More and more hi-tech startups in Silicon Valley choose to work with remote IT contractors. The idea of developing an innovative product with freelancers from abroad might seem insane, but in reality this model is proven, efficient and cost effective.
Nearly every young entrepreneur coming to Silicon Valley dreams of creating the next Google and of making “the world a better place”. All of them aspire to become a Unicorn – a company with billions of dollars of capitalization. As we all know, rapid growth needs huge investment. According to Business Insider, the average investment in a startup in Silicon Valley is $3 million at the early stage. At first sight, that would seem like a huge amount of money. However, the development of an innovative product is a very costly process with the first line of expenditures being the salaries.
According to Indeed.com, an average developer’s salary in the San Francisco area is more than $100 000 per year. A hi-tech startup certainly needs IT developers as well as marketing specialists, designers etc. In addition, due to the high cost of living in Silicon Valley, all employees will require more than $100 000 annually (Angel List statistics). That is why $3 million is not a huge investment round any more. The easiest way to cut these costs is to hire remote IT-contractors. When working with them, startups do not need to spend a fortune for an in-house worker‘s salary, for the computer, software, and so on. Moreover, the best specialists do not necessarily live in Silicon Valley. Another advantage is that remote employees are usually young, ambitious and always online. They are certainly more affordable than in-house specialists.
According to Upwork research, 55 million Americans are freelancing, contributing $1 trillion to the economy. However, the hourly rate of an experienced American IT-freelancer is quite high. In addition, if you work with remote workers anyway, why not choose one from another country?
The most affordable freelancers are:
- from Pakistan ($5-10 per hour)
- from Filipines ($5-10 per hour)
- from India (15$ per hour)
Looking at the above, it seems like it is the best and the cheapest solution for a startup. However, there are a few pitfalls. First of all, there are cultural differences that need to be taken into account. For example, religious and national holidays for Indian people are very important. They will generally not work on those special calendar days even if the deadline is close, and you will hard pressed to convince them. Secondly, huge time differences can cause many problems. The time the employer and the employee will be online is totally different. Therefore, it will be quite complicated to add some urgent changes to the code or remove a bug as soon as possible. To top it all off, those “cheap” freelancers usually have poor English knowledge: misunderstandings can lead to fatal mistakes in the code and may even ruin the project.
Other popular outsourcing destinations are Russia and Ukraine. Ukrainian IT-contractors are the 4th popular on the global freelance market and their rate is affordable: on average $18 per hour. The rate for Russian IT-specialists is also very reasonable due to their high qualification and expertise. After the ruble dropped twice in 2014, Russian contractors have become even more affordable. Not to mention, that Russian programmers and developers are famous worldwide. They have been ranked first in the ACM International Collegiate Programming Contest for several years in a row, as well as in Facebook Hacker Cup. What about their salaries? An average Russian developer is making $20 000 per year (SuperJob research) which is of course lower than $100 000 per year we mentioned earlier.
In addition, when working with Russian and Ukrainian programmers, cultural and time difference will be lower. Most of them are fluent in English that works great for hi-tech startups from the Valley. By the way, the most popular languages used by Russian developers are the following:
SQL — 49.1%
Java — 36.3%
C# — 30.9%
PHP — 25.9%
Python — 24.9%
C++ — 19.4%
AngularJS – 17.9%
That leaves us with one more question. If Russian and Ukrainian programmers are so great, why aren’t they invited to come over? First of all, there are visa difficulties. To invite them to work in the US, the company will need a quota for foreign workers received from the authorities (particularly, from the U.S. Citizenship and Immigration Services). For example, in 2018 there will only be 65,000 slots for foreign workers distributed amongst all US companies. that’s not including Trump’s initiatives which have made the working visa process even harder. Secondly, relocation expenses can cost a fortune, especially if the new worker is married and with children. Thirdly, when your remote worker arrives, his or her service will become more expensive. For example, renting a 1-room flat in Moscow is 4 times cheaper than in San Francisco. Therefore, to survive, the talented newbie will ask the startup to raise his salary.
The last challenge to be discussed is where to find great remote contractors? The easiest solution seems to be freelance platforms like Upwork. However the searching process can become too long and there are no guarantees that workers are great there. It is questionable, that you can find a talented professional at a $5 hourly rate. And most of the registered Upwork freelancers, especially from India and Pakistan, charge that amount. The second solution is a platform that can guarantee the result, offer a relevant contractor, provide the translation if necessary and even control the contractor during the project. Among those is Rubrain.com. There are also outsourcing and out-staffing agencies, but their commission can significantly raise the planned salary budget for the project.
All in all, every startup chooses the most convenient way its employment policy: some companies prefer to work with in-house employees, some entrepreneurs prefer to deal with remote workers from the same country. However, hiring talented remote workers can be a real smart case to quickly and easily raise next Unicorn from the startup.