In an ideal world, startups would gather a crew of engineers and developers, throw money at the problem, and invent marvelous products at will. But as a startup, you likely have neither the funds nor the labor you need to bring your product to life. That’s where nearshore outsourcing can help.
A startup’s success hinges on its ability to create products faster and cheaper, testing and iterating more quickly than the competition. This requires passionate, skilled, and experienced employees. For cash-strapped startups, nearshoring may be the only way to build such a team.
Understanding Nearshoring as a Startup
Nearshore outsourcing, or nearshoring, involves outsourcing operations to a nearby country with almost similar time zones. With the right nearshore staff augmentation, you should be no more than three hours’ flight time away and have no more than three hours of time zone difference. By comparison, onshoring involves outsourcing within your borders. Offshoring involves outsourcing overseas without regard to proximity or location.
For startups, nearshore outsourcing can be a novel concept. But it is a solution worth exploring, given its many benefits and potential to drive growth for your startup.
Benefits of Nearshoring
Compared to other outsourcing strategies or hiring locally, nearshoring has unique benefits that are perfect for any emerging business. These benefits include the following:
Low Labor Costs
The current job market is highly competitive, especially regarding technical skills in IT, engineering, and software development. The biggest corporations have the resources to outcompete startups by offering fat salaries and benefits packages.
Not many startups can afford to offer the same remuneration and perks, especially on a permanent basis. This makes it very hard to attract top talent.
However, many overseas countries have an overabundance of skilled and experienced but unemployed workers. Depending on where you’re located, outsourcing operations to Latin America, for example, carries much lower labor costs.
In fact, studies suggest that US businesses could save 38% to 48% of labor costs by outsourcing IT roles to Costa Rica. in high labor markets such as New York or San Francisco, these savings could be even higher.
For a startup with tens of employees, nearshore outsourcing could help save tens of thousands of dollars per employee, per year, on labor costs, travel, equipment, and other expenses.
A Large Pool of Skilled and Experienced Talent
Compared to offshore labor, nearshore labor tends to be highly skilled and knowledgeable. In many cases, it is possible to find highly trained, passionate, and experienced people in nearshore regions, thanks to weak labor markets in those countries.
Many countries or regions that are prime candidates for nearshoring boast strong IT ecosystems, a highly developed educational infrastructure, and fluent English. Some of the most popular include:
- Latin America: This region is a powerhouse of IT skills that offers favorable time zones, flexible labor laws, and minimal communication or cultural barriers
- Ukraine, which has a thriving tech industry and fluent English speakers
- Poland: Poland is home to top programmers skilled in Java, Python, Shell, and Ruby; 30% of the country speaks English as a second language.
- The Philippines, which has a progressive STEM high school system and where 92% of the population speaks English
- Taiwan, Asia’s Silicon Valley: Taiwanese developers are proficient in functional programming and data structures.
- Canada: This country is much closer to home but more expensive. It offers the most stability and easy cultural integration.
This abundance of IT expertise makes these countries top destinations for tech companies looking for cheap labor without compromising on quality. In fact, for 46% of companies currently outsourcing, saving money is secondary to getting access to skill sets that aren’t readily available locally.
For American startups, having a nearshoring partner with expertise and networks in Latin America can be particularly lucrative when it comes to finding top talent.
Easier Collaboration
Nearshore outsourcing offers the fewest cultural and communication challenges compared to offshore outsourcing. Due to geographical proximity, in-house and outsourced teams can blend together. They can collaborate successfully due to familiarity with each other’s language and culture.
Better collaboration is critical for tech startups, which requires close collaboration and teamwork.
Better Management and Control
One of the biggest challenges to outsourcing is loss of control. It can be hard to manage a remote team adequately, especially when intellectual property rights matter. Luckily, many nearshore outsourcing options, such as Mexico and Canada, already have strong IP protection laws in place.
These countries offer the same protection you would have if you were developing here in the US. They also have trustworthy IT infrastructures that can support the collaboration and development resources you need.
Easier Scheduling With Less Travel
Time zone and travel complications can be major hindrances to communication, collaboration, and coordination. Nearshore outsourcing ensures that, with a little compromise on either end, both in-house and outsourced teams can:
- Hold virtual meetings
- Email communications
- Arrange physical meetings with a little bit of travel
You can even augment your in-house team with outsourced talent permanently, thus building a strong team and positioning your startup for long-term growth and success.
