SaaS (Software as a Service) startups are fragile entities that need a lot of attention in order to grow. They are generally understaffed and have few resources on hand. Overworked team members are often required to “wear many hats” in order for businesses to succeed.
Again and again, startups can’t fill all the voids in a timely, cost-effective manner. New and potential customers may feel that their needs can be better met elsewhere. So what should a startup do to reduce costs, streamline processes, and avoid losing customers? They can try using outsourcing.
A couple of years ago, when you spoke of outsourcing, people would think about using individual freelancers who are virtual assistants, copywriters, graphic designers, and IT professionals for small businesses. Recently, the most popular outsourcing tasks are growth marketing, administration, accounting, finance and IT.
Now, outsourcing is more than of using freelancers; it is about outsourcing your big part of the operation to professional teams. Running 80% of your marketing efforts, or building a big feature of your product is among the ways many startups are successfully using to grow without breaking their bank. On the other hand, many startups founders have questioned whether they should outsourcing their marketing/ product development to freelancers or outsourcing agencies. We will discuss this topic in another post.
Business of all sizes are not only finding outsourcing to be convenient but also necessary for growth and revenue generation. As technology becomes more efficient and accessible, businesses can take advantage of high-quality outsourcing. Outsourcing continues to increase in popularity as the number of virtual assistants, copywriters, graphic designers, software developers, and marketing directors continues to increase globally. The wide variety and availability of skills and information can have a positive impact on Saas startups, especially where outsourcing becomes an important factor for helping a business to grow.
In this article, we will take a look at how outsourcing can help a SaaS startup grow while giving a few pointers to ensure that you are taking the right precautions and steps to ensure success in your business.
Outsourcing helps SaaS startups reduce costs
As a startup, managing costs is a priority not just for thriving but for surviving.
Salaries are among the costs that can make or break a business as it goes through some natural ups and downs in the first few years. Aside from money, time is an immensely important factor that many entrepreneurs underestimate and having to juggle several tasks like recruitment, managing staff and day to day issues and closing sales among marketing and customer relations can become a nightmare and can certainly drain any small business’s resources.
This is where outsourcing comes in. Simply put, outsourcing is the act of hiring an outside organization or person to handle certain business practices rather than confining all of the processes to in-house employees.
This means that for roles that only need a few weeks or months of attention, a professional suited to the role can be hired, their experience and skills put to use and then they move on when the task is complete.
Good practice of outsourcing will help you save up your funds for core activities of your business.
Did you know that one of the top 5 reasons for start-up failures is running out of cash, not the absence of a business model? Managing costs for a startup can mean the difference between thriving and barely surviving.
As a business goes through its natural ups and downs during its first few years, expenses and lack of revenue can put a strain on budgets and the ability to meet customer demands.
For new startups, lack of good time management can be a financial burden.
Entrepreneurs often underestimate how long it takes to juggle tasks like recruitment, staff management, and day-to-day issues.
Sales, marketing, and customer relations can become a nightmare if time is drastically underestimated for administrative and production tasks.
Poor time management can lead to chaotic
Projects with underestimated times can cause costs to increase while reducing revenue from potential sales. This is where outsourcing can help.
Simply put, outsourcing is the act of hiring an outside organization or person to handle certain tasks rather than handing off all of the processes to in-house employees.
This means that for roles that need to be briefly filled, a professional suited for that role can be hired to complete a limited number of tasks.
These professionals often complete the tasks adequately and in a fraction of the time, it takes for in-house employees. Not to mentions the cost of recruitment, training employees and related HR costs.
Outsourcing helps SaaS startups grow fast with the help of professional efforts (sales& marketing, PR, and product development) without spending too much money (and time) on HR during the early days. Many startups that outsource save about 60% of the cost of overhead. This is why 27% of startups choose to outsource.
Outsourcing helps startups focus on core activities and save time
Using high-quality outsourcing services can help startups save time and effort in training employees and building business processes from scratch. Meanwhile, quality and performance are not compromised.
The effectiveness and ease of this process speak volumes, especially for startup business environments that are dynamic and skills become irrelevant quickly.
Owners can use their time more efficiently than worrying about the practicality of an individual and the availability of labor. Core members can focus on their tasks and leave the rest to outsourced specialists.
Thanks for outsourcing, core members can focus on their fields
Losing focus on core activities is one of the most common traps that early startups fall for. Reportedly, CEO’s in early-stage startups spend a significant chunk of time doing operational and functional activities like administrative tasks, marketing, and sales.
CEOs conclude that their time would better be spent on strategic activities like team development and setting the right vision for the company because other activities are time-consuming and contribute less value in the long-run.
About 18% of startups fail because of in-house knowledge gaps and inadequate skill sets. The ‘do it yourself’ mentality and ‘wearing multiple hats’ is no longer the smartest strategy for or spirit that should be embraced by startups.
If you want to know more tips on growing your SaaS business, check out these books recommended to all SaaS founders.
Outsourcing helps startups better manage risks and crisis in HR management
In the beginning, most startups have a lot of work to do to get their businesses functioning. To handle the internal high demand for task completion, companies may go on a hiring frenzy in an effort to keep up with this demand. Sometimes high demand is temporary or funding runs out for salaries. Things may be going along smoothly, but suddenly, the bubble bursts. This is what happened to Sahil Lavingia, founder and CEO of Gumroad.
At the age of 19, Lavingia had raised over $8 million from various investors and the volume of sales continued to grow steadily after the business started. However, the demand for the product stalled near the end of the second year. Lavingia realized that his company wasn’t bringing in enough money to cover their expenses anymore. His 20-person team dug in for the next 9 months and worked extremely hard to add new features to the product that would bring in the most revenue. Every team member stayed and dedicated their lives to Gumroad.
But after 9 months, the effort was not enough. In order to save the business, Lavingia had to lay off 75% of his team. Heartbroken after letting go of 15 wonderful people, many of whom were his best friends, Lavingia continued with a skeleton crew, a very tight budget, and emotionally drained team members. Eventually, Gumroad became viable and strong, but it took even more effort on the remaining team to keep the company afloat long enough for that to happen.
According to Cardon 2003, the first two stages of a startup’s development are the most uncertain and unstable. Many startups fail because HR cannot resolve the problems of matching labor goals to the fluctuation of their product-demand levels. Most startups don’t begin with millions of dollars of investor money, but they can learn from lessons of Gumroad. Sudden losses in demand or funds can lead to startups experiencing HR crises. In Lanvingia’s case, the crisis was having to let go of a lot of talented employees and the loss of moral from the remaining team. A lot of employees may have little (or too much) to do or their companies can no longer pay them. Employees integral to success may have to be let go. Low moral and possibly the stress of additional work in the remaining employees may cause reduced quality in development; some may “jump ship” and seek employment elsewhere.
So how can companies avoid HR crises? One way to do this is to outsource. Outsourcing can help better manage risks by allowing businesses to scale up or scale down according to demands. Outsourced staff can handle a few or many tasks, whichever is needed at the time. Businesses can save on overhead and salaries by not employing a full staff. Furthermore, outsourcing can solve some of HR’s challenges by providing expertise during the first stage to help companies establish legitimacy for their product and move into the second stage and by using a flexible workforce that can meet the product demands of the second stage. Outsourcing the workforce during this stage may prevent potential layoffs and the negative outcomes that accompany a sharp reduction of labor and human capital. To be honest, it’s not heartbreaking to scale down or say goodbye to an outsourcing partner.