Startups and Offshore Outsourcing: The Perfect Match?

So you want to be an entrepreneur? On the Web? And maybe you're just missing one small but critical element — the IT talent to create the software-as-a-service application that will take your business from vision to reality?

One entrepreneur's business opportunity is another company's business. Augmentum, a 5-year-old offshore outsourcing software development company, has helped big names in the software industry — Intel, Microsoft, and Business Objects, to name a few. But recently it's been finding that its software engineering talent, particularly when it comes to creating open source applications to be delivered as a service over the Web, is proving an attractive option for newer companies. That includes open source CRM startup SugarCRM and online advertising self-service platform Etology.

CTO Wayne Horn says he expects such an audience to be a growing part of Augmentum's business, as startups become more comfortable with bringing their ideas to fruition using offshore talent. And in Augmentum's case, that talent isn't where you might think it would be. The company is leveraging software engineering talent in China, not India, for a number of reasons.

"The boat has left for India for any new software services companies starting up," says Horn. "There's huge competition [for talent] and it's hard to differentiate yourself. And cost is little bit out of control right now, as is the turnover rate." At the same time, he says, the rate of software engineers being turned out in China is an "order of magnitude" greater than India.

The capability to keep a lid on costs using less expensive offshore talent makes a difference to emerging companies. "There's more of a willingness to accept using software services, both a willingness and at least in the entrepreneurial community a great push," says Horn. "Quite often a business plan can't get funded unless it mentions using resources offshore. Those are the economic realities of the post dot-com bust."

While India is now more accepted as an offshoring venue, China has more recently had to oversome some of the hurdles it faces in terms of concerns over language barriers, intellectual property protection and cultural differences.

Augmentum says it's addressing the issues on all counts. It's CMM (Capability Maturity Model) Level 3-certified; runs a boot camp-Horn calls it more like "hazing"-for new recruits in China that simulates the stresses of tight deadlines and changing project scope, and filters out those who don't seem suited to handle it; requires that English be spoken in its overseas facility; and fosters direct interaction between clients and the offshore program managers and the personnel who help design the user experience into the application.

In fact, Horn says things like its CMM Level 3 certification is nice and good to have as a check mark, but that Augmentum prides itself on engaging its clients from the customer experience level, having clients look through and sign off on proposed user interface screens to help remove some of the ambiguities that could suffuse the software development process. "That process leads us to discovering gaps in their understanding of what their business processes are, and ultimately leads to better delivery of software where the client and their development teams are much happier," he says.

Other companies see an opportunity to capitalize on the country's entrepreneurial spirit, as well. GlobalLogic, for instance, helps start-ups get over the initial development hump by aligning its compensation with the company's business goals and funding schedule. It also provides a business advisory role and some times taking an equity stake in its startup clients.

Vijay Goel M.D., founder of startup site Healthshoppr, offers insight into some of most common challenges a software startup faces. HealthShoppr is a marketplace where consumers can "shop" for healthcare providers by identifying special services, hours available, approach to care and so on. They can also share reviews and recommendations. Like many entrepreneurs, Goel was struggling with a number of issues. He had limited cash and needed investors to get the first version of his product out. However, it was sort of a Catch-22 because he needed a product prototype to show investors before he could secure any development funds. This was especially tough because even though he had a great idea for a health care site and loads of medical expertise, he didn't have the time or the skills needed to establish a technical team and software development infrastructure.

Goel says he was able to get his product from the concept stage to the market by partnering with GlobalLogic, an offshore product development firm. GlobalLogic, for instance, handled the software development for startup Healthshopper, a marketplace where consumers can shop for healthcare providers by identifying special services, hours available, approach to care, and also share reviews and recommendations. The outsourcing company aims to align its compensation with the client's business goals and funding schedule, and some times taking an equity stake in its start-up clients. In the case of Healthshopper, for instance, it handled the software development needs, made introductions to potential investors and provided business and technical advisers to help get the site off the ground.

These days, Horn says, the trepidation and concern customers might once have had over using an offshore company to help build their core services application is evaporating. "An entrepreneur looking to make his dreams come true is looking for execution and delivery," he says. "They may not be so concerned about where it happens."