Which is better for startups: In-house teams, outsourcing, or both?
Last summer, I introduced StartUp Beat readers to Ensemble’s ‘startup excubator’ model for ‘do-it-for-me’ entrepreneurs. In the last six months, we started to get calls from do-it-yourself entrepreneurs with their in-house teams saying: “What about us? We could use your help too!” This led to Ensemble launching its newest program, Presto, a one-day boot camp for do-it-yourself entrepreneurs who want credible third-party digital experts to ‘sanity check’ and optimize their own in-house plans. Entrepreneurs who are in the process of building a startup often seek mentorship, but where do professional service firms fit into the plan?
Let’s face it—when you can afford it, building an in-house team is great way to grow your startup. You can hand-select and train your staff; they are solely committed to your work; and you can directly control the pace of their work, as well as exactly what they are working on. Hopefully all key employees have a stake in your business, and a vested interest to work hard to see it succeed.
Unfortunately this is an assumption; all in-house teams don’t operate the same. It’s rare for the head of a startup to actually know how to identify what roles and responsibilities are needed for success, and what desired skillsets would be most needed in filling those positions. Many first-time entrepreneurs often struggle in this regard, and end up hiring the wrong founding team. If not careful in making these decisions, the capital may not still be there afterward to fix any needed staff changes down the road.
For a first-time or time-constrained entrepreneur, the allure of outsourcing every aspect of their business carries a certain appeal. This could include engaging consultants to help with strategy, technology development firms to build their product, or marketing agencies to assist with search engines, social media, or public relations. Although this may seem like the ideal way to approach these business aspects when you do not have in-house knowledge, there are problems that may arise.
Outsourcing services can often be more expensive, as these agencies layer in their profit margins. Also, because they are not all a part of the same employee base managed by a central team, the communications and directions between the various agencies can often be inconsistent and not well-coordinated or managed.
The Hybrid Model
Due to issues with outsourcing or inability to hire an in-house team, some entrepreneurs decide to implement a hybrid solution—a mix of both in-house and outsourced teams. Typically, they would internalize any mission-critical efforts (e.g., their core product development efforts), and outsource functions that are less important (e.g., the CFO who closes the financial books at the end of each month). For those who can find the right balance, this may be the best route.
More often than not, smart entrepreneurs will surround themselves with key advisors, mentors, or peers to complement their own skillsets. This is much easier in big startup city ecosystems with deep bases of talent (San Francisco, Boston, New York, Chicago). If this network is not easily created on your own, many startup accelerators and incubators have created that network of professionals for you. It comes at the cost of either having to give up equity in your business, locating your startup at their offices or being required to participate for a minimum period of time.
After working with Ensemble for some time, I see a new category emerging among the startup community. A growing group of startups don’t have time or willingness to give up equity to an incubator or accelerator (or did not get accepted), and don’t have the budget for a multi-month outsourced startup excubator, but still need a SWAT team to quickly and cheaply come in and make sure they are heading in the right direction. Hopefully, Presto can fill this void with professional digital experts who have made themselves available at an affordable price and a quick turnaround—a one-day boot camp and business plan, so entrepreneurs can get back to focusing on their business.
There is not one solution for every startup. Each startup is different based on the skillsets of their founder and robustness of their entrepreneurial community. One thing is perfectly clear: Startups need support, and you should make sure you are getting it from whichever model works best for your business.
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George Deeb is the managing partner at Chicago-based Red Rocket Ventures, a startup consulting and financial advisory firm. Red Rocket is also a founding member of Ensemble, an all-star powered ‘digital services suite’ for entrepreneurs desiring high-ROI ‘do it for me’ solutions at 20-to-40 percent savings. You can follow on Twitter at @georgedeeb, @RedRocketVC and @EnsembleHQ.