Building a SaaS Company on a Budget by Outsourcing

SaaS companies are started in many different ways. Some have a big idea, go get Angel or VC funding and start hiring executives and employees in droves. Others grow out of an existing business such as a software services company or a VAR. But what about the guy or gal that has an idea on their own, which it isn’t fundable (yet) either because it is at the business plan/sketches on a paper phase, or it just isn’t attacking a large enough market segment to attract external capital? You can still create a successful software business in this scenario, as daunting as it sounds. Many do. But since you’re using your own VERY SCARCE capital, it’s not just important – IT’S ESSENTIAL – to proceed in a capital-efficient manner as possible. If you are going to make it to a saleable product, let alone all the way to breakeven and profitability, you can’t afford to waste a nickel along the way. At some point for stability most folks are going to want to build a permanent, employee-based core team. But that doesn’t matter much if you can’t find a way to make it through the critical early steps with the resources you have available. So how do you go about this? Let’s take a look at the topic of SaaS startup outsourcing by suggesting some some great resources to keep your costs down as you build a new software company:

A SaaS Startup can Benefit Greatly from Outsourcing Early On

We’ll start off with probably the least expensive of all outsourced resources. But interns are probably my least favorite SaaS startup outsourcing resource. The quality of the “assistance” that an intern can provide an early stage startup can vary wildly; all the way from nearly the effectiveness of a full-time employee, to nearly useless from a productivity perspective. So tread lightly here. But this is a resource that has the advantage of usually being EXTREMELY inexpensive, or even free.

The downside is that they will almost certainly require more management/training time than any of the other outsourcing categories on this list. It’s also important to remember that the interns themselves are there to learn and gain experience, not just to offload some grunt work that you need doing. but doesn’t contribute to the intern’s career advancement. If you do take unfair advantage of interns, you risk being cut off from their University internship program as well as do harm to your reputation at that school which can hurt your permanent recruiting efforts. So it’s important (and sometimes tricky) to find that proper balance between getting work done for the company and advancing the intern’s professional development.

If you do right by interns, not only can you get work done at a modest cost, but you get the opportunity to get to know and test out up-and-coming professionals, potentially giving you a leg up on recruiting them upon graduation. But you have to conduct your internship program the right way, or you’ll get few short or long term benefits. So do this right, or don’t do it at all.

Online Marketplaces

The beauty of software business in 2017 is that largely due to the Internet, close geographic proximity has melted away as a required business factor. Some still have a preference for doing everything locally, but it is no longer a hard and fast requirement as it was in years past. Software today can be built and delivered from halfway around the world, without the participants ever setting eyes on each. This is very different than in a physical goods business, or even the software business say, 20 years ago.

In addition, the Internet has also spawned new business models that enable individuals to connect and do business on a project or long term basis, without the impediments of “employment”. One of these new models we refer to as “Marketplaces”. There are numerous types of Internet-based marketplaces, as this model has been applied to many business situations. As an example, you can think of Uber and AirBNB as forms of marketplaces which use the Internet to bring buyers and sellers together in a way not previously possible.


Online Marketplaces are fertile ground for SaaS Startup Outsourcing

The types of marketplaces we’re concerned with in with respect to SaaS startup outsourcing go by names such as Rent-A-Coder, Upwork (formed by a merger of oDesk and Elance), Guru, Freelancer.com, Fiverr and many more. It’s a highly competitive business, which is great for you as a SaaS startup. The original mission of many of these marketplaces was software development and some are still focused on this very important function for software startups. But as time has gone on, many have expanded into other business functions and new marketplaces have appeared focused on a particular business function. So today as a SaaS startup you can outsource nearly every business function you can think of, from core software development to tech support, marketing, accounting, website development, etc. You can choose from local resources speaking your own dialect or use the lowest cost folks in developing countries around the world.

