The question is: “Do I want to do better than the average? Do I want to rely on my learning skills and be confident that I can be more efficient later?” For me it has more to do with an resource allocation strategy

http://wearenytech.com/64-mark-birch-investor-entrepreneur-trader Mark Birch

Really? You might instead find yourself spinning your wheels. The reality is the human ability to absorb information and execute at a high level eventually meets a wall. It is like an elite athlete in one sport trying to jump into another sport as Lance Armstrong tried to do when we ran a marathon. In a similar way, a dev that is no good at sales can reach competency, but never mastery if his or her core is being a programmer.

Outsourcing when done right, can be an excellent teaching moment and knowledge transfer engine. I tell startups to leverage media training when hiring a PR firm and to sit in on calls to media outlets. Same process can be used in many other disciplines.

If outsourcing is simple a “throw it over the wall approach”, then you truly did not care about it and the results will be telling.

http://AtticTV.com/ Johnson Goh

I totally agree with Mark.. I’m from Malaysia and I run a startup.. I did not have a design background at all, so that was a problem + education/mentorship.

So, when I got word that a superstar designer from the valley was about to come over, I jumped on chance to grab him and outsource the design to him. The catch was I was able to “pair design” with him. So, from that I actually picked up competencies that I would not have been able to pick up myself.

So, that product went on the fail and we’ve now restarted the business into something else, where I did the design all by myself.
I guess, that could be a good reason to outsource? to increase the core competency of your core team itself?

http://needforair.com/ Charles Migli

For me the rule is for a startup to keep all domain where it wants to build an expertise and improve its skills. When outsourcing you don’t acquire any experience in the field and your progress depends on a third party. That’s the first thing I’d take into consideration when outsourcing something.

http://www.cdixon.org chris dixon

I’d agree, I think. “build expertise/improve skills” seems to me to covers the same activities that “give you a competitive advantage”

http://www.hypedsound.com jonathanjaeger

I can imagine outsourcing some design work if you only have a backend engineer — assuming this is for an initial prototype to test things out and you know the user stories and experience you have to build/optimize for. Obviously design can be a competitive advantage and whether you’re B2C or B2B can have a dramatic impact on design priorities.

http://www.cdixon.org chris dixon

One thing I forgot the say in the post: it seems that design is more and more being appreciated as a core competency (perhaps due to Apple) and thus taken in house. I think outsourcing core things is fine as a temporary measure but not beyond that.

http://argylesocial.com/ Adam Covati

We outsourced design early on, but only after taking great care to make sure it was a good source. It worked for us, especially since we were able to hire our designer later on.

That being said, it was a very strong focus for us, we spent a lot of time on it. But we understood that we didn’t have the ability to do execute the design in house when we were running very lean.

So while the actual work was outsourced, we spent a good bit of time overseeing it and iterating on it. Time well spent in my opinion.

sanjay mehrotra

Adam,

We have taken the same approach – design (both UI and Visual) has been approached with a very close supervision and approval process. And this is for our core product on IOS and web.

What is your strategy on coding, especially after you launch and then want to make changes?

http://argylesocial.com/ Adam Covati

Great advice. We had to learn some of this the hard way. Early on it’s really easy to think you are being lean. But you are really just wasting VERY valuable time on things like accounting that don’t cost a hell of a lot to outsource.

Not doing (or worrying about) these things provides a huge amount of value, and a huge reduction in headaches.

Of course, you have to realize that “care about” also means, “care that they get done right” sometimes. That’s where good, recommended service providers can come in of course.

http://www.cdixon.org chris dixon

Yes. My title might have been a bit dramatic. Obviously, for example, you want to make sure you don’t get screwed by outsourcing your legal to bad lawyers. But I’d argue even then, founders need to manage the outside law firm (in fact I have argued this http://cdixon.org/2009/09/13/entrepreneurs-need-to-learn-some-law/)

http://jasoncrawford.org/ jasoncrawford

Well said. Do you think there’s any role for an outside PR firm? Not completely outsourcing the job to them, but perhaps hiring an adviser, if you’re totally new to it?

