Five rules for outsourcing

UPDATE: My post is also on Business Insider.

Outsourcing is a tricky subject. Heralded ten years ago as a business practice that would change the corporate world by making it flat, outsourcing is still an extremely risky endeavor. As an entrepreneur who has employed a team of developers in St. Petersburg, Russia for my fashion technology startup, Clothia, for the last seven months, I’ve learned some general rules to make outsourcing work. Here are a few suggestions:

1. You need to have a project manager who speaks the developers’ native language and understands their culture.

Most foreign developers understand English well enough to read technical documentation (especially if they work on the “bleeding edge” of tech, like the developers I get to work with) but unless they’ve lived in an English-speaking country, their language abilities are not going to be sufficient for meaningful, real-time communication. Cultural and educational differences between countries also play a role. My Russian developers prefer goal-oriented assignments with a degree of creative freedom, in contrast to developers from other countries who – in my experience – have preferred more micro-management. Also, having personal interactions builds a closer relationship that benefits both the company and the developers. At Clothia, we have daily Skype chats and regular in-person visits.

2. You need to have great communication and task management software.

One of the things we take for granted when we share the same physical office with teammates is what I call “ambient learning”: acquisition of knowledge that happens through overhearing conversations, impromptu chats in the kitchen, etc. You lose this effect when outsourcing. Therefore, fastidious tracking of tasks and goals becomes critical. At Clothia, we’ve been successfully using Teambox for this purpose (Basecamp and Yammer are other good alternatives). The time difference between countries can also become an asset if managed properly. Russia is 8 hours ahead of NYC so I can assign tasks and review progress while my developers sleep for genuine round-the-clock productivity. For most teams the ideal communication schedule evolves over time. At Clothia, we went from once-a-day Skype calls to as-needed chats/emails/assignments and found that it was more successful.

3. If done right, outsourcing can produce great results for less money.

One of the reasons I decided to go with an offshore team was that I knew there was no lack of talent in Russia (I am Russian myself). There are only so many MIT-trained engineers produced every year, and most of them are snapped up by Google, Facebook, Wall Street, etc. Outsourcing allowed me to gain access to their Russian equivalents. Additionally, foreign engineers average lower salaries than their American counterparts and can do just as good of a job.

4. For a long-term project and smaller teams, employ developers directly versus going through an outsourcing firm.

When I started Clothia, I had the choice between a great outsourcing firm based in St. Petersburg and several independent freelance developers both in NYC and in St. Petersburg. I chose to employ developers directly so they became members of Clothia team and the success of our startup is directly tied to their sense of achievement. Direct employment also allows greater flexibility with development schedules and tasks. In contrast, outsourcing firms normally work from a specifications document that is agreed upon in advance – not ideal for a startup.

5. Outsource development, not design or user experience.

Aesthetic standards differ between cultures, and this becomes very apparent when product design is involved. We found it challenging to find foreign graphic designers who could produce the visual experience we wanted. We decided to hire onshore instead and have been happy with the results. If you are building a product where design is secondary, outsourcing design can work. Otherwise, go to someone with experience in the field who is local and can meet in person to get a feel for the product and for the team.

Ultimately, companies should evaluate costs, development time, and effort spent developing a product onshore vs offshore before they make a long term commitment. Outsourcing worked very successfully for Clothia, but I know of other companies that have struggled.


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