Growing Your Tech Startup Is Hard If You Can’t Get the Talent You Need
When a startup reaches the seed stage, it becomes critical to find people with the right mix of skills and experience to help you build your product and win the trust of investors and customers.
Unfortunately, neither investors nor customers are willing to wait around for you to figure things out. The truth is that the odds are already stacked against startups even before they begin operating. Statistics show that 11 out of 12 startups fail, primarily due to problems with securing funding and challenges with marketing.
The Biggest Challenges of Tech Startups
Startups that don’t achieve exponential growth are deemed a failure. For VC-funded startups, failure is as simple as not returning at least 10x the initial investment. Regardless of the definition, failure comes due to these common challenges:
Financial Management
What do Beepi, Aerion Corporation, Skully, WowAir, Daqri, and many other startups all have in common? They failed due to either a lack of funds or financial mismanagement.
Issues sourcing or managing funds are the #1 problem most startups have, no matter how great the vision or the product is. According to a report by CB Insights, 38% of startups fail either due to failure to raise new funding or mismanagement of available funds.
Before investors agree to fund a startup, they must have complete confidence in the idea and the team behind it. This requires solid market and competitor research, market validation (a viable MVP), and strong financial projections. Paradoxically, all this requires funding.
For startup founders, the one thing they go to bed and wake up thinking about is funding: knowing how much funding is needed, when to get it, how to get it, and how to spend it.
Product-Market Fit
The CB Insights report pinpointed the lack of an excellent product-market fit as the second most common reason why startups fail, affecting 35% of startups.
Quibi, a mobile-focused streaming service, failed in eight months—even after raising $1.8 billion. One startup lawyer thought it failed because “the idea wasn’t strong enough to justify a stand-alone streaming service.”
Unfortunately, many founders are enamored with problems that the market doesn’t need. For some founders, all they have is a disruptive technology with no real problem to solve. Thus, they find themselves searching for a need that fits the technology. They end up investing a lot of time and resources into a product people don’t need and won’t buy.
That’s why founders are often told to love the problem, not the solution. Instead of being preoccupied with their own ideas of what the problem is and what the solution should be, startup founders should:
- Go out and get user feedback
- Define a target audience
- Create customer personas
- Conduct user testing to get a real-world perspective
Fierce Competition
The #3 challenge on CB Insight’s list is competition. Startup founders should always research existing solutions to the problem they’re looking to solve. They need to know why those solutions weren’t successful and how their product will get it right.
Even if a founder has a disruptive new solution, it’s highly likely that someone else will run with it through the path you have already blazed if you don’t pay attention.
Constant Change
Startups are supposed to be nimble, disruptive, and adaptive. However, the pressure to keep moving and execute ideas quickly can throw the whole team off-balance.
For many startups, there’s a very short window between inception and creating and rolling out a fully-functional solution. They’re under constant pressure to keep innovating, developing new features, and wowing investors and customers alike to generate value for all stakeholders.
The problem is, if you don’t do it, someone else will. So it’s a game of how quickly you can innovate, test new ideas, and get feedback on your goals before your competition.
Access to the Right Talent
One challenge that is tied to all the rest is that of hiring the right people. Many startup founders fail because they can’t find the right team. They might make the mistake of hiring friends and family who often lack the expertise, experience, and technical skills required to bring a startup to life.
Other startups tend to scale too fast and hire too many people prematurely. Since payroll is often the biggest expense for startups, hiring can cause cash flow and management problems for a startup very quickly.
Founders have to think about building a team that will scale. They need to find people with the passion and dedication to build something great together. In particular, they need to build the right product development team as early as possible.
As a founder or executive of a startup, building a top-notch product means you need to hire highly skilled people such as engineers, project managers, architects, and UX developers.
One of the best strategies you can use is to find competent and passionate management teams in-house. Then outsource the non-critical technical and support roles to save money and ensure you have the best possible talent.
Why Nearshore Outsourcing Could Be One of the Best Ways to Grow
Nearshore outsourcing helps startups solve most, if not all, of these problems. In addition, nearshoring gives you access to exclusive opportunities for increased innovation.
