9 Outsourcing Lessons Learned from Successful and Failed startups

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9 Outsourcing Lessons Learned from Successful and Failed startups

I had worked with multiple clients across different geographies. All had mixed experience in terms of their outsourcing aspect. In a survey from Deloitte Global, 78% of the major companies that outsource claim that they found success outsourcing their non-core task. Focus on core business was the top reason cited for outsourcing.

One of the startups I worked with had no experience in technological terms. Initially they were looking for CTO which they couldn’t find on time. They outsourced technological aspects like app and website to us and themselves focused on other important tasks. This gave them leverage to focus on priority tasks and were able to launch the product in time.

While on the other hand I also encountered a company that outsourced to freelancers only to get devastated. The hired freelancers disappeared in a week, leaving their reputation at stake and it took them another month to get started.

There are multiple factors responsible for arriving on outsourcing decision. Among the list of companies that outsource, I have compiled a list of lessons learned from failed and successful outsourcing startups. This will help you arrive at the decision at the shortest possible time.

Lesson Learnt from Successful Outsourcing Examples

“Lesson 1 – Outsourcing saves a lot of money”

Joel Fernandez had the experience of managing offshore teams before. To bootstrap his third company Klout, he went to his offshore team workplace and stayed there. He came back 3 months later with a working prototype.

“I outsourced myself and stayed with my team (sleeping on one of the developers couch) for more than 3 months. I came back with a working prototype that let me fill out the rest of my founding team here and then raise money.”

Some other side benefits is it was much cheaper to live there on a daily basis than it was in US. This extended the amount of time he could bootstrap the company. It also let him focus completely on what he was building since there was a lot less distractions.

This is one of my favorites among all other successful outsourcing examples which helped in time saving apart from huge amount of money.

“Lesson 2 – It is more productive and easier to manage using a mix of Onshore and Offshore teams “

Jason Goldberg’s Fab.com is a typical outsourcing example to India.

While starting his company, Jason found hiring someone in NYC wasn’t affordable. He clearly laid out plans for outsourcing and found the right team in Pune, India.

His deep inclusion in the project with his offshore team lead to his success.

“A few notes about working with an offshore team. If you’re gonna do it, do it right. What I mean by that is that I’ve seen it done wrong so many times it’s sickening. Folks in the U.S. all too often have this mistaken belief that there are these inexpensive coders outside the U.S. who are just on call and ready to write code based on specs. That’s a recipe for disaster.”

Jason says that saving money is important for startups in the long run. Using an onshore and offshore mix, he was able to manage more effectively.

He learnt that in-person time was critical for planning. He used a simple plan of dividing a month into two parts where in 1 week they planned together in person with the outsourcing team, and then for 3 weeks it is more tactical as the interactions are over Skype.

“Lesson 3 – Start Outsourcing with a Non-Core function”

There are valuable lessons to be learned from the way Squawker managed this entire project. According to Dimitry Stillermann, Squawker’s decade long experience and a team that watched development closely, led to their ultimate success.

The Squawker team is a prime example of how to work on a development project. Their core team had between them many decades of trading and financial technology experience, so they were perfectly capable of steering the project while bringing in external partners to build an integrated implementation team.

“Dimitry says you shouldn’t assume that everything will be done by offshore team, and don’t assume that you do not need to manage your offshore vendor.”

Startup founders often begin with a very business-oriented team and assume that they can outsource all or almost all of the responsibility for the technical solution.

“Lesson 4 – First you need to know what to outsource”

JPay was a company of two when the CIO left and Ryan had to make a decision whether to find another partner or to outsource.

When all else fails, look around the world for the best person(s) for the job.

He chose to outsource his engineering team to Israel, his Q&A to India, and his hardware and firmware to China.

According to Zalmi, a friend of JPay’s founder, it is important to know what you need to outsource and when you need to do it.

JPay experienced hyper growth based on their technology, but the technology team was scattered around the world, creating a whole new set of challenges. Ryan decided to take back his tech team, and the rest is history. An entrepreneur needs to know when and which parts of the company to outsource.

Now, let’s look at some costly lessons leant by outsourcing software development projects.

Lessons Learnt from Failed Outsourcing Examples

“Lesson 1 – Inability to accommodating frequent changes”

PatientDox, a cloud based startups Software as a service(SaaS) solution for healthcare providers, is among the top outsourcing failure examples.

Since none of the co-founder had a software engineering or technical background they decided to outsource. The pain points, among others, which killed the PatientDox are:

  1. As 90% of the cost resulted in Product development, having a technical cofounder can substantially reduce cash out-lay early on.
  2. Speed and the ability to make changes on the go based on customer feedback was never accomplished as development teams were engaged in simultaneous other projects.

“Lesson 2 – Never Outsource from the First Day”

Mark McGuire of Nextt was a successful entrepreneur with two startups which were acquired by Microsoft and CSC.

Let’s take a look why its among our list of unsuccessful outsourcing examples.

McGuire outsourced the development firm to build his product, like any other startups. Unfortunately it didn’t go down well as his previous startups and end up in waste of money and time.

“Before hiring a fantastic iOS dev to our team, we relied on two mobile development firms to build out versions of Nextt on the iPhone. We ended up wasting time and money.”

Mark says it is important to get your dev team in house from day one, “If you are building a software company, get your dev team in house from day one or you will take one step forward and two steps back.”

“Lesson 3 – Scale only when your business is ready and it’s 100% necessary “

Rivet and Sway is an online retailer that specialized in eyeglasses for women was headed by, Sarah Bryar, former manager in Amazon.com.

Bryer quotes early outsourcing as one of mistake she would have done differently. 

She succinctly put, “scale only when absolutely necessary We outsourced to a big-company 3PL way too early”

“Lesson 4 – Cultural Proximities and Communication plays a major role. “

Nauapp presents a unique outsourcing failure case study which stems from absence of technical co-founder in the team.

Kevin Linser and his team decided to outsource the development of their app to Pakistan. Their problems started with extreme frustration while communicating changes.

“While my blood pressure grew each time I had to explain some changes in design, functionality or screenflow.” – Kevin Linser 

Then, unforeseen holidays stalled them.
Finally, extremely poor QA.

We asked for a detailed list of devices the app was thoroughly tested on, which was ultimately replied to with, ‘Our hardware is from stone age, but our software is up to date.

After repeated attempts to get his project on track, and failing to meet any standards, Kevin decided to move the project back home.
Outsourcing makes only sense in case you can clearly define your project before hand.

Do constant code controlling by an expert. Nauapp presents a conventional outsourcing failure example which stands on the proximities of difference in culture.

“Lesson 5 – Never Outsource your core business. “

Licensario by Gil Sadis helped SaaS businesses to optimize their pricing plans, increase conversion rates and maximize revenues. Initially they wanted to built too many features to make the product awesome. Gil and his partner, both being developers, wanted to speed up development which made them to look for development help.

“We wanted to move faster and we outsourced some parts of our product. It was a bad decision that cost us time and money. If you have to outsource, never never never outsource anything that’s core to your business.”

Have any outsourcing successes/failures that you’d like us to share? Leave us a comment below!

Maitrik leads the Digital Enterprise team at Simform. Under his leadership he helps businesses leverage digital transformations through advanced digital and customer experience strategies.

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