Home
Jan
22
6
min
In-House or Outsourced? Here's How to Find the Right Fit (+ 5 Contractors We Love)

In-House or Outsourced? Here's How to Find the Right Fit (+ 5 Contractors We Love)

The eternal question of startups:

Should I outsource this or hire in-house?

No right or wrong answer and a lot of “it depends.”

ANNOYING, right???!!!!!

But if startups were easy, everyone would do it. 😉

Let’s get into the tradeoffs, considerations, and how to decide the right path forward on your hiring plan!

(BONUS: a few of our favorite “outsource” folks are listed at the end!)

What does in-house and outsource even mean?

In-house and outsource are casual, non-official terms so if you hear someone using them, ask clarifying questions!

Definitions can vary across industries, roles, or companies, but here’s how I’ve seen it often used at startups.

In-house (often) means:

  • Hiring a full-time person

Outsource (often) means:

  • Hiring a contractor

  • Hiring a firm or self-employed individual to provide the service (e.g. recruiting agency, legal services, marketing agency)

Gray area:

  • Part-time employee (e.g. someone who is a W2 employee but only works 20 hours per week)

  • Fractional executive (e.g. fractional CMO, fractional COO)

Important Legal Thing: 1099 vs W2

Here’s a good overview on the difference between 1099 consultants/contractors and W2 employees — and when you might legally need to hire someone “in-house” even if they are not full time.

Basically, if you want to control when and how someone works, even if they are not full-time, they should be a W2 employee.

Sanity Check

First off, I always like to confirm that you really do need to pay a human for this work.

Can you use AI, software, interns, bartering, or get creative in some other way to keep your startup budget light and flexible?

For the sake of this blog, I’ll assume you explored other options and you DEFINITELY need another human to help.

How do you decide if you should look for a full-time, in-house hire or outsource in some way?

No right answer - lots of tradeoffs!

Here are the top four considerations to evaluate if they should be in-house vs outsourced.

4 In-House vs Outsource Considerations

1. Money

Is this obvious? Hopefully!

Crunch the numbers on the annual cost of a full-time hire vs the cost of an outsourced resource doing the work.

Get a few quotes, do online research to get ballpark salary or per hour numbers, or ask other founders.

Make sure to include the cost of benefits, health insurance, taxes, computers and software, onboarding, and other “hidden” costs of a full-time hire.

Example: Recruiting

Should you hire a in-house recruiter or use an outsource one?

  • How many hires are you making this year?

  • What will you pay per hire to a recruiter?

  • What is typical comp for a full-time in-house recruiter?

  • Napkin Math: usually, if you’re planning to hire 1 employee/mo, it’s worth it to hire a recruiter in-house.

2. Work

Hopefully, this, too, is obvious!

What work will this person do?

Write it down! If you can’t write it down, you’re not ready to hire. Put # of hours per week next to each task.

How much work is it?

Is it definitely full-time, maybe full-time, or definitely part-time?

Other considerations:

  • Is it steady or cyclical?

  • Is this an ongoing need or one-time big lift? (e.g. launching a product or going to a conference)

  • Are you running an experiment into a new market or industry? Or is this a validated area?

Example: Legal Services

Should you hire your own in-house lawyer or use someone on a part-time/fractional basis?

  • How much is a full-time lawyer salary vs per hour rate? How many hours per month?

  • Is there a “busy” time (e.g. end of quarter for contract review, when a large transaction is occurring) or is it always busy?

  • Usually, smaller startups keep it outsourced (e.g. a lawyer on retainer for x hrs per month). Larger ones bring it in-house. Especially when they start to get really big bills and find someone they like working with. Come on, lawyer friend, join the company! 😉

3. Incentives

Very important, least often discussed.

How does incentive alignment shift when someone is not on your team?

Examples:

  • Lawyers - paid per hour → the longer it takes, the more they make; not incented to be fast and simple; no direct focus on company revenue or customer happiness

  • Recruiters - paid per hire → will coach a candidate on what you are looking for, higher salary means higher commission; less incentive for long term fit and salary negotiation

  • Engineers - paid per project/hour → happy to build what you say even (especially?) if it increases time or scope; no incentive to push back on speed, priority, or customer utility

HUGE DISCLAIMER:

I know, and you probably do too, many wonderful people in these roles who don’t operate this way!!

They are amazing partners and I often work with these “outsourced” roles and many others with lots of success.

But it’s important to understand where incentives may be different so you can see the tradeoffs or potential friction points and go in with a plan.

There’s also incentive alignments that work to your advantage — your partners want to do a great job so they can continue to win your business and you only pay for work completed or results delivered.

4. Company Culture

A little warm and fuzzy here but there is a certain loyalty and energy that comes from people who are full-time, in-house hires.

Like a marriage compared to a girlfriend or boyfriend, they’re more likely to share improvement feedback, stick through tough times, go above and beyond, and invest in people and relationships within the company. Not to mention, get drunk at the holiday party, create a crazy tradition, or other key team-bonding behaviors. 😂

Of course, every founder has different preferences or goals. Some love the flexibility of contractors or like having no full-time hires.

And, there’s tons of amazing contractors and consultants who care deeply. Some even work with specific companies for years and years.

But the nature of outsourced work is that it’s less likely they are investing in your company culture.

There may be certain roles or people where the spreadsheet says to outsource but you bring in-house because of the positive impact on culture.

Or maybe a better way to put it is: every person you work with — in-house or outsourced— is shaping your company culture.

Do you like how it’s shaping up? 😉

Looking For Recs? A Few Favorite “Outsource” Folks

So many amazing people out there! Please list your go-to recommendations in the comments 👇👇👇

Here’s a plug people for we work with at Atlanta Ventures!

What are your biggest hiring questions or challenges? Any learnings related to in-house hiring vs outsourcing? Who are your favorite contractors or consultants to work with??