When Startups Should Find An Agency Or Hire In-House

I recently met some people who work at a startup doing some exciting work in mobile and with a growing marketing department, and the topic of agencies came up. One of them asked me what I thought about agencies versus hiring in-house.

Like “How big is a car?”, it’s a question that has no right answer. Each situation is unique. I’ve worked with external agencies, in-house teams, and a combination of the two. Each arrangement has its benefits and trade-offs. This is how I approach the question.

These considerations drive this all-important “lease or buy?” question.

First, here are some generalities:

  • External agencies or freelancers, because they tend to be easier to terminate, can be more service-oriented than employees.

  • With agencies, you also can buy only the time and talent you need. You also don’t have to pay for the overheads that come will full-time workers, such as health insurance.

  • Employees, on the other hand, tend to be more available. They work where you work, and you have more direct control over the types of skills you bring on board.

If you’re faced with this decision, first ask yourself if you can do the job with resources you already have. Let’s say you’ve got a UI designer and you need to sharpen an important PowerPoint presentation. Perhaps the designer can do the job. At a large company, you probably wouldn’t ask a UI designer for help, but in a lean startup, sometimes it pays to look for talent in adjacent disciplines.

Here are three questions worth asking when deciding whether to hire in-house or find an agency:

  1. Is the work likely to be recurring? If so, will it recur a lot or a little? If a project calls for a one-off or an otherwise limited engagement, such as producing a sell-in video, it probably makes more sense to find an agency to help. In general, the more frequently the task will recur, the more attractive an in-house solution looks.

  2. How important is the activity? The more vital the work, the more likely you’ll want direct control, which probably means hiring workers.

  3. What’s the cost comparison? Agency costs can be pretty easy to estimate and control. Employee costs? Not so much. That’s because you need to calculate things like benefits and perks, not just employee salaries. If your startup offers things like discounted gym memberships and free meals, you’ll need to factor these into your analysis.

Here’s a graph to help you visualize the decision:

Find an agency or hire?

In other words, the higher the recurring volume of work and the more strategic that work is, the more it makes sense to hire an employee. The less strategic and frequently recurring, the more an agency starts to make sense. Tasks that fall in the upper left or lower right quadrants may come down to a simple cost analysis.

This graph isn’t meant to convey exact science. For example, if you decide to hire someone, you’ll need to consider full-time vs. part-time employment. Your budget may not permit hiring, even for a recurring, high volume and strategically vital task.

Based on my experience, though, these considerations drive this all-important “lease or buy?” question.

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One comment

  1. This is a great, high-level chart that can be used in decision making. As you mentioned however, there usually are many factors at play and it’s not always that simple. Sometimes it comes down to budget, as outsourcing is usually the less expensive route.

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