Developing Products Overseas: My “L.I.T.E.S.” Framework
This post is for everybody who has ever been tempted by outsourcing software development to inexpensive agencies overseas. I’m sharing what I believe to be the RIGHT way to build a team overseas.
I’ve done this myself and blew my balls off.
(The one overseas agency we’ve worked with, love, and continue to work with is Vivify Ideas. Goran, who runs the place, is a real professional, and they do very good work. For more about them, comment in the post and I’ll respond).
Learning my lesson
The first time I danced with the devil and tried to get a software product built on the cheap by an agency was Robly.
We outsourced Robly v1 to India so that Tate (our CTO) could keep his job as long as possible.
This was in spite of very experienced entrepreneurial voices advising me not to. But I ignored them and plowed ahead with an arrogance that only the inexperienced could have.
On Robly’s delivery date, Tate decided he had to rebuild the entire thing. It set us back six months.
That sucked for a million reasons that I don’t need to go into here.
Time to build a new product (without losing our balls)!
Last year we decided we were going to start building Lead.com.
We wanted to build it overseas because we’re bootstrapped and interested in maximizing profitability (crazy, I know).
It’s not easy, but if you stick to the framework I’ve included below, your chances of this team working for you and avoiding complete disaster are very high.
For Lead.com, instead of ignoring advice from those with experience as I did with Robly, I decided to seek wisdom and actually listen.
I spoke at length with many people.
The most helpful advice I received was from Alex Alexandrov, who had recently built a team of 50+ developers in Bulgaria for his NYC company HedgeServ.
He was walking me through the numbers. They were staggering.
Senior developers that would cost $175 to $200k in New York or San Francisco were $5k/month. Junior developers and product managers were half of that price. And the talent level was excellent.
HP and some other massive company already had tens of thousands of developers there, and U.S.-based startups were beginning to make their way over.
Bulgaria sounded great, but he was dead-set on an idea that I appreciate now far more than when he said it to me more than a year go.
So without further ado, here’s my framework:
L: Live there
Alex insisted that I could use an agency and have them handle all of the people issues, but I wouldn’t get the quality of work that I wanted, because they wouldn’t be my employees.
If I wanted real employees, someone was going to have to LIVE wherever the operation was for a while and take on a leadership role.
He said I needed to get the new team members to buy in to the mission and me (or someone else from Lead.com) in general. He explained that someone also needs to pass on the values and culture of the company, or they just won’t care enough to do great work.
His estimate was that this would take six months, minimum.
I decided I was up for living in a foreign country for a while. I’d already been doing the digital nomad thing a bit for a year or so, so it wasn’t going to be that big of a change for me.
I’d spent the prior October in Buenos Aires on a working holiday and loved it.
Turns out there’s a substantial amount of engineering talent there, and the salary arbitrage was substantial.
I asked an Argentine VC friend of mine if Buenos Aires was a good place to build a dev team, and he said he was actually in Holland helping someone out with it that very moment.
So the “L” was taken care of. I was going to live in Buenos Aires and make this thing happen.
I: Investigate country-specific perks to attract talent
So we had decided to build a team in Argentina.
But how would I make it work?
It’s important to me to provide an excellent work environment for our employees, one that makes all of their lives better.
I can say confidently that with Robly we’ve done just that.
People love working for us. Employees thank me regularly for giving them a chance to work at a company that gives their lives so much richness.
I wanted to do the same in Argentina, and I’m acutely aware that different cultures want different things from a workplace.
Here are a few tips I got from the recruiting agency and my Argentine friends:
- Lunches. Social interaction is more important down south (relatively) than in the U.S. They just want to hang out outside of work. If the company buys lunch, even better.
- English classes. Everybody there wants to improve their English. Easy. One class per week, taught by the lovely humans over at Vos Buenos Aires.
- 15 vacation days. No need to explain there, but with all the holidays in Argentina, it’s a lot.
- Pay for their health insurance. This is around $185/mo.
That was it.
So with that “value proposition,” we went out and found people.
T: Team up with a local
An Argentine friend referred me to Bandit, a recruiting agency, and we started interviewing.
Early on, Bandit was fantastic.
I told them I wanted to hire a team of three full stack developers to start, then two or three over the next several months.
Once we got that team functioning, we would grow it from there. So we started by hiring three people.
Bandit even told me the guys could work in their co-working space in La Maquinita in Palermo, which the original crew loved.
Tate and I both went down in April, Tate for one week, and I stayed for eight months.
E: Evaluate the legal situation (pre-arrival if possible)
Everything seemed to be going great until we decided to cut one of the team members who wasn’t working out for us.
We were working in the offices of the recruiting firm.
They told me I had to fire him in person, rather than Tate, his boss, over the phone.
I told everybody to get in at 9:30am for a team meeting.
At 1pm, the guy still wasn’t there.
He finally showed up around 2pm.
And the conversation was not pretty. It was probably the longest 30 minutes of my life. There was screaming, anger, crying, and a crazed look in his eyes.
Finally, when the horribly unpleasant conversation was over, I asked for his laptop, which we had purchased for him a few weeks prior.
He responded with, “I have to take it home to get my personal information off it.”
I said, “Look there is ZERO chance that would ever happen in the U.S., but this isn’t my country, I am new here, so I’m going to ask the CEO of the recruiting firm what he thinks.”
