The hidden costs of contractors
What to look for when optimizing your product team
You have an amazing idea and now it’s time to execute. Congratulations! It’s time to develop a digital solution but chances are, you need to hire a team. You can build a team in-house where everyone is centrally located, or build a remote/hybrid team where either the entire team, or parts of your team, are located in various locations around the world. You also have the option to hire full time employees or contractors. There is no right or wrong decision but it’s important to understand the trade-offs and hidden costs. As someone who has been both a full time employee and a contractor on these product teams, don’t just look at upfront costs when deciding on how to build your team. Be mindful of these 3 other factors when looking to hire contractors.
Contracts can limit innovation
When searching for individual contractors, or a team of contractors, they all want to know the product requirements up front. Naturally, this makes sense because it helps them scope out the project — number of developers/designers, total man hours and target delivery date. However, contracts built around requirements are not the best scenario for the client as it restricts their ability to adapt and change mid-project. It forces the client into a waterfall methodology, yet, the Agile Manifesto values “customer collaboration over contract negotiations”. Any additional changes or new requirements are often met with push back as they are deemed to be outside the scope of the project. The client now has to make a trade-off decision between innovation and cost. If the client doesn’t perform a diligent product discovery process up front, a small conceptual change can cause a large ripple effect in terms of time and cost.
For example, I was working on a mobile solution with a team of both full time employees and contractors. The feature I was responsible for was not achieving the target adoption rates. We determined the root cause was not the feature itself, but that our users weren’t aware the feature was available. Therefore, we decided to redesign the entry point to make it more visible and appealing to our user base. We had a few ideas but needed to do A/B testing with high fidelity designs to test. Our designer was a contractor and leadership felt he was too expensive for the budget. This triggered a 4 week delay to search, find, and onboard a new contractor who’s hourly rate was lower. The opportunity cost was greater than the new cheaper contract. The faster we were able to increase adoption rates, the faster the business can realize revenue.
Feature focused
Some contractors are focused on building features, not user experiences. They are feature focused because they want to complete the current project as quickly as possible and move on to the next one. However, many don’t spend the time to understand if these features actually make sense.
Once, I was working with a contract development team and I challenged them to build a web dashboard to show customer enrollment vs. total invited customers for a particular service. They delivered a pie chart that looked something like this:
The first problem is that they used actual numbers rather than percentages in the pie chart. The next major issue is that a pie chart is completely the wrong type of graph to use. Pie charts are used to represent parts of a whole. If everyone who was invited was also enrolled, this would indicate a 100% conversion rate. However, the pie chart they built showed at most 50% customer enrollment. When discussed with the development team, they were defensive and said, “we built the feature you wanted”. Yes, but does this feature provide value to the user?
Challenging time zones
Oftentimes, contractors are off-shore in countries that have cheaper labor. India is the most popular but other countries in Eastern Europe and South America also have favorable exchange rates. The problem with remote teams in Asia is that the time zone difference is so extreme that if you’re unable to adjust your own working hours, a simple fix can take several days to resolve. Some studies show that these communication inefficiencies can cost as much as 20% of the project cost. Many times, clients realize that they need to hire an additional shoreside project manager to work directly with the remote contractors mainly to navigate the challenging time zone. The additional hire(s) and the communication inefficiencies are some of the most significant hidden costs when working with off-shore contractors.
Find a partner
In conclusion, I am not against contract work or remote contract development agencies. I have had some really positive experiences working with contractors in other parts of the world as we have built some awesome products together. However, a lot of companies, especially startups, only look at upfront costs when deciding on their team structure. When this happens, the total cost of ownership may be greater in the long run. My suggestion is to find contractors that will treat you as a partner rather than a project. Find someone who is willing to iterate with you and puts themselves in your customers shoes. Yes, this is going to cost a little more up front but when your product takes off, you can focus on revenue generating activities rather than redoing an app you already built.
