Software Sweatshop

These days, everyone's looking for a rock star coder, but they're not that easy to find. That's why more startups are sending work offshore (not to mention that more VC's are demanding an offshore strategy from their portfolios)

Big companies set up captive development centers that serve the same purpose. Startups can't do that, so the trick is to find a mature and reliable team that will become a part of you. Outsourcing can not be transactional... the offshore team has to be a part of your team. That way they actually understand you and are committed to you. Outsourcing is about high value, not low cost. The real benefit is nurturing a team that's an extension of you.

That's exactly the type of offshore development that we advocate. Check out what other startups are saying about their offshoring experience and ask yourself if you're going offshore the right way:

1).

The first a product engineering outsourcing case by Jeff Angus describes how eProject, (now called Daptiv) a Seattle based SaaS provider of project management systems has had unabashed success partnering with an outsourcing firm located in the Ukraine and in Redmond, Wash.

"We went out and got references for offshoring partners. The qualifications we were looking for were unusual," says Chris Lynch, eProject's vice president of engineering. "We were looking for quality of work rather than lower costs ... I was hiring locally, so costs were budgeted," he says.

"Quality was always the biggest need. Our specs called for a partner that as technically competent and independent, [who] would tell us what they thought we were doing right or wrong, and who would function as an extended part of our team. We wanted a peer who had enough expertise of their own to recommend content and coding techniques as well,"
Lynch explains.

2). 

This is a quote from Mike Volpe, VP Marketing at Hubspot.com. Hubspot.com has a killer marketing blog that is required reading for every startup and small business. Dharmesh Shah, the founder of Hubspot has a great blog about startups as well. Here's what Mike said about their offshore team, there's a valueable lesson here:

"for the record, we do have some overseas development done at HubSpot, but the folks abroad are really part of the team - we interact with them daily and the only difference between the folks here and there is the actual address."

3). This is a great quote posted by Stephen Wiehe, President and CEO of SciQuest. He wrote a response to a comment I posted in the Wall Street Journal's Business Technology Blog

"Anyone who questions just how significant hidden costs can be when outsourcing only needs to look at the recent recalls of toys manufactured in China. Many companies focus on costs they can see, but fail to consider the unknown costs that are often the greatest source of risk when offshoring jobs.

Forward-thinking companies know that you can't be high touch, high tech and low cost without sacrificing one or more over the others. For example, offshoring service jobs might lower costs, but you're likely to lower your customer satisfaction rating at the same time.

As wages continue to rise in India, organizations need to take a serious "look under the hood" and begin to articulate the unknown costs of augmenting their workforce with offshore staff. As stated in Raza Imam's post, organizations should seek to expand their workforce with overseas talent to bring more value to the organization, its stakeholders and its customers, rather than solely as a means to cut costs.

We began to notice the trend of rising overseas employment costs several years ago and have downsized our offshore team to just 10 percent of what it was at its height. We've solved the communication issue broached in the study by bringing members of our overseas staff to our headquarters for three months on a rotating schedule. Our offshore developers have gained a sense of unity and camaraderie with our U.S. staff while furthering their knowledge of our procurement solution suite. Effective communication with your offshore workforce, as well as the uncovering of unknown costs is 90 percent of the hurdle to a successful partnership. As a result, you can eliminate what may be the greatest hidden cost of all-inefficiency.

4).

Finally, I received this email in response to a comment I left Matt Roger's blog. His post was titled How to Get Good Offshore Developers. The post was actually on ReadWriteWeb also.

We've deliberately made our developers part of our team (the actual guys, rather than the company!) and spend a lot of time with them and talking to them. They now help drive the development forwards with creative ideas to develop the system and are utterly committed.

The point is that offshoring is here to stay. If you're a startup and need good developers, you need to establish a relationship with a good team rather than outsourcing to the lowest bidders. 

 I’m usually not a big reader of TechCrunch (not because I don’t like it, but because I’m not sophisticated enough to understand most of what they’re talking about) but I saw a post the other day that made me laugh. It talks about the increasing use of offshore outsourcing by Silicon Valley startups (Digg, SlideShare, illumobile.com) There were two cartoons that perfectly illustrate the problems with outsourcing, provided by Sandeep Sood over at DoubtSourcing.com

They illustrate common complaints we hear about these software sweatshops:

•Vendor had inadequate technical skills
•Don’t understand the concept of a deadline (work is consistently late with the most creative excuses you can imagine)
•They don’t respond when the sh*t hits the fan
•Just don’t get what you’re saying (but act like they do)
•Don’t figure things out for themselves (but still bill you for their time)
•Have high attrition
•Just don’t understand Web 2.0
•They forgot about you when they get a bigger client
•Sold the A Team but delivered the B Team
•Claimed they were the biggest, cheapest, best, etc.
•Were ‘yes men’ and ALWAYS give you the answer you want to hear

I wrote an article with some practical tips to avoid these ‘software sweatshops’ 8 Ways to Avoid an Outsourcing Disaster

The cartoons accurately illustrate how most offshore vendors are simply ‘yes men’. You’ll find very good technical people all over the world, but finding people who are reliable is next to impossible. Sandeep agrees with our philosophy that a sign of maturity is the ability to say ‘No’. It's extremely rare to find a vendor that will tell you like it is. We've heard countless stories of offshore firms over-promising and under-delivering. You need to look for a partner that can be honest with you from day one, even if it means that they lose your business. A company that sets up realistic expectations is a company you can rely on, even if it's not the answer you wanted to hear.