The guy said, “You can trust him. He needs us to get another job. He’ll bring the laptop back tomorrow.”
Wham, bam, thank you ma’am
Not only did the guy never show up again, he stopped responding to me and the rest of the team within about 24 hours.
Tate pointed out how stupid I was for letting him take the laptop home, because with the information on the laptop he could effectively perform a DDOS (distributed denial of service) attack on our own system in a way that would have been impossible without it.
Riddled with guilt, I waited to see what happened.
Day one, nothing.
Day two, a DDOS attack.
The shame spiral started then and got worse. It took all our team’s time for about a week to create something that stopped the attack. I felt like such a dumb asshole.
Then, it got worse.
WTF is a “carta documento?”
In addition to stealing the laptop and attacking our system, the guy sued us.
He sent a “carta documento,” which is a summons to their labor court.
He summoned me, Lead.com, and the recruiting firm.
Argentina is a very socialist country, and I assumed (and had confirmed) that pretty much no matter what, the employee was always right.
I was involved in another lawsuit in the U.S. at the time with a competitor who shall remain nameless (as per our settlement).
I was bleeding money on this other lawsuit, and terrified of getting pulled into another mess in socialist, pro-labor Argentina, a place I knew nothing about, by a pseudo-employee/contractor who had worked for us for three weeks.
The worst part about it is that this happened so infrequently to the recruiting firm and their clients that the guy in charge didn’t know much more than I did about what it meant.
Lawyers, lawyers, and more lawyers
The CEO of the recruiting firm was nice enough to bring me along to three meetings that afternoon he had with lawyers who were his personal contacts.
The first lawyer wasn’t helpful. He said I would end up getting sued for $30k U.S.D for an employee that I paid a total of $5k.
The next appointment was a bit better.
They told me that since I had no business presence in Argentina (meaning we didn’t have an Argentine LLC) and I was there on a tourist visa, I didn’t have to go to court.
In fact, I couldn’t go to court, because I didn’t have a DNI (document number).
One of them encouraged me to write a letter about the laptop threatening criminal action.
The third lawyer said that no attorney would possibly take the case of trying to find me in the U.S. from Argentina over such a small potential winning.
The fourth attorney explained that if I’m paying them like contractors, they needed to work like contractors, and not employees.
- Have set hours
- Work in a fixed location (office)
- Do NOT do self-directed work
- Do have property from the company they were using to do their jobs (laptops)
- Don’t generate many invoices in a row (undefined period, but many in sequence could mean you are an employee)
I then did everything in my power to make the arrangement as much like a contractor as possible.
We didn’t enforce a work day schedule, just said the expectation was 40 hours a week of work.
We ditched the office.
Our work always was self-directed; we hired very senior developers who knew enough to not need instruction to complete any of the tasks.
We stopped buying people laptops.
The one thing we couldn’t get around was the sequenced invoices. But we were doing everything else right, which the lawyers said would help us in the event we ever needed to let anyone go again.
We now have a fantastic team of six
Over the next eight months, I hosted the team once a week at my apartment.
This was an outstanding team-building experience. It was the perfect mix between remote work and interpersonal connection.
I wrote a blog post about it here.
S: Send your U.S. employees to the overseas office
To solidify the connection between our Argentina and U.S. teams, I thought it would be a good idea to do a ten day work retreat in Buenos Aires.
We rented a mansion in San Telmo that slept 20, did a cultural event every evening, had a bunch of asados (that’s an Argentine BBQ), and even played polo.
It was great. Check out this video we filmed on the last day.
Matt Shatz, SVP of Sales at WP Engine gave a great speech at SaaStr 2019 and touched on the topic of keeping your overseas offices connected to the mothership.
According to Matt, they struggled with engagement at their Sydney office for a period of time.
How did they fix it?
They started sending high performing employees to work out of the Sydney office, constantly. At any moment there was almost always someone from the mothership there.
The high-performing employees loved it, it felt like personal development and broke them out of their routine, and the overseas office no longer felt neglected.
I love Matt’s idea. We’re going to implement it for Lead.com in the coming months.
One sad thing: you can’t build a big team in Argentina
We’re very happy with our team down there, but it didn’t come easy. I agree with Alex that someone needed to live there to pass along the values of the company.
It wouldn’t have been the same otherwise.
I also spoke at length about what happened to me to local business owners in different industries that I met in Argentina.
There seemed to be a consensus that when you cut someone in Argentina, some sort of payment to the employee almost always went along with it, and that was just life.
From all of the information I gathered, it seemed to me that you can manage a team of “freelancers” up to ten people or so, but any more than that and you run a large legal liability by not incorporating in Argentina and hiring them as proper employees.
The expense and complication involved for a foreign company means, in my opinion, that you’re better off keeping the team small there. If you need to continue growing, you may be better off going through the entire exercise of building another team somewhere else in the world. Possibly in Sofia, Bulgaria, where Alex was doing it.
The saddest thing to me is that with all the economic problems that this wonderful country has, they’re not setting themselves up to export the incredible engineering talent they have and bring hard dollars into their economy.
Building an overseas team is doable if you’re willing and able to follow these guidelines. If you invest in-person time, work with locals, offer the right perks, and cover the legal side you can make it work for your business. It may not be easy, but chances are it will be worth it.
What tips do other entrepreneurs have for developing and running an overseas business? Tell me in the comments!