Keeping R&D in-house may not be the best strategy anymore

The tech industry in Australia has seen its fair share of ups and downs, but the recent bubble burst has left many startups reeling. Whilst it’s tempting to attribute this to zero interest rate policies, which cheapened capital and funnelled billions into the global startup ecosystem, there’s a bit more nuance beneath the surface.

The market for tech talent has always been incredibly competitive, and locally, this has been exacerbated by the nascency of the Australian tech scene. There simply aren’t enough professionals of the caliber required to fuel the growth of local market leaders and the new upstarts. Ask any founder, hiring manager, headhunter, or investor, and you’ll inevitably hear a version of “Yep, Atlassian, Canva , and SafetyCulture gobble up most of the good ones.”

Does that mean other startups can’t hire good people at all? Nope. It just means they’re doing it at a steep premium. Case in point, Dovetail raised $89m at a stupendous valuation of $960m last year. Benjamin Humphrey, Dovetail’s founder, admitted that he feels “like the market is a bit ridiculous, but you’d be stupid not to play the game.”

Why play the game though? “We don’t really need lots of cash,” he said. “This is more like ‘courage capital’ for us to take bigger bets, whether that be moving to a really awesome headquarters, or paying above market rates for engineering talent. It just takes that constraint off the table entirely.”

Can’t add much here, I think it clearly paints the reality of hiring top talent in Australia for the last several years. Also, this is by no means an attempt to throw shade at this particular startup’s leadership or any other’s. As the design leader of a well funded Australian startup, I used to play tug of war with our CFO and CEO on a weekly basis. “You’re asking us to commit to this goal, but we can’t hit it without an actual team, and we need that Senior PM/PD/TL to start it, and let’s face it, the market is hot right now, so we need to sweeten the deal.”

How clear things were in my mind. And how could they not see it? If you want to place more bets, and you want to hire the best to execute those bets, and you don’t want to pull the plug on ongoing initiatives, you need to cough up.

What's wrong with hiring internally then?

Looking back there were a myriad of issues that that mentality gives rise to. You rush hiring decisions for high-leverage roles because they are on the critical path of an important project. You grow certain functions, so now you need expensive functional leadership in place to ensure ICs are getting the right mentorship. Before you know it you are forced into creating layers of management that inevitably slow down progress and diffuse responsibility. You delay killing off features or initiatives, accelerate technical and UX debt accumulation, and end up stretching yourself too thin.

In other words, removing capital constraints from the table entirely is not necessarily a recipe for success. It’s a luxury reserved for market leaders (though they too are now doing the cuts), and most startups and scaleups that try to mimic that behavior are in for a world of pain.

So ... what's the alternative? Stay with the pain? Keep the constraints?

Yes, that’s certainly one way to go about it. But rather than introduce another marginally useful dichotomy a là “bootstrap vs VC”, I’d like to offer an alternative. The next time you need to place a bet as a founder, product, or engineering leader, stop and ask yourself the following.

1. Do I need to hire in-house talent for this initiative?
2. Am I ready to commit to one or more FTEs for it?
3. Does my talent acquisition team have the capacity for this role? Or does the hiring manager have the bandwidth to review take-home challenges and interview multiple candidates per week?
4. Would we need to go through an external recruiter and is their commission worth it in the context of this role?
5. Do I have anyone else in the team that could do this temporarily?
6. Do we have the management structure to support this new team member?
7. And most importantly ... are we getting validated learnings about this new bet/initiative/opportunity as fast as possible?

If the answer to a few of these questions is “No”, don’t greenlight this headcount. What you could do instead is explore augmenting the product team with external professionals who help you close the respective competence gap and accelerate your go-to-market.

What's the alternative?

Over the last several years UntilNow has put team augmentation to the test with a number of Australian startups (Carma , Spriggy , Vouch and Envizi to name a few) to test new business opportunities, validate product ideas before committing to full-time employees, and remove growth bottlenecks by improving UX at critical parts of the funnel.

Here are a few reasons why they chose this approach:

1. Flexibility — Scale your team up or down as needed. This can be especially valuable in the early stages of a startup when you're still figuring out your product-market fit and don't want to commit to long-term hires until you have more certainty.
2. Expertise — Bring in a wealth of experience from people who have built products in-house across various industries. This can be especially valuable if you've got a young team, or you’re exploring new markets or technologies that your current team may not have experience with.
3. Cost-effectiveness — Hiring external resources can be a more cost-effective way to explore new business opportunities than hiring full-time employees and committing to a full salary and benefits package.
4. Speed — Hiring external resources can also help you move faster on new initiatives. Because you're not constrained by the time it takes to recruit and onboard full-time employees, you can quickly bring in external resources to start exploring new ideas.
5. Learning Opportunity — Engaging external seasoned professionals can expose your product team to new ways of working that boost performance.

Final thoughts ...

It should go without saying, but team augmentation is not a silver bullet, and it’s by no means a replacement for building a stellar in-house product team. Instead, it allows you to bring top talent if and when you need it, without rushing hiring decisions, increasing management layers, investing too early in unvalidated opportunities and putting unnecessary strain on your cashflow.

If you’ve gotten this far, then I’ve probably raised as many questions as I’ve answered 🙂 Get in touch, and let’s see if I can help answer the rest.

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