Our focus has always been on high value, not low cost. This philosophy has resulted in lost business at times. Often times we find a great prospect who qualifies himself out of the deal because of our slightly higher than expected rates. Literally, we've lost deals over a couple of thousand dollars, or a few hundred dollars a month. Unfortunately, these are some of the same companies that say how much they hate outsourcing because they've gotten burned so many times. Granted, there are a lot of no good 'software sweatshops' out there, but you get what you pay for.

 It's really telling and leads me to believe that the software sweatshop and their related problems were created by people looking to save a quick buck, rather than looking for the best people for their project. It hasn't been easy, but we've had to weed these prospects out and look for the ones that understand that the best talent and best procedures costs money. Offshore outsourcing is not about pinching pennies. We work with clients that understand that.

So you found developers on the other side of the globe willing to do work for half the price... great. But what do you do when something goes wrong? What if your vendor does something malicious or incompetent and disappears? That's why finding a trusted local development partner is so critical. If they have an offshore presence, that's great... they should deal with the offshore team, not you. 

The following horror story came from Jack D. Deal's blog

"[Joe] said he had the bright idea of going offshore to India to get a cheaper deal on an e-commerce website design. He did contract with an Indian firm for a little less than half what a Silicon Valley e-commerce designer would charge.

Joe paid the full amount by credit card before the work had begun. Mistake number one but for Joe it was 'cheap'; it wasn't even for him a matter of price vs. cost. For almost two months they strung him along but in the end produced nothing and refused to return his money."

The reality is that most people that send software development work offshore aren't happy. People that use project bidding sites will tell you that finding a good vendor is really hit or miss. What's worse is when the "buyers" aren't technical and assume that the developers know exactly what they want. If you want to go offshore, you need to find a company with a local presence, if for no other reason than the 'throat to choke' factor. There are 3 main reasons a local presnce matters:

1). Security: A local company will be accountable by local law to any NDA's or other IP protection agreements you sign. Even if the offshore team bails on you, you still have some recourse. Did you know that contracts signed with foreign companies are not enforceable unless they enter the US postal system? So if you sign a contract with an offshore vendor and send it via fax or email it's very hard to enforce (true story, one of clients told us this and asked both me and my partner in Pakistan to sign the contract and mail it to him)

2). Process: Companies with a local presence and offshore software development center have nailed down a process of working with the end client and managing the delivery of the work on the backend. Doing this yourself is time-consuming and difficult. We typically talk with our North American clients during the day to review work we've done or further gather requirements. The 24/7 model works very well for us, but it's been a difficult process to hammer out and requires a lot of hardwork from our developers and project managers.

3). Communication: A company with a local presence should be able to stay in constant communcation with you. Due to the inherent latency in offshore development, it's critical to have someone you can talk to easily. It's easy to underestimate this, but communication failures are the biggest IT project killers; whether they're onsite or offshore.

Tim Ferriss, author of the wildly popular book The 4-Hour Workweek says that one of the secrets to living the life of your dreams is to outsource personal tasks. Successful business people and entrepreneurs have known that delegating tasks to competent parties allows you to actually focus on what's important. In his book, Ferriss helps the common person utilize this ultra-powerful concept. He advocates using virtual assistants to help you with checking email, online dating, paying bills, research, and even helping you complete projects for work.

This concept is behind the push into outsourcing 15 years ago. The idea was to find competent, reliable people to do low level tech work. Fast forward to 2008 and outsourcing is now part of the repetoire of normal people like you and me. The key is to find someone reliable. Most companies that have outsourced software development will tell you that their experience has been pretty bad. Missed deadlines, mis-communication, unrealistic expectations, lack of oversight, and just plain incompetence are some of the things we hear people complain about. Here are a few lessons to make outsourcing work for your personal life:

Find Someone Reliable: This almost goes without saying, but it's worth mentioning anyway. Businesses know that you can work around technical limitations and lack of knowledge, but you can't work around incompetence and lack of committment. Companies that have outsourced software development projects will tell you that reliability and committment is the key. Someone who's willing to learn and stick with you for the long haul is worth their weight in gold.

Isolate tasks: Outsourcing works very well if you farm out finite, well-defined tasks to competent parties. For example, in businesses that outsource software QA work are usually pretty happy with the results. There is a finite task with measurable results. Outsourcing personal tasks should be the same. Perhaps you can find someone to pay your bills or search for cheap travel online. Companies that have successfully outsourced more complex tasks understand the importance of constant communication with their offshore partners. This type of long-term outsourcing is much more difficult and requires more effort from both sides. It's not that it can't be done, it just takes more effort.

Share Your Culture: When you build a company, one of the more important things is to build a company culture. A solid corporate culture makes the business less reliant on you. For example, if you build a corporate culture and instill it in your employees, they will be empowered to make quick decisions when unforseen circumstances arise. If they understand the culture, they won't have keep coming back to you everytime there's a problem. Whether you outsource software development, legal work, business processes, or personal tasks, as the relationship grows you need to make sure that your outsourced team makes decisions the same way you'd make decisions. The true value in outsourcing is not saving a few bucks... it's about nurturing a team that becomes an extension of you. That's the only real way to leverage an outsourcing relationship.