Escaping the war for tech talent: How to assess different ways of building SaaS development teams
The times when Europe offered an advantage over the US with regard to finding and hiring tech talent are coming to an end. This is reflected in the increasing velocity with which Europe is producing tech unicorns and the growing amount of funding received by European software startups:
This in turn increases the demand for skilled developers and results in what is often referred to as “the war for tech talent”. Regardless of whether you are building an early-stage SaaS company in one of Europe´s tech hubs, s.a. Amsterdam, Berlin, Paris, or Barcelona, or in a location where developers are historically scarce: finding and hiring local talent to build in-house teams is becoming increasingly difficult and will cost you valuable resources (time, money, nerves) which as a startup you naturally don´t have an abundance of.
As a result, many startups turn to more flexible models for building development teams. Instead of ramping up a fully internal, local team, they make use of a range of options such as distributed teams, freelancers, foreign subsidiaries, outsourcing, etc. Combinations of these options leave founders with an even greater variety of choices.
(I will leave it to a next post to discuss the various options in detail.)
In this post, I focus on identifying the main parameters which I believe are crucial when deciding on any of these options. At Senovo, I have seen many early-stage B2B SaaS companies, including some of our portfolio companies, using several alternatives to ramping up local internal teams. Some of these turned out great, some could have been better.
In my view, whether a model will be working successfully is strongly linked to a careful and intelligent assessment of the various trade-offs of each individual option. These trade-offs can best be assessed along a set of key dimensions.
Deciding on the right setup: Understand and optimize along six key dimensions
Depending on the characteristics of your startup (e.g. deeptech vs low-tech, early-stage vs mature product, bootstrapped vs well-funded) and your personal vision for the company the implications of each dimension may be more or less relevant. Deciding on the right approach requires you to identify what matters in your specific circumstances and to optimize each dimension accordingly.
Dimension 1: Costs
Cost is considered one of the main reasons why startups may choose alternatives to hiring a local internal team. The following are the types of costs which you should consider:
- Labor costs — Hiring or contracting a team in locations with lower costs of living and salary levels allows you to reduce salary expenses. Next to salary, savings on additional labor costs, including taxes, office rent, insurance, equipment, etc. should play a role.
- Recruitment costs — Headhunters, tech recruiters or increasing the spend for talent acquisition are usually the way to go if you want to hire the best tech talent in competitive locations. Being more flexible with regard to location or contract model used can free you from some of these costs.
- Hidden long-term costs — There are oftentimes non-obvious costs that your choice of team setup can have. You shouldn´t be blinded by the short-term cost savings of the cheapest alternative but be aware that many costs arise in the long run once you reach scalability limits or the costs of higher complexity outweigh the initial savings.
Dimension 2: HR & Culture
Your tech startup´s success will depend on the people that you hire. Make sure that your team setup neither stands in the way of your ability to recruit nor has a negative impact on the culture you want to create:
- Access to talent — Being more flexible with regard to location or contract models will generally allow you to have access to a larger pool of available talents to recruit from.
- Company culture — One of the most important tasks with which a founder is confronted when building a company is to create a culture which excites, energizes, and empowers team members to reach their full potential. In my view, this culture cannot be defined upfront and simply followed but develops organically over time and is shaped by the cumulative traits of the people a company hires. Your choice of a team setup will impact your culture and will make it easier or harder to have your culture evolve as you want it to.
- Ability to recruit— How you choose to set up your tech team will impact your ability for attracting and retaining top talent. For example, having a more distributed or remote team setup will offer more flexibility to potential recruits. Yet, other people value a centralized, on-site team where they can meet and interact with other employees on a daily basis. Culture as discussed above also plays a role for recruiting. In fact, a recent Glassdoor study showed that 65% of 18-to-34-year-olds are likely to place culture above salary when choosing a new job.
- Personal incentivization — People joining your startup are typically driven by the intrinsic motivation of being part of building something big. Impact and sense of ownership are strong motivators for them to come and stay onboard despite low salary levels and higher uncertainties. Moreover, offering incentivization such as bonuses, ESOPs, or an internal career path will align personal goals with those of their team or the company as a whole. Depending on your reliance on this non-salary incentivization you should assess different models (e.g. insourcing vs outsourcing) carefully with respect to their ability to allow for personal incentivization schemes.