Whether you outsource software development, QA testing, administration, or support, the important thing is to have a clear strategy and a good understanding of precisely what you need from a remote team.
Here are the main benefits of nearshoring that make it a worthwhile consideration for tech startups.
Affordable, High-Quality Labor
Startups that want to save money while getting high-quality talent will need to outsource. The local labor market is highly competitive, with all the blue-chip corporations bagging the best talent.
Even when the labor is available, it is expensive to acquire and retain the best engineers, product developers, architects, project managers, and other highly trained personnel. For example, software engineers make $12k–$62k in Mexico, compared to $59k–$159k here in the US; it’s even higher in tech cities.
Being able to assemble IT teams quickly also saves you time and money. The recruitment process alone can be expensive, costing over $20k or 25% of the new hire’s annual salary. If you keep hiring and firing, these costs can skyrocket.
Flexible Scaling
Nearshoring is a highly flexible and scalable solution for tech startups. By taking advantage of more favorable labor laws, as well as working with contractors and freelancers, startups can leverage the power of a larger and more affordable team to scale quickly and cleanly.
Normally, expansion is taxing on any startup’s resources. But failing to hire new people at the right time means that founders and the core team can get overwhelmed and will not be able to focus on growth and leadership.
With nearshoring, you can outsource relevant tasks to accelerate growth and ramp up your speed to market (STM). For this reason, outsourcing has been called the startup founder’s secret weapon.
More Diversity
Diversity is good for startups; in fact, it’s a must-have for any startup or business that values innovation. Nearshoring ensures that your in-house and outsourced team members consist of people from different cultures, backgrounds, and experiences.
This diversity alone gives you access to a wide range of experience, expertise, skills, and knowledge, besides encouraging new ways of thinking. Creativity comes out of discomfort, a desire to color outside the lines and think beyond conventional solutions.
When you collaborate with such a diverse team, you’re exposed to new ideas, mindsets, and ways of thinking that are so critical to creativity and problem-solving.
Even more importantly, diversity opens up new opportunities. This includes new markets and market gaps the founders may have missed. It also provides invaluable insight into international markets, making nearshoring almost like importing innovation.
Collaboration and Mutual Development
Nearshoring is an opportunity for your in-house and outsourced teams to learn from each other and gain valuable experience. Often, the outsourced talent is highly specialized and experienced. They also pick up invaluable insights from working with multiple startups.
Smart founders can often tap into this wealth of knowledge when dealing with new challenges. In particular, founders can plug developers and engineers in and out of problematic areas without the usual hiring and firing costs, such as bringing on board testers only when needed and at a minimal cost.
How Can You Start Using Nearshore Outsourcing?
Nearshore outsourcing is a great solution for many startups because it offers all the benefits of outsourcing while mitigating many of the associated risks. However, it is still risky, untested ground for many startups here in the US.
In particular, implementation can be a challenge. How do you find the right nearshore talent? How do you onboard them, pay them, and comply with laws and regulations in the US and their native country, all while ensuring productivity?
Most importantly, how do you outsource critical tech roles while retaining full control and protection over your IP rights? It all depends on your approach.
There are three options. First, you can choose to do it yourself by advertising the roles, handling interviews, and onboarding new hires or freelancers, learning as you go along.
Secondly, you could hire a nearshoring consultant with expertise in the particular country or region you’re interested in. The expert will help you find and vet the talent you need, but you still take on much of the risk.
Better still, you can partner with a nearshoring staffing agency specializing in that region and industry. This is probably the safest option for many startups, as partnering with the right agency ensures that you get access to already qualified and vetted candidates.
Your Trusted Partner in Nearshoring
Here at ParallelStaff, we pride ourselves on being the most affordable, skilled, and loyal IT talent outsourcing firm in Latin America. We give you access to 50,000+ highly-skilled, English-speaking software engineers, taking away the hassle and guesswork.
Even better, we provide continued support through onboarding and beyond, ensuring that you always have help when you need to augment your team or outsource technical operations.
The people we work with are people we know will fit perfectly with your culture and business, besides meeting or exceeding your technical skills requirements.
ParallelStaff can help you start using nearshore outsourcing. So schedule a call now, and learn how we can help your startup grow.
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