Most startups are run by a small number of key employees who are usually dedicated to more than one task. Coupled with tight money, team members are forced to work too hard to cut expenses. In addition, startups tend to fight against time to meet deadlines and get their products to market on time. As a result, startups often experience unmanageable workloads and inevitably make mistakes.
Such challenges of startups are reflected in statistics 90% of startups go bankrupt and only about 10% of surviving new businesses manage to scale up. Deloitte suggests that transforming unmanageable workloads into manageable ones is one of the steps that help startups scale up.
Outsourcing technology can be a beneficial strategy for some startups to manage complicated workflows. In this article, we present the benefits of technology outsourcing and mention some examples such as Skype, Whatsapp, and Opera that have outsourced technology in their development stages.
What are the key benefits of outsourcing technology for startups?
Benefits of technology outsourcing for startups includes:
- Focus on core business: For many companies, technology is just a tool to make doing business easier. Take, for example, a start-up cosmetics company that is trying to develop a new product that is considered a potion of youth. In such a case, product development, identifying key customers, launching a sales and marketing strategy, etc. are the priorities of this company rather than developing a custom mobile app on their own.
- Reduced development time and cost: Technology development involves talented IT staff and a lot of tinkering and experimentation until an effectively functioning tool is achieved. Outsourcing technology projects reduces the time required for development thanks to professionals who have expertise in such tasks. Moreover, such incentives eliminate the need to train or hire highly skilled professionals, and that saves money for the startup.
- Mitigating organizational risk: When developing tools for digital transformation, the failure rate is 70%. According to the Harvard Business Review, one of the most important reasons for the failure of digital transformation is corporate governance and corporate culture. Startups with no traditional heritage and uncertain governance can have further complications in developing tools.
For example, Wowlabz developed a chat-based payment app for a startup that facilitates financial transactions. Businesses can receive subscription payments, make one-time payments, share product information, and configure workflows for a variety of automated scenarios thanks to the platform.
When should startups outsource technology?
If the following conditions are met, it makes sense to outsource technology:
- Technology is a tool: If the technology is not the core of the business, but a tool to reach customers, it may be more beneficial to outsource technology development. The cosmetics startup mentioned above fits such a situation. But GitHub has also used numerous freelancers during its initial development stage. So it’s worth remembering that even in cases where technology is the core business, outsourcing can be beneficial.
- Non-tech target audience: If the target audience is not technology specialists/developers then startups can outsource its digital products. For instance, Skype can be an example who used to work with a development team from Estonia.
- Availability of technology: If the technology that meets your business needs does not require unique skills, it is a good idea to outsource it. For example, there are many technology consultants who can help your startup to develop custom software for relatively low prices.
What are some famous case studies?
Here are three case studies that have outsourced part of their technology development. We focus on technology companies that have outsourced some of their technology development tasks to show that technology outsourcing is widespread:
- Skype was founded by Niklas Zennström and Janus Friis in collaboration with four Estonian developers. Niklas and Janus outsourced the original development of the Skype platform to these four developers.
- WhatsApp was founded with a budget of only USD 250,000. At the beginning, it was a necessity for the startup to keep expenses as low as possible. To solve the cost problem, most of WhatsApp’s development was outsourced to Russian developers led by Igor Solomennikov. This allowed WhatsApp employees in California to focus on other tasks.
- Opera: Due to budget constraints, Opera outsourced its project and contracted developers from more than 25 different locations to develop its platform.
For more information regarding outsourcing you can read our other articles on the topic:
- Innovation Outsourcing: Trends, Benefits & Challenges
- The Ultimate Guide to Data Labeling Outsourcing
- Machine Learning Outsourcing in 2021: Benefits & Challenges
- The Ultimate Guide to Outsourcing B2B Lead Generation
- Top 5 Outsourcing Best Practices for Organizations
If you need help with outsourcing innovation, do not hesitate to contact us:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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