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At first glance, hiring contractors to help build your business has a lot of benefits: no health insurance, no workers’ comp, and you can part ways when you feel it’s time with little red tape. While those financial benefits are helpful to a cash-strapped start-up, there are other business development advantages you can get with contractors that you may not be able to get with a full-time employee.

Start-ups often resist outsourcing because they fear relying too heavily on outsiders for essential business functions, or they fear being able to find someone competent to do the work. Other times, the resistance comes from the desire to build a core team and culture and the perception that this can only be done with full-time employees.

Every strategy has pros and cons when it comes to business growth. So how can you tell when to hire — and not hire — contractors?

We have been on both sides of this fence. As a firm that does contract work, as well as having hired contractors to build out parts of our business, we’ve learned through experience when this model is most beneficial.

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Contractors and Start-Ups: It’s Complicated

The #1 benefit we’ve seen in hiring contractors for an early-stage start-up is that the founding team often “doesn’t know what they don’t know” — they don’t fully comprehend their gaps in knowledge. Contractors can help expose these knowledge gaps at low cost, particularly when they have a specialized expertise, and much lower cost than a full-time employee.

For example, we are a software engineering consultancy. Early on, we had limited experience with sales, and had effectively gotten lucky repeatedly through our reputation and personal networks. While great, we didn’t understand sales at all. Hiring the right sales consultant did a huge amount to launch that part of our business into a new level of competency in ways we could never have achieved on our own.

Think of hiring a highly specialized contractor much like a pay-as-you-go executive who can help you build your organizational competencies. However, if you want to hire consultants to handle what will be a core competency of your business, don’t. Core competencies are things which will define and deliver the value you offer to customers. You need this institutional knowledge deeply embedded in your company. If you hire out to do this work, this strategically essential expertise is lost. For example, if your core competency is teaching other companies to scale up, this area of expertise needs to belong to a full-time employee who will be there for the evolution of the product.

Our company started as three people: a business development person, and two engineers. What we didn’t realize is just how much we were missing out on opportunities to build our business more effectively using design and research competencies. While engineers should and do engage in both of those aspects, we could have won more business more rapidly had we hired employees internally focused specifically on those two skills. Eventually, we did hire these employees, and it has since become a core competency for our business.

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Finding the Right Fit

A common fear many start-ups share is that they'll hire the wrong contractor. Part of that stems from people who have worked at big companies and have seen consultants act as staff augmentation — doing the same thing as their peers employed full-time, and really just acting as an extra set of hands. This is useful for mid- to large-scale businesses who are growing faster than they can keep up with and who already have well-defined operational practices, but not for start-ups. Start-ups need contractors who are as entrepreneurial as they are — who have a highly specialized set of expertise, and can solve problems in a given area completely and creatively in a way that adapts to your business. This means the contractors need to have a higher average degree of expertise, and need to be excellent collaborators.

To temper the fear of hiring a bad-fit contractor, start-up leadership can tap into their network for referrals. Alternatively, they can look for consultants whose behavior and work product demonstrate their expertise. For example, when looking for a sales consultant, look for one who uses sales tactics on you that reflect the kinds of interactions you’d like with your own potential customers. Additionally, contractors with impactful case studies and referenceable former clients will go a long way toward helping start-ups understand their capabilities and track record. 

The idea is you don’t want to have to train a consultant to do it “your way” — they should already be coming from a compatible perspective. If you need to adapt to each other’s style, the adjustments should be tweaks rather than philosophical shifts. This can save a ton of heartache.