Why IT outsourcing offers many opportunities for young start-ups in particular

Young start-ups often face the challenge of using their limited resources efficiently to drive their business forward quickly.
One solution that can help them do this is IT outsourcing.
In this short article, we want to summarize our experiences from working with young, mostly pre-seed startups and give tips on when it can make sense to look into IT outsourcing.

The challenge for young tech start-ups in the first phase, especially if they are young first-time founders, is often initially to produce a first prototype or demo version of their planned software solution.
They need this first product to be able to present something tangible to potential investors or initial anchor customers or to sufficiently illustrate their business idea and convince third parties that they have the necessary skills.

Apart from very low-threshold funding programs, which primarily serve to cover the founders’ living costs, these young start-ups usually have hardly any financial resources at their disposal.
If one or more of the founders has a technical background, the entire work on the first prototype often falls to them.

At this stage, IT outsourcing can already bring significant advantages: If the founders carry out the business logic or the work on the backend themselves, a significant acceleration can be achieved by outsourcing front-end activities.
If the founders are already experienced in outsourcing, consideration can also be given to outsourcing parts of the business logic.
Compared to the direct hiring of 1 or 2 developers in Germany, further cost advantages can be achieved.
For example, it can be expected that employing a developer in Germany, including ancillary costs, can amount to up to 80,000 euros in the first year.
With outsourcing, 2-3 people and thus a significantly increased developer capacity can be achieved for the same amount.

However, cost efficiency is not the only factor that makes it attractive for young start-ups to look into IT outsourcing.
The increasing difficulty of finding suitable specialists in the IT sector should not be underestimated either.
Of course, it can be interesting for IT graduates with a certain “adventurous spirit” to be involved in the development of the business model in a young start-up from the very beginning.
However, there are also challenges for such an employee, e.g. the salary at the start-up, which is not yet profitable and has not yet received any or very few investor salaries, is typically rather low, which may need to be compensated for by issuing shares in the company to employees.
Of course, this option can also offer advantages for employees if the startup is later successful.
However, knowing that many start-ups also fail after a few years, payment in shares always represents a high risk for qualified employees, who can find high salaries and secure jobs in larger companies.
This can therefore also be a reason why important roles for the development of a tech business model cannot be adequately filled in young start-ups and IT outsourcing can be a suitable solution.

To summarize, IT outsourcing therefore offers the following advantages in most cases:

• Cost reduction: Outsourcing enables startups to scale their IT infrastructure without having to make high initial investments in specialists; over-hiring in the early stages is often cited as one of the most relevant reasons for the failure of young startups.
• Focus on core competencies: By outsourcing IT tasks, start-ups can concentrate on developing their business model and focus their energy on developing their products or services rather than on detailed software development tasks.
• Access to specialists: By working with experienced senior developers, start-ups gain access to specialist knowledge and up-to-date know-how, which helps them to remain technologically competitive.
• Flexibility and scalability: When they use IT outsourcing, startups can adapt and scale their IT resources more flexibly to meet changing requirements.

If young start-ups, especially from the “green” or “impact” segment, are looking into outsourcing, you should also get a clear picture of the conditions under which the outsourcing provider’s employees work.
On this topic, we recommend our blog posts “Sustainable IT outsourcing: How does it actually benefit companies?” and “Why human rights due diligence is important for investment decisions“.

If you would like to find out how IT outsourcing can help young start-ups to develop their first prototypes or products efficiently and cost-effectively, even in times of scarce resources, please contact us for an initial, non-binding consultation.