(By the way, unless your startup is an acting troupe, you probably want to manage relations with your *customers*, not your costumers. Just sayin’.)

http://www.cdixon.org chris dixon

Yeah, there is a role for an outside PR firm. For example if you become a large company, they can help manage in bound requests and help strategize. And certainly you should seek advice from knowledgable people, include PR people, some of whom you might pay. But don’t just pass off the task to an outside firm an expect anything extraordinary.
http://www.cdixon.org chris dixon

fixed costumers – thanks

http://needforair.com/ Charles Migli

When outsourcing something what do you think of the risk of being “Lost in translation ” ? And the overload of work it requires to get things done the way you want it?

http://www.cdixon.org chris dixon

In my experience the overhead is often very high. E.g. when I tried to outsource design at SiteAdvisor we spent so much time working on it internally with a design savvy person that we ended up basically doing it ourselves. (Although it was nice to get a 3rd party perspective).
http://wearenytech.com/64-mark-birch-investor-entrepreneur-trader Mark Birch

Depends who you are working with and what you are outsourcing. With quality firms, it does not matter where in the world you were doing the work, the result is generally positive and overhead minimal. The key was finding a firm that had direct experience in the types of work you are looking to outsource (speaking to references, accessing actual websites/apps/designs), feeling comfortable with the conversations, and integrating the outsourcer/outsourced team into the workflow.

http://twitter.com/asanwal Anand

Think you start this right, i.e., “you outsource things that don’t give you a competitive advantage.” But this is not necessarily synonymous with things you don’t care about.

For example, our company has an email newsletter we sell for which we evaluated multiple email service providers (ESPs) and ultimately agreed Mailchimp was best. This newsletter is a major source of revenue for us so we absolutely care about it, but we know that the value we bring is the content/data in the newsletter and not the delivery and other intricacies ESPs deal with.

Ensuring the team gets paid regularly and we’re not running afoul of the IRS and NYS withholding requirements is absolutely critical, but building payroll processing capabilities internally is not something we’re spending time on.

http://www.cdixon.org chris dixon

Fair enough. I’m starting to regret the title I used on this post (versus the more accurate first sentence). I’ve used MailChimp and think they are great. But I think we’d agree you only use them if you don’t see email delivery as a core competency.

Anonymous

WRT to analytics are you referring to the technology or the analysis components or both?

http://www.cdixon.org chris dixon

The tech part, e.g. Google analytics, Mixpanel etc. But even then in my experience we had to do a lot ourselves. And for apps, 3rd party analytics are pretty nascent.

http://masongentry.com Mason Gentry

Great post. I’m curious, do you have an in-house PR person @ Hunch?

http://www.cdixon.org chris dixon

Well, now we are part of eBay. But before that we just did it ourselves in house (me and some others).

Anonymous

I’m not usually one to comment on your blog, though I read it regularly. I just had to speak up here, since I make a living on “outsourced” work as a consultant. Startups *do* outsource critical components of their business, and in my experience, these are the *good* reasons why:

1. They are not yet ready to make a full-time hire.
2. They want to hire in-house and are (1) recruiting the outsourced hire, or (2) not quite sure yet what to hire for.
3. There is a specific and important problem to be fixed, and the outsourced hire (1) has the expertise to solve the problem, and/or (2) greater capacity to execute on the solution.

This doesn’t mean that the work isn’t critical to their competitive advantage. The ideal situation is always to keep that work in house, but it’s not always possible or yet reasonable.

http://www.cdixon.org chris dixon

Thanks for the comment. I think those are legitimate exceptions to the rule. Especially 1 & 2 which I would call temporary (“stopgap”) measures. For 3, no doubt outsiders can help with specific expertise, but if it is really important I expect the founders are going to really “own” the activity with the help of the outside expert.

Anonymous

Agreed – one of the best parts of consulting is when the client has the desire to learn the craft and I’m given the opportunity to teach.

http://wearenytech.com/64-mark-birch-investor-entrepreneur-trader Mark Birch

I agree with these points. When done with a specific long-term objective in place, outsourcing can accelerate the outsourced task. As I mentioned in a prior comment, when everything is a priority, nothing is a priority. Startups cannot always reasonably acquire in house talent just in time to accomplish some critical work. This is when outsourcing becomes an important piece of the execution puzzle.

http://twitter.com/cavezza cavezza

Great post. Reminds me of when I was in school getting my marketing degree. I’m still amazed that most major consumer brands outsource everything except branding/marketing.
Anonymous

To me a large part of this is tied back to basic trade and market economics. Assume you’re a tremendous developer and completely foreign to PR. It’s far more efficient for you to spend two hours developing and use the economic gain from that to purchase PR than to spend 1 hour developing and 1 hour learning PR. I think that’s being efficient with your time and is completely divorced from the value you place on the function.

http://www.cdixon.org chris dixon

Sure, but if PR is important to your company, shouldn’t you recruit a cofounder or employee who is good at it?

Anonymous

Only, per your main observation, if you thought it gave your company a competitive advantage to have differentiated PR. Which is usually unlikely – except perhaps in a highly commoditized market/product.

http://www.cdixon.org chris dixon

I think PR (defined broadly as relations with old media, blogs, social media etc) can definitely gives tech companies today a competitive advantage.

