Data does not lie (well most of the time), and data from the 2016 Startup Muster Report tells us that 89.8% of startups outsource aspects of their work.
As such, I am not here to tell you that outsourcing is a good or a bad thing. With statistics like this it is clear outsourcing isn’t going away quickly, and the startup community thinks it’s a good thing.
Not everyone is like a great client of mine, RedEye Apps, and has a talented team of inhouse software developers. Why try to write code when your strengths are strategy and client acquisition? When you start to scale it may be completely necessary to bring certain functions inhouse. The beauty of outsourcing is that you give yourself options and flexibility, both of which are especially important in a startup’s early days.
I say play to your strengths, but play smart.
Don’t just assume that because outsourcing is a smart idea that everything will run as you plan. Get the ground rules straight and know where the potential pain points might be so you can manage your risk and the relationship effectively.
Here are my top 5 tips:
1. Make sure it’s in writing!
It doesn’t matter who prepares the contract, but know what’s in your contract.
If you can, use your own form of contractor agreement as it’s easier to manage different contractors where they are all have the same standard terms and conditions. No need to manage 10 different contracts, 10 different payment terms and 10 different liability clauses.
I draft my contractor agreements for startups to be easily understood, to cover the core risk areas and so they can be easily adapted to various contracting scenarios – I encourage my clients to reuse my contracts themselves.
2. Work Scope
Be clear, be detailed and set out the expectations around quality and acceptance of services. An app littered with bugs will serve you no good if you are expecting a finished product which will go straight on to the App Store.
If you are outsourcing your IT, make sure the service level agreement sets out everyone’s expectations. When the SLA only refers to broad expectations and you feel the IT provider is falling short, it is difficult to achieve a great outcome when there is nothing specific to point to. For example, what is the agreed response and resolution time?
3. IP Assignment
When you buy a house it is clear you own it when you pay for it, however it is not the same with intellectual property.
Intellectual property such as copyright vests on creation in its creator and, even if you pay for it to be created, it is not yours unless specifically assigned to you.
Copyright subsists in the output of many outsourced services such as software, designs and pitch decks. The law has a work around this for employers where employees create IP in their jobs, however the same doesn’t apply to contractors.
Make sure your contractor agreement requires the contractor to transfers all of its IP rights to you. This clause will ensure you don’t end up having a tussle with your developer when the product takes off and everyone realises the IP was never transferred to you.
Don’t take chances on this aspect, get it right by getting the right advice.
Consider the nature of the services being outsourced. Does it lend itself to having milestones and payment upon achievement by the contractor of each milestone (make sure it is clear when a milestone has been achieved)?
What will your cash flow be like? Many contractors want payment within 14 days but maybe 30 days is more practical based on the timing of SaaS subscription fees you receive.
5. “If it looks like a duck and quacks like a duck, it probably is a duck!”
Given the flexibility and reduced legal compliance around using contractors one could be tempted to take on internal staff but set them up like contractors.
The legal reality is that it is the substance of the relationship that matters, not whether you call them a contractor and have them sign a contractor agreement.
For example, if the person works exclusively for you, they are employed personally rather than through a company and they receive sick and holiday leave – the person will more than likely be considered an employee.
If you need any further information – reach out to me by email, LinkedIn or Twitter.