Outsourcing For Startups: 4 Benefits And 4 Risks
James Delaney

Managing your own business is a huge deal, especially in today's world, where everything seems to be moving quickly. It would be best if you kept up to sustain your new business, which means being innovative, and always one step ahead.

Many startups today are established fast, and their growth has been exponential because of the demand for their unique products and services. To keep the momentum going, many startup owners need a corporate structure filled with extraordinary, fresh talents that would help the company propel its growth upwards. And often, sourcing them locally would not suffice. This is why many opt for outsourcing to support their growing business.

What is Outsourcing?

In 2019, the global outsourcing market reached USD$92.5 billion in revenues, with the United States getting the most share and with talents coming from the Asia Pacific region. Today, almost anything can be outsourced. But what is outsourcing?

Outsourcing is a business strategy of hiring outside the company to perform tasks, handle responsibilities, and provide services for the company. Often, the third party is hired from another country, making the cost of hiring more beneficial for the business.

Many startups hire externally for IT services, graphic design, customer service, e-commerce, and social media management. However, together with its advantages, there are many challenges with managed IT services providers and other third-party companies. Therefore, before you dive deep into this foray, you need to be able to weigh your benefits and risks. To help you out, here are some of them:

The Benefits Of Outsourcing

Today, many businesses are resorting to outsourcing because of the various benefits it offers. Here are some of them:

1. Cost-Efficient

In the early days of its inception, the primary focus of many companies in outsourcing is to bring down the cost of their operations to increase their bottom line. In many businesses, personnel expenses may account for about 10-20% of their operating expense and sometimes higher for many labor-intensive industries. Once they outsource their workforce needs, these companies can reduce their labor costs by as much as 70%. That's a massive saving and a boost in their profits.

2. Ability To Acquire Hard To Find Talents

When you search locally for talent, your supply may be limited, and the competition is stiff. But when you outsource, the world is your arena, and you have an endless supply. You only need to filter them well to get the best ones for your needs. In other parts of the world, like Asia Pacific, the best in technology, robotics, and language can be found.

3. Greater Focus On Core Business Operations

One of the primary benefits of outsourcing is that it allows you to focus more on your core business operations. This is because once you have outsourced your labor needs and have laid out the guidelines and expectations for them, you’ll have someone to do those tasks for you, giving you more time and opportunity to now focus on other essential parts of business operations like expansion, product development, and diversification.

4. Improved Productivity

Having outsourced talents handling various aspects of your business, you can see a surge in productivity, which would translate into revenues. Individuals or groups will manage crucial business functions to save time and meet customer demands. And as mentioned, you’ll be able to focus on your core business operations, increasing your company’s overall productivity.

The Risks of Outsourcing

Just like any other business strategy, outsourcing entails some risks and disadvantages. Before deciding on outsourcing, it’s crucial to know these to ensure you make an informed decision that’s best for your business. That said, here are some of the risks of outsourcing:

1. Information Leaks

Proprietary information can be in jeopardy when you outsource, especially with intellectual properties being worked on by various individuals in a startup. Data can be accidentally or purposefully shared, and project components are stolen for their gain. In outsourcing, you need to ensure your digital files are secure and your staff has signed a confidentiality clause like a non-disclosure agreement (NDA).

2. Reduced Employee Loyalty

Many people working online can get multiple jobs since they have the flexibility. That said, their loyalty can't be with you a hundred percent. Even with the integration of time-tracking applications, monitoring their performance and gauging loyalty would be challenging.

3. Quality And Consistency

When you handle different people with various cultural backgrounds, you can expect that the quality of work will have a disparity. That's why you need clear-cut and defined standards and guidelines when you outsource. This way, no work will pass without meeting expectations. Moreover, you must also have managers you can rely on to monitor the consistency of work output to ensure that you're giving what your customer wants.

4. Communication Barriers

You may have reiterated during hiring that you want native English speakers for your team, and with a well-rehearsed interview, anyone can qualify. It would only be revealed during actual work that there's something lost in translation.

Of course, you wouldn't have the time and resources to train new hires for this essential requirement. So, if you're not completely satisfied, you would need to hire a replacement. When you hire with this criterion, you may want to focus your hiring from countries with English as their second language, like the Philippines.


Outsourcing has kept many businesses afloat over the years. The vast savings from getting talent from another country has helped increase many businesses' bottom line. And for a startup just learning the ropes, this could greatly help achieve your short and long-term goals. Thus, analyze each risk and benefit carefully to help you decide if outsourcing would suit your business in the long run.

James Delaney

James Delaney is a startup entrepreneur and business consultant who's been active in the startup space for almost a decade now. He is also a writer, author, and podcaster.