Anonymous

Sure. Then you bring it on as a founder or early hire because you believe that a) it’s a differentiator and b) you can do it better in-house than utilizing outside resources.

http://www.cdixon.org chris dixon

That’s what I was trying to say. I think we agree.

Anonymous

It’s about opportunity cost. Assume you have 4 cofounders. Do you make the 4th a developer or a PR specialist? What gets you to your goals faster in the first 12 months? If you go with the developer and put $50K in the budget for PR Q3 (launch) does that mean you don’t care about PR? Heck no! However, you just outsourced it. Yet it’s also mission critical in your mind. That’s where we disagree I think.

http://reecepacheco.com/ reecepacheco

100%

took a while for us to learn some of this, but it makes us move so much faster now

Anonymous

Spam ^^^^^^^^^^

http://twitter.com/rahuliffic Rahul Simha Chitrapu

nice post but confused abt pr. mint hired a firm & it helped them greatly: http://idre.am/JoxJfU

http://www.cdixon.org chris dixon

Aaron was very savvy about the PR and planned the while strategy. I met him and he explained it to me when he was raising money (I asked to invest but he was oversubscribed)

http://about.me/mikeschinkel MikeSchinkel

Hi Chris,

Nice post and definitely agree with the main sentiment; if it’s a core competency, don’t outsource it. David Cummings of Pardot has a great related post: http://davidcummings.org/2012/02/13/outsourceable-software-development-projects-for-startups/

I do want to make a caveat to your post, one I think you’ll agree with? You essentially say “Don’t outsource software development” but I think you mean “Don’t outsource *core* software development,” right?

IMO startups should do their core software development in-house but should outsource peripheral software development to specialists. For example, don’t build Outlook plugins, Facebook apps, iPhone apps, Drupal modules, WordPress plugins, etc unless of the startup’s core product is one of those things. Find teams that specializes in each of those external integrations to keep the core team focused on improving the core. But if a startup’s success is tightly associated with the success of an integration (i.e. a mobile app, for example) then keep that in-house too. Hopefully you agree?

-Mike
P.S. Full disclosure; my opinion may be biased. My company specializes in handling one of those types of integrations for SaaS vendors.
Anonymous

Is outsourcing software dev really generally a bad idea? I guess even for a software product you’d have core expertise and tangential stuff – say you are in backend and have someone develop a mock UI which you can later improve upon.

Never tried one of the Chinese or Indian outsourcing services myself though.

http://www.cdixon.org chris dixon

For early stage startups, it almost never works (in my experience).

http://contributopia.typepad.com Michael Motta

This is a reasonable course rule. It seems however designed more for A is B and B is A symmetry, which is useful but not complete. If you “don’t care”, why spend money on it at all? Your outsourcing criterion needs to be refined to be useful. I have used the following successfully: if it is core to the business, don’t consider outsourcing it. This helps to make the founders decide whether something is “core”, if it needs money to be spent. Some S/W development can be non-core too, like payment code for a non-payment app.
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http://www.microsourcing.com/ MicroSourcing

It’s wiser to outsource low-risk business processes to outside firms because in the event that something goes wrong, it won’t drag operations down with it.
http://about.me/johnrevay John Revay

I once worked for a company – our CEO had the strategy – to outsource things which we did not add value to. The company was a mobile computing accessory company – think laptop bags, mice etc.

We outsourced Warehousing ( pick/pack) found companies that did it better than we could.

We did not outsource our call center ( Inbound sales, customer service, or tech support) – these were all directly customer facing. we wanted to maintain that bond and connection.
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Jen Hames

Some good advice. Often finances/book-keeping is one of the first things to outsource.
http://contributopia.typepad.com Michael Motta

You reset your bright line to “competitive advantage”. This is one major step towards “core” . But I don’t think we are there yet. Does a transmission development give Toyota a competitive advantage? I think so but most of the detailed design and dvelopment is outsourced. Toyota’s genius was being specific about the design RULES. They even built in-house the software CAD design tools they require their outsourced partners to use. So, I think the focus is exactly in the right place– on the core value of the design not the development. We can learn something about the model and the practice of software development from this.

http://about.me/mikeschinkel MikeSchinkel

I can’t speak for Chris, but I *think* he was talking exclusively about early-stage technology companies and not about 75 year old multinational automobile manufacturers. Just sayin…

http://contributopia.typepad.com Michael Motta

Mike, I was trying to clarify my own thinking about outsourcing role in a startup, early, medium, or late. I said Toyota teaches us a useful lesson we should remember in startups. This lesson is independent of industry or company age. From minute one of a company, it is very important to understand where the core value is. You can use this definition as a basis for outsourcing what is non-core. It should not matter what the stuff is to be outsourced: legal, financial, and even software development.

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Chris Dixon