Outsourcing vs insourcing for startups

When launching your first startup, it may seem difficult or unnecessary to delegate. However, as the start-up grows and develops, there comes a point when you can no longer cover it all. After all, no one can have the expertise in product development, engineering, marketing, and web design at the same time. Here comes the ultimate question: should you outsource or hire in-house employees?

I had experience with both and I can say that each option comes with its pros and cons. Here are some of the most important:

Outsourcing

• Budget-friendly
• Easier recruitment process
• Access to the global hiring pool
• Less need for training, as contractors are usually already professionals in their industry

But:

• It is less reliable (freelancers can give up on your project at any moment)
• Your project is not necessarily a priority, so it can take more time for the freelancer to complete it
• It is more difficult to manage a freelance team and there are always risks of communication gaps due to different time zones, schedules, etc.

Insourcing

• Easier coordination and supervision process
• More dedication to the project (employees are invested in the company’s success)
• Long-term relationship (employees develop and grow inside the company)

But:

• Hiring and retention can be expensive and tiring
• Lengthy training and onboarding (since in-house hiring is more expensive, you may need to hire less-experienced workers and go from there)
• Reduced flexibility

To sum it up, outsourcing is a great way to save money and time, but it comes with its risks, while insourcing is usually a long and demanding process, which pays off in the future. Of course, for the early stages of a business outsourcing is usually a smarter option. Areas, in which you as a founder have no expertise, will be much better covered by an outside expert. However, this is not a universal rule. Although many founders focus solely on outsourcing during the first year or two of their start-up growth, I believe there are a few spheres where it is better to hire in-house employees from the start.

On a startup we've worked on we decided to hire one person for development from the let go, even though we also had contractors. One pattern we noticed was the nature of tasks worked on by the employee and the contractors differed significantly, with the employee consistently doing tasks that required a deeper understanding of research. Over the long term, this leads to invaluable cross-functional expertise and being able to tackle problems that contractors cannot do cost-effectively.

The most important rule when deciding whether to hire or outsource is this: never outsource the tasks that relate to core spheres of your business, mainly product development. Trusting someone with the main value of your start-up is just too risky.

Among other areas that are better managed by in-house employees are:

• Highly specialized areas that are completely outside your field of expertise (since you won’t be able to check the quality of the work in progress)
• Positions that involve working with confidential data
• Projects that require long-term commitment (over 6 months)

Overall, the choice of an employment model for your start-up depends on many different factors: from its growth stage to its core business functions. Just take some time to analyze what level of expertise and commitment different areas of your business need and make sure your core competencies are managed by someone you can trust.

No matter whether you choose outsourcing or insourcing, it is important to have an effective recruitment process. That is what my start-up Rekruit is working on right now. We have developed an AI-based recruitment platform that not only does the screening process for you, but also provides you with key HR metrics. You can check us out at https://www.rekruit.net/ or text in the comments if you want free beta access.

What is your take on outsourcing vs. insourcing for a startup? Does anyone have some good/bad experience with outsourcing specific spheres of your business?