The New Tech Startup: Multicountry And Dispersed

May 4, 2020

Anna Frazzetto’s article from on April 2, 2020.

That classic tech startup image — one of scrappy techies working day and night out of their garages or basements in Silicon Valley — is one for the history books. Today, the visionaries and engineers behind the world’s burgeoning digital disruptors and growing small businesses are far less likely to be anywhere near Silicon Valley. After all, who can afford Silicon Valley, where wages and housing costs continue to rise? According to the 2019 Silicon Valley Index, the average annual Silicon Valley salary was $125,991, compared to the median U.S. salary of approximately $48,500 per year ($933 per week), as reported by the Bureau of Labor Statistics. Few businesses can afford a near 90% markup on talent.

Instead, tech startups are taking root in more affordable cities across the Midwest, South and Southwest. Their scrappy “techie teams” are even farther away. Startups are tapping into skilled professionals across Asia and Eastern Europe, where professionals with advanced skills in areas like machine learning, data science, virtual reality and specialized programming languages are easy to find and reasonable to hire. In the years ahead, this will be the new reality of startups — multicountry, multilingual, dispersed IT teams pushing technology to new, inventive heights.

From Big To Small

Just as global enterprises have long leveraged offshore outsourcing for workforce reduction, manufacturing, customer care and help desk costs, today’s startups are seeking out lower-cost, highly capable offshore talent in order to compete. However, the size and scope of IT outsourcing for startups is one important area of differentiation.

Although some large businesses are narrowing their outsourcing scope to smaller, more agile solutions, enterprise-size engagements tend to be sweeping in scope and measured by service level agreements (SLAs) and scorecards that assess daily, weekly and monthly success. For many small businesses and startups, on the other hand, IT offshoring is project-based and/or shorter term. SLAs and scorecards are less likely to come into play.

That said, the need for efficiency, integrity and performance from an outsourcing partner is just as high as it would be with an enterprise contract. In addition, tech startups have another essential outcome to measure for: ingenuity. Many of them are relying on their outsourcing partners to be collaborators in innovation. It’s no small ask, even if the contract or scope pales in comparison to an enterprise engagement.

Success in the startup and small business worlds takes speed, but it also takes good decision-making. Here are three of the most important questions today’s startups should be asking potential IT outsourcing partners, no matter where they’re located.

1. How much experience do you have supporting startups/small businesses? Most every outsourcer will say they have experience working with startups and smaller businesses. That’s not good enough. The real question is, “How much experience, and who are those clients?” Working with a provider that mostly services large enterprises and dabbles in smaller businesses is risky. Unless they have built teams that specialize in specific industries or early stage/smaller businesses, most outsourcing providers give bigger clients who bring in big revenue more attention, better service and the top talent.

When assessing a provider’s level of experience with small companies, ask for references — at least three. The goal is to talk to smaller clients and ask pointed questions about service levels and talent quality. IT outsourcers that know and want to work with startups and small businesses will have the right references and results.

2. How flexible is your methodology and delivery? The road from startup to a thriving enterprise is never straight. Small businesses need IT outsourcing partners that can handle the twists and turns of rapid growth and marketplace shifts. A flexible outsourcing partner is one that can quickly adjust elements such as team sizes or shift specialists on or off an engagement with ease. It allows for adaptation of its methodologies when time is of the essence. Flexible providers mimic the agility of their startup and small business clients, which is key to helping them accelerate time to market.

3. Do you use blended rates? Small businesses and startups can and should know whether their potential partner is paying blended rates, which adjust based on whether the resource is working offshore or on-site. The problem with blended rates is that the surge (a higher bill rate that happens when a resource is put onshore and on-site) does not benefit the IT resource. Many outsourcing providers will tie this surge to the hourly rate as though the tech resources were being paid more. But that’s not where the money goes. Instead, the outsourcer uses the onshore aspect as an opportunity to make more money.

The question to ask would be, “What part of the rate increase goes directly to the skilled resources doing the work?” A startup should look for outsourcing providers who are transparent about operational, travel and visa expenses. It’s a measure of integrity that demonstrates how they treat their talent and conduct their business and the value they place on partnership.

In this age of big data and AI, even the smallest tech startups have substantial IT resource needs. Making the right outsourcing partner choice is as important for a startup today as the first critical hires were for the world’s most storied technology corporations.

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