Ideation
At this stage the startup might just be another idea written on a piece of paper. To be truly worthy of something the idea needs to come alive in the form of a prototype and be market tested. This is where the founders need to decide if they want to bootstrap or get pre-seed funding to kickstart their startup. In both cases the founders can either opt to do the work themselves, depending on their own skill sets, hire some in-house resources or outsource some of the work to design & dev agencies to develop an MVP.
Since the need of the startup at this stage is to validate their idea, keeping an in-house team at this stage is not feasible since you want to develop and test your idea as quickly as possible without having to spend too much at this stage where chances of failure are the greatest
Proof of concept
The startup needs to refine its initial idea at this stage as they have a better understanding of the user needs and how their product or service can fulfil those needs better.
In order to improve upon the product, the startup needs to make constant improvements to the product based on the insights received from the end-user. Seed funding is possible at this stage, and this is where having an in-house team really helps because the startup needs resources who can work on a schedule and can partake in a continuous number of iterations to the product.
Normally at this stage there is an element of discovery within the startup and this journey is more conducive to in-house employees who will be more invested in the success of the startup since it is directly linked to theirs.
Some tasks and projects can be outsourced but that depends on:
- If the current in-house resources are not skilled enough to deliver on specific tasks
- If the current in-house resources have already too much on their plates
- New in-house resources are too expensive to hire
- If outsourcing those tasks does not affect the core functions of the business
Scaling the business
This is the growth stage of a startup where the product or service is now not only attracting new customers, but older customers are returning as well. The startup will be focused on providing additional offerings to the product lines or expanding its development teams.
Series funding is possible at this stage. The startup needs to keep core functions in-house while outsourcing those functions that can be managed remotely and can provide cost-leverage such as customer support or product sales.
Another option to keep costs low is that of off-shoring in which a startup can form teams in another country where the cost of hiring resources are relatively lower. This can be of great help to the startup if communication and management issues are kept at bay. To summarize all of this, there is no fixed answer if outsourcing is better than in-house or vice versa.
A better approach is to not make comparisons but rather focus on the business and user needs at every stage of the startup and ask if those needs can either be met in-house or by outsourcing or a hybrid of both.
