Great teams make great startups. But for most early stage companies, the need for something does not mean that funds are available. Startups have plenty of picking and choosing to do, especially when it comes to getting the right people.
A solution to this issue is often finding contractor talent to fill the void. For startups in the early stages, contracting employees comes with many benefits. But like anything, there are downsides to using a contracted workforce in the beginning. This doesn’t mean that startups should stay away from contractors, but rather, they should know the implications of contracting versus hiring, and vice versa.
Hiring Full-Time Tech Talent For Startups: The Pros
The most significant benefit of hiring full-time employees is that your company is paying for dedicated resources. Managers can set the specifics of the work, as well as when and how they work, and do not have to compete with an employee’s other work or priorities. For the workload and its direct impact on progress within the early stages of a company, this is a huge advantage.
Besides the work itself, bringing tech talent in-house gives startups the opportunity to begin creating a technology-centric culture, something that experienced founders and investors will say is critical for technology companies. Whether it’s within the leadership team or across the early workforce, a technology-centric team not only creates the right culture, but keeps the product at the center of the company’s focus.
In many cases, In-house talent also leads to longer tenured talent. And when building new technology from the ground up, keeping the same people on the project is a huge advantage. Introducing a new employee to an existing project means dealing with a learning curve; introducing a different style to the technology and languages and can result in holes in the technology. Staff consistency keeps progress consistent and more seamless.
Less intuitive but nevertheless an advantage, keeping technical talent in-house keeps your company’s early users and customers that much closer to the technology behind the product. This means there is a direct line from the customer to the technology, be it delivering the technology to the consumer or garnering feedback from users, leading to both a customer-focused product and a technical team with a stake in the game. Both lead to better product adoption and progress.
Hiring Full-Time Tech Talent For Startups: The Cons
The most obvious downside of bringing on full-time tech talent is the cost. In-house teams, while incredibly valuable, are expensive. From salaries to benefits to workspace and equipment, the cost of the in-house technology team adds up quickly. For most companies, the cost of the team is the most justifiable spend they can make, but justification does not magically create funding.
Besides the expense, there are also obligations that come with a full-time staff. Specific taxes and insurance, as well as the impact of federal, state and local laws, are additional burdens that companies with full-time employees must bear.
Repercussions can also come into play with the exit of an employee. In the US, terminated employees may be eligible for unemployment benefits as well as comparable temporary medical coverage for teams larger than 20. And even beyond the financial and legal obligations, former employees are also a knowledgeable voice of your company and can create an impact with their departure and actions thereafter, be it positive or negative.
Contracting Tech Talent For Startups: The Pros
Right at the top, cost is a huge plus for contract talent. As far as billing rates go, contractors cost more per hour but will save a startup money in the mid to long term. Contract labor can be utilized for only the work that is needed, meaning talent can be acquired even if the company can only afford or needs part-time labor .Companies also have no further obligations to contractors other than paying for hours worked, which means no built-in long-term costs. There are also no benefits to cover, no workspace or internal managers needed, and no taxes or insurance to cover.
For many startups, the temporary nature of contractors can be a big plus. If runway is an issue, hiring contractors gives the company a labor force that can be let go quickly and with little repercussion, allowing for quick cost cuts if needed. Hiring contractors is a big plus if a company has a very specific need or specialized skill set outside of the primary technology for a short period. And companies can let contractors go in the unfortunate event that work produced is not up to par.
For both contractors and companies, the arrangement can also lead to better outcomes in some situations. The majority of technical professionals tend to enjoy more interesting projects, as well as variety. Operating as a contractor can give tech talent the opportunity to take on a number of varied jobs, pursuing both well-paying and interesting work simultaneously. For companies, this can lead to a more engaged and passionate hire, which tends to result in higher quality work with more successful outcomes. This is especially true for contract teams.
Contracting Tech Talent For Startups: The Cons
For bootstrapped startups, the attractive price tag of contract labor can be an instant draw, but there are also potential repercussions to the company, over both the short and long term.
For one, the ability a company has to quickly cut ties with a contractor is also enjoyed by the contractor. This means that if the relationship gets rocky, the work deviates from expectations or your talent becomes unengaged at any time, the contractor can walk away.
Contract labor inherently implies a short-term job, whether it be six months or two years. This can mean that the implementation of work disregards or fails to anticipate the long-term goals of the product and company, leading to roadblocks and setbacks in the future evolution of the product. Work in the short-term is priority, but a long-term vision is still essential for a startup’s success.
Contractors also lack a stake in the game, if you will. And while they may be incredibly talented, they may lack passion for the idea, vision or product, which can stifle creativity and innovation around the product, both early on and in the long run. This is not to say that contractors lack the capacity for innovation, but incentives do matter.
Last but certainly not least, technology companies should have technology at the core of their organization. And the most impactful part of every organization is its people. To outsource what should be the core of the company is a recipe for failure. The business roadmap and technological vision for the company both need to be present within its leadership, and, for many companies, also within its internal workforce. Contracting technical talent means there is no internal culture being created, which can have a large impact on a growing company’s future.
Which Approach Is Right For You?
Both full-time employees and contractors have their value, their downside, their strengths and accompanying burdens. There are needs and times that require an internal staff, and others that are obviously suited and acceptable for using contractors. So when deciding which direction to pursue, take great care to consider the needs and situation, and the impact of either approach on the work, the company and the bottom line.