These Marketplaces can provide the SaaS startup founder with tremendous flexibility in the early days. You can source someone for a needed, specific one time skill or project, or find contract developers to be part of your virtual team for months or ever years at a time. One of the biggest strengths of this model is that you can “try people out” with a small project and slowly rely more on them as time goes on. The realities of this business model is that you usually have to “kiss a few (or more) frogs to find a prince”. I find Marketplaces to be an especially useful resource to SaaS startup founders in the following areas:

Get the first prototype or production product to market at a minimum (and variable) cost
Use your limited resources in a cost-effective, “flex” manner to expand and contract your team in functional area which are most important AT A PARTICULAR TIME
Find long term team members (who may eventually even become regular employees) by trying out contractors on a project basis
Temp Agencies

Temp agencies can be looked at as a more traditional form of outsourcing; think taxis vs. Uber. No negative connotations intended by that analogy! Temp agencies can be a great resource for getting a wide variety of temporary help, and are especially useful if you require someone locally. You get to try folks out just like marketplaces, and you can keep them for a long time and even hire them as full-time employees if they work out great for you (albeit with an additional payment to the temp agency). Also, there is considerably more vetting done on temporary agency placements, including the human kind, than you will typically find in any kind of online marketplace. The negatives are that the choices of personnel offered could be less, and usually you’re going to pay higher rates than you would in a marketplace. The temp agency often “employs” the temporary worker and much of this overhead burden that you would normally pay for an employee is passed on to you by the temp agency, usually just buried in the worker’s hourly rate. A temp agency is more likely used to source an onsite worker, as opposed to a marketplace which is more often used to source “virtual” or remote workers. Temp agencies can be great resources for a number of SaaS startup outsourcing needs.

Consultants

Consultants are a step up the food chain from personnel that you’d generally source from marketplaces and temp agencies. They are usually more experienced, higher level workers who provide a more specialized form of assistance. Sometimes they actually work in place of an employee within the company – performing line functions. But more often they are brought in to solve a specific problem or provide expertise for a new initiative, when that expertise or experience doesn’t currently reside within the company. Consultants range from middle management levels to high level executives or specialists with scarce skills. Sometimes consultants are hired from a larger consulting company, but in the case of a SaaS startup they would more typically be what we refer to as a “single shingle” consultant, essentially free-lancers who work for themselves. They can sometimes appear – especially to a SaaS startup with scarce resources – to be very expensive in terms of the rates they demand. But in many cases looking at needed expertise in this way can be “penny wise, pound foolish.”

Consultants can be brought in for a discreet amount of time to do a job crucial to the company. Compared to the cost of hiring a full-time executive employee fully burdened by benefits, with the same skill set they don’t look so expensive. Much worse – viewed by the opportunity cost of not having the needed expertise for some crucial activity, they are often very cost effective, if not downright cheap. The word “consultant” has a negative connotation to many in the business world and consultants are the butt of many jokes. But the right consultant can mean the difference between success and failure to a startup management team, that almost always has significant holes in its portfolio of expertise and experience. Don’t dismiss using consultants out of hand, look carefully at each specific SaaS startup outsourcing need and see if a consultant might be the best fit.

Interim Executives

Finally, the top of the SaaS startup outsourcing food chain is Interim Executives. In some cases what’s referred to as an Interim Executive looks a lot like the consultant category of above. In truth, many forms of outsourced resources don’t fit into the defined buckets of this article quite that neatly, but belong to a continuum of resources which overlap. Many consultants do Interim Executive work and vice versa. They may also take on assignments which contain some aspects of both traditional Interim and consulting categories. But in it’s most pure form an interim executive is brought in to fill a clearly defined line role such as CEO, CFO, VP-Marketing, etc. on a temporary basis, usually for a period of between a few weeks and a year. Most often they are filling a role that has been “exited” by a permanent executive on a hasty basis, but not always. They could also be brought in to start up a new initiative which is perceived to have enough risk associated with it that hiring a permanent employee appears premature. In many cases they are brought in because of specific expertise: retrenchments or financial turnarounds, new market entry, sales expansion or to oversee any number of other strategic inflection points in the life of a company. Sometimes they are tasked to be “caretakers”, keeping the ship steady while a new permanent executive can be recruited.

On the other end of the spectrum they might be brought in to be change agents, restructuring a business or changing a culture before bringing in a more traditional permanent leader. In the specific case of SaaS startup outsourcing, an Interim Executive often fills a senior executive roles such as CEO, VP-Sales, VP-Marketing or CFO on a part-time basis in early days before it is possible to recruit a permanent executive for the role, either because of limited finances or lack of attractiveness at that very early stage to attract the best permanent candidates.

Bootstrapping a software company from ground zero isn’t for the faint of heart. But it can be done and many folks do it. In my continuing effort to assist software entrepreneurs I’ve listed some SaaS startup outsourcing approaches to help stretch your budget. Can you add to the list or provide your own experiences? Please comment or post a question with your contribution to this bootstrapping discussion.