- Commitment to the company — The risk of lower commitment of employees is higher the less accountable and attached employees feel towards your company. This affects other dimensions such as sense of urgency and responsibility as well. For example, external developers or freelancers may be contracted by and feel accountable towards the agency they work for. At the same time, internal but distributed teams may feel detached and less associated with your company which can affect their commitment. With distributed or external teams I saw the blame game become easier due to a lack of personal connection.
- Training and development — Offering training and developing is crucial for your startup´s long-term success and allows you to be more attractive as an employer. A McKinsey-Oxford study showed that training developers is one of the key success factors for large-scale IT projects. Developers should be trained to your company’s specific needs and investing in their personal development should also directly benefit your company. Make sure that this is possible regardless of how or where you build your team.
Dimension 3: Software development process
For early-stage SaaS startups a fast translation of customer and market feedback into software development is key. This means super short delivery cycles and rigorous quality checks need to be provided for.
- Agile processes — The most difficult part for SaaS startups is that most of the times we don´t know what the customer wants. An agile software development process is absolutely essential. Keep in mind the Manifesto for agile software development and its 4 principles when structuring your development team and processes. It advocates adaptive planning, evolutionary development, early delivery, and continuous improvement, and it encourages flexible responses to change.
- Time-to-market — Especially for early-stage startups time-to-market is crucial. Competition doesn´t sleep and a flexible work model can help speed up development. For example, shifting non-critical parts to a skilled outsourced team can free up your in-house team to focus on the core of the product. At the same time, losing control over an IT project or dependence on third parties could become detrimental to the project´s outcome.
- Collaboration across departments — Inter-departmental collaboration is crucial at early-stage SaaS companies. Typically, a clear break-down of responsibilities and processes are not yet established but close collaboration between the tech and business side is decisive for commercial success. For example, feedback and customer insights generated by Sales and Customer Success impacts the product roadmap and clashes between IT or Product (i.e. what can be delivered) and Sales (i.e. what was promised to be delivered) need to be resolved quickly.
Dimension 4: Team management
Different team structures pose different requirements for management. Make sure to consider the implications of different models and their requirements for processes and tools implemented:
- Communication and coordination — Communication can become more complex when you or your CTO has to coordinate distributed or external teams. Firstly, location and language barriers may arise if you choose teams which are located in other countries. Secondly, teams may work in different time zones: When it’s daytime in your country while its night in theirs it could become challenging to agree on a meeting for a comfortable time for everyone. Lastly, cultural differences with respect to communication style or feedback culture need to be considered.
- Tools and processes — Different approaches require different tools and processes to be implemented. For example, managing distributed teams means taking virtual meetings, calling instead of knocking on an office door, and assigning tasks via e-mail or other management tools. It also requires knowledge of how to build relationships and manage a team without meeting them regularly in-person. Clearly defined responsibilities are key.
Dimension 5: Product
For B2B SaaS companies product quality is key.
- Product quality — Compromising on the quality of your product will leave you ending up losing against or being replaced by competition. The more a market matures the more competition will enter and the higher are the requirements on your team to stay ahead of competition. Increasing requirements in turn call for the right team setup and superior processes. It is therefore essential to make sure that regardless of the structure of your dev team your product will always live up to your and the customer´s expectations.
- IP and security issues — Especially with remote teams or outsourcing, security is one of the most frequently discussed risks. For example, outsourcing your software development could put your IP at risk if the outsourcing agency´s infrastructure is not adequately secured. Also, your product-related IP should always belong to you and be protected against any unauthorized use by external parties.
Dimension 6: Valuation
- Fundraising — Generally, investors prefer that a tech company handles its product development in-house with a dedicated internal dev team. Outsourcing non-critical parts of the product is fine, but development of the core product should be done internally. Remember that valuation of a startup does not only depend on revenues or the current product quality but also on the investors` conviction around the ability of a team to further develop, grow and improve on the status quo.
- Exit: Acquisition values are usually higher with a strong internal dev team behind a product. In fact, the acquirer may buy your company mainly for the deep technical know-how of the teach team and the significant value-add of the team also post-acquisition.
Before deciding on flexible structures of the development team, startups should consider the impact of such decision along various dimensions. The following table summarizes the discussed dimensions and subdimensions and provides exemplary questions to ask when assessing potential team setups:
In a next post, I will discuss in detail the different options available and how they will impact each of these dimensions. My ultimate goal is to identify different ideal archetypes of SaaS startups based on stage and model chosen. Until then, I would be happy to receive any comments, suggestions and feedback which I can incorporate in my next posts via: email@example.com