You’ve gone through the trouble of validating your business idea. You have a small family-like team, a product, and checks from your first investors. Now a new challenge is on the horizon: it’s time to grow. The investors want to see a 30 to 40% growth by the end of the year, which means you need to hire a lot of fantastic tech people to refine your product and keep on rocking.
What should you do next?
Just hire the engineers you need and rent a bigger office for your in-house team, right? But tech talent is in high demand in developed markets such as the US, Israel or Western Europe. For example, the US will have 1.4 million job openings in tech by 2020. Although universities produce a number of new graduates each year, these will fill just 30% of the vacancies, the US Department of Labor reports. Obviously, it means that those in demand will expect huge paycheques.
The American Bureau of Labor Statistics calculated that the median pay for a software developer reached $100,690 per year in 2015. The engineer’s salary is even higher in Silicon Valley, where software developers enjoy $134,000 per year on average. This is a lot of money for a growing tech company, so you are likely to have a hard time trying to build a cost-effective development structure if you have established your tech business in a developed market.
Moreover, it takes a lot of time to find the right tech talent. It is hard to lure developers in because they are treated well in more established companies.
I have recently spoken to an investor from London and one of his portfolio companies has been trying to hire three great developers for over seven months. So, instead of focussing on the core product to deliver results, quite often your senior managers will have to wade through countless resumes.
But with growth come more demands on your time. Your VC wants to have it all: high quality, low costs, and exponential growth by day X. I have five years of experience in venture investment, so I will tell you for sure, you have to meet those expectations. If you do not deliver in time, the current investors may refuse to support your company on the next round of investment, which would eventually lower the valuation and cause serious problem with bringing new big VCs onboard.
Current Alternatives. Do They Work For You?
Nevertheless, a local in-house team is still hands-down the best solution when it comes to quality, communication, and rapid prototyping. However, if your company needs an urgent development team extension, you often have no other choice but to leave the comfort zone of your office, city, country, and even continent.
A good way to find brilliant developers is to get talent from abroad, but bringing foreign workers to your office in California will save neither money nor time. The visa process usually takes over a year, and the odds of your talented developer winning the lottery for an H-1B work visa are about 25%. In 2015, the US Citizenship and Immigration Services received 233,000 petitions and granted visas to 65,000 people. Moreover, visas must be sponsored by your company. This is clearly not an option for a growing tech businesses.
If you can make it here, you can make it anywhere, as they say. Using offshore development, which are usually provided by outsourcing and outstaffing software development companies, is another well-known solution. These are handy if you want to delegate routine tasks in order to free the hands of your brilliant developers who are busy building the next big thing. Do you want a landing page or application for your service? You will get it.
But it does not work if you are focussed solely on the core product. My co-founders spent 10 years working in software development outsourcing and outstaffing businesses, and they saw their major flaws.
The Flaws In Bringing In A Remote Team
First of all, you do not choose particular engineers to work with. Instead, outsourcing and outstaffing companies are responsible for allocating human resources for your task. This means that in most cases you do not have full control over the development process.
Secondly, these outsourced developers are not motivated to make your product a success, because they are not a part of your team, and your success means nothing to them. The truth is that today they work with you, the next day (or week, or month) they are booked for someone else.
Working for outsourcing service providers for years, engineers do not develop a product mindset, and it’s not their fault. Frankly speaking, routine work tends to have a negative impact on creativity. More often than not, developers at service companies are not allowed to change anything in the client’s project documentation. There is no room for ideas: you just implement the orders, even if you think the product will not work if you build it the way the client wants. Of course, this just isn’t suitable for growing businesses working on a new product, the ever-changing nature of which should be developed by creative and motivated people.
Nevertheless, some out staffing companies can help you build a dream team of developers with the product mindset driven to make your company rock. However, once you decide to relocate them to your office, you face a problem. They are not your employees, so you have to pay a lot for their buyout. On average, you’d have to compensate the provider with some 12 to 18 monthly salaries for each employee in order to get them on board. In the end, your company would end up paying anywhere from $1.8 to $2.7 million for a team of 30 developers.
The Truth Is Out There
What I’ve just said might sound depressing, but tech people always find alternative ways to solve difficult problems.
Large IT companies such as IBM, Oracle, or Samsung found a solution long ago. They built remote R&D offices with local CTOs and employed engineers in emerging countries that have a lot of skilled tech talent. These three international giants have several offices and thousands of employees in Ukraine.
Traditionally, this option has been available only for larger companies because it is economically unfeasible unless you build an office for 100 people and more. Building a remote R&D facility allows the corporates to quickly acquire outstanding talent for a fraction of the price of hiring a team locally. There are over 90,000 developers in Ukraine alone, as Forbes reports, with senior developers earning around $3,000 a month on average.
Many entrepreneurs from the US or Israel have tried to follow their lead, but they often give up after meeting numerous obstacles in the foreign country or wasting too much time. I know an American company that sent its CTO to Russia to open an R&D unit. He came back six months later with great results, but it meant that the company was stuck for six months without a CTO. This can be hugely damaging for a growing tech business.
It does not mean the CTO was lazy or slow, as it takes a lot of time to understand the new market. Learning how to run a business and manage teams in a country you’ve never been to before is a tiresome and expensive process.
Remote R&D. Now, For Everyone
When I worked as a VC, lots of our portfolio companies approached me asking to help with building a remote R&D in Ukraine. The day I realised that there was no-one providing this service professionally I started my own venture, Hackersbase. Our main goal is to make remote R&D an option not only for large corporations but also for growing tech companies.
We take the burden off businesses by taking care of all the routine tasks, such as local entity registration, office rent and management, team hiring, training, retention and so on. On average, it takes us one to two months to get things done. Up to now, we have opened seven remote R&D offices for companies from the US, Israel, and the Netherlands, so the idea has proven to be sound.
Whilst, I do believe that remote R&D is a promising solution for growing tech companies, I would not recommend it to the early-stage companies. When you are working on your first iteration of the product, you need people to work days and nights by your side. Making it remotely can cost you time, money, and energy.
Our experience has taught us that remote R&D works great for growing companies with established core tech teams that need to acquire tech talent in order to expand further. In this case, a remote development team can help you to empower your in-house team with amazing tech talents, cut your costs and save you a lot of time.
About The Author
[The author of this post is Andrew Kryvorchuk, an acting VC and the founder of Hackersbase. He has more than 10 years of executive experience in investment, as well as in building new companies, business processes, and teams.]