A dilemma most entrepreneurs face is what business functions should be outsourced, and what should be kept in-house. It’s a trade-off, and sacrifices are made either way. Outsourcing can be more expensive, but it’s also possible to get extremely talented and specialized people this way. It can also keep your costs variable, making it a good way to get started and test your concept. In-house employees will be a lot more committed, but top-notch people are also a lot harder for startups to hire and retain.
In most situations, the right answer is to hire employees for your core capabilities, and outsource the other functions. For instance, if your company is a website, your programmers should be in-house employees. If you’re running a bakery, you shouldn’t outsource the recipes or the baking. The core functions of your business keep the wheels turning. Outsourcing might create too much risk. Your core functions are also your competitive advantage and secret sauce. They’re the reasons customers prefer you to your competition. It’s hard to outsource your competitive advantage.