Why Outsourcing Often Doesn't Work

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Odesk, Elance, Guru … are you tearing your hair out?

If you run an online business you may have tried one of these services to help you with anything that can be done remotely for example: programming, web design, research, writing etc. It's a tempting notion because you are paying someone for the results produced, and often not on an hourly basis. Plus you don't have the added costs of hiring a full time employee and can just utilize the resources when needed.

But these services have significant pitfalls. After spending a lot of time over the past few years outsourcing part time help, and also hiring people to work full time, I have had significant experience with the positives and negatives of outsourcing. So let's take a look at what you can do to outsource effectively and not end up tearing your hair out.

What can you do effectively with outsourcing?

Project-based outsourcing using websites such as Odesk or Elance is perfect for small to medium sized projects where you want to get something done and you don't have the resources in your company to do it. You might be designing a web site, have a programming project or small amounts of research. Basically, you only need to use the resources for a short period of time and you're not looking to take on someone full time.

However, there are many downsides to this type of project based outsourcing.

For starters, you don't get as much consistent focus from the person over a long period of time. In many businesses, employees find it difficult to be truly effective in the first few months when they start working. This is because they are “learning the ropes” … finding out how the business operates, where they can contribute etc. Every person needs a period to adjust and learn all the little details of how the business operates and how to get things done effectively in your particular business. With short term contract based work, the person may be able to contribute some of the knowledge and expertise they already have, but they are limited in their contribution in comparison to people who are working full time as an employee of your company.

The person is also not dedicated to your business. If they find other work that pays better, they will switch to that other work, and it's possible, or even likely, that they will be working with several clients at the same time. Therefore, they cannot devote all their energies to your work.

The other side to outsourcing through websites like, etc is that there are many providers who experiment with the idea of working from home and doing project based work. However, the vast majority are not able to cope with this work from home project based work for a variety of reasons: they usually don't earn a consistent income, they find it hard to get disciplined and they find the work more difficult to complete than they first expected. For example, if you get a project based software developer with little experience they are highly likely to under-estimate the time taken to complete the project. This can be good from your perspective as you can end up paying a smaller amount for the work than you would have with a full time person, however, you might find that the person just gives up, and does not complete the work at all, which is not good if you are doing something that is mission critical.

So if you work with providers who are experienced, have been around for a while and have many ratings, you are less likely to be disappointed. For other providers who are just starting out, you will find that a large number of them are not able to cope with the work from home project based work. Providers in developing countries may not even have adequate Internet to be able to do the work that you require and they may have a home set-up that is completely unsuitable to working from home.

It doesn't stop there. There are even more pitfalls to outsourcing.

Pitfall one: Not specifying exactly what you want – for example when you are getting some programming work done, you need to specify exactly what it is that the software or web site will do. You need to be the project manager who writes a details spec document or you need to hire a project manager who does this work for you.

Pitfall two: Not spending enough time on the evaluation process. For programmers, if you have a large project you should only go with teams that have proven themselves with a large amount of experience – for example on they have a rating system and I recommend only working with programmers who are ranked in the top 1000 and preferably those ranked in the top 400 coders on the site. If it is a smaller programming job, then you can go with someone with less experience, and at a lower cost (but understand that you are taking a risk).

It's a good idea to give people a difficult test that will really enable you to know they are the right person for the job. For example if you are hiring a C# programmer, get an experienced programmer to make up a difficult test for new applications to do that specifically tests the skills that they will be using in the job. Also, it's a good idea to evaluate a large number of people to make sure you find the right person for the job.

Pitfall three: Project-based work that is paid on an hourly basis can be dangerous for your wallet. Services like give you the ability to upload an amount in escrow and then you don't release the funds until the project is complete. You also pay only for completion of the project. This gives you the security of knowing you will only pay if results are delivered. For other services like you usually pay on an hourly basis and so you might find you spend a lot of money and don't get a whole lot achieved.

How to get all the benefits of outsourcing and avoid the pitfalls?

Outsourcing can be very powerful for your business. The availability of new staff on short notice and with no long term effect on your overhead is one of the biggest potential benefits for your business.

The first key is to pick the right method of outsourcing. When possible do project-based work for smaller projects using services like where you escrow the money and only pay the person when work is completed.

Then for larger more long term work, or where it is difficult to define the exact boundaries of the project, paying via an hourly rate is probably a better option. Hiring permanent staff through a service like may give you a better result in the end as you are still saving costs by working with lower cost staff, but you are also getting the benefit of a long term commitment to your business.

Next you should try, where possible, to select people with a lot of good feedback – a great reputation on the outsourcing site. Also, instead of just hiring one person and hoping that they will do the job, hire three people for a shorter test and pick the person who does the best work to do the longer term project. Also, be very clear about what you would like to achieve – write down the exact specifications of the project.

You can reduce your expenses significantly by outsourcing some of your work and you often find great talent at a fraction of the cost of hiring a full time employee in the US or another developed country. Your costs are reduced because you are not paying for an office and other additional employment costs. Your best bet is to give outsourcing a go and see how you can utilize the talent that is available to work on your projects.

Here are a list of some places you can outsource from:

  • – Generally a bit more expensive than other web sites, but still much cheaper than hiring someone locally in the USA. Providers on Elance are often of a higher quality than other web sites.
  • – Another possibility with freelancers in many different fields such as engineering, sales, legal – this site doesn't focus only on programming.
  • – Odesk is a bit different from other freelance websites in that it is more geared towards hiring people on an hourly basis and hiring teams of people. This is more effective for long term projects.
  • – Very good for programming projects done at a fixed price. It works by escrowing the money for the project to give the provider some security, but you don't need to release it until the project is completed.
  • – A provider of full time employees from multiple different countries (the Philippines, India, etc).

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