Startups Use Gig Economy to Outsource Jobs

The business tactics of outsourcing work and offshoring jobs were once reserved for large tech corporations like Oracle, Cisco and Hewlett-Packard. Now, thanks to the growing gig economy, even the smallest startups are in on the action.

Tyson Quick is the CEO of Instapage. It's a new tech company in San Francisco, but it's not your stereotypical Bay Area tech startup run out of a garage by college dropouts. In fact, much of the company is actually not in the Bay Area at all. 

Quick started Instapage with freelancers. He contracted an engineer in Poland, a designer in Serbia and a front-end developer in Bolivia. While the company has office space in San Francisco, most employees are in Poland, with a support team in Romania and some part-time freelancers scattered around other parts of the world. 

Quick says, “I think hiring locally is important, but at the end of the day we are building businesses. And businesses stay alive by being efficient with their capital.”

Halfway around the world in Serbia, designers and Web developers like Ivan Aleksic have worked over 10,000 hours for Instapage.  He says he’d like a full-time job with benefits, but is grateful for the freelance work. He says he earns far more than he would working for a Serbian firm, but much less than someone in the Bay Area would make doing the same work. “I'm paid like a third or half the money they need in their market. So it’s like a win-win situation.”

CEO Quick keeps tabs on a team of independent contractors in Romania with a live video feed. They wave and say hello to the camera. The sound quality is terrible. It’s like they're in a fishbowl.

Most of Instapage’s freelancers were hired through the website Upwork. It's one of many gig platforms where businesses can contract workers. Quick, a serial entrepreneur, says these services have changed how startups start up. “Before platforms like Upwork, you pretty much had to raise a ton of money so you could hire the in-house talent to grow your business.”

Today a business owner can use different gig websites to contract people to do just about anything: set up offices, clean them, design websites, build apps, deliver mail, cook meals. The list goes on.

Duncan Logan has seen the gig trend firsthand. He runs RocketSpace, a hub in San Francisco where over 150 new tech companies share offices. Logan says, “Literally, you have to do nothing now. You just have to sit and make decisions, and other people will do all the work for you.”

Logan calls it the “lack-of-commitment” economy. “There's no office manager, there's nobody doing marketing," he says. "They've outsourced all that, and they say all we are doing is building the app.”

As tech companies grow they often bring on more full-time employees, but Logan says that’s  partly because it looks good for investors. He says that if the corporation hits it big, it often goes back to outsourcing. 

Cory Jones heads marketing for Skyroam, one of the companies housed at RocketSpace. He says most of the companies at the shared office space are using gig Web platforms in one form or another, whether it's Uber to drive employees around or TaskRabbit to contract people for odd jobs. "I've Task-rabbited everything from some design work to helping to deliver food, as well as installing a pull-up bar."

RocketSpace itself contracts gig workers. CEO Logan had one design the company’s giant rocket logo. “That was made in Vietnam by some guy I've never met,” Logan says. “It cost me, I think, $200.”

If all this sounds like offshoring and outsourcing, Rutgers University professor Hal Salzman says that’s exactly what it is.

“Outsourcing has become an unpopular word, so recasting it as the gig economy sounds much better," he says. "The next great app can be a lot of fun to use. The next service may be great to have. It's the bigger picture. What cost is to the economy? What's the longer-term future for the workforce and overall for the quality of life?”

Salzman, an expert on engineering labor markets and workplace restructuring, says tech companies have cut payroll expenses by shipping out jobs. He says the gig websites just allow smaller companies to follow the model: a few owners and a lot of lower-paid contractors. Salzman worries about the long-term cost and impact on workers.

These are big questions to ponder, but business owners say they are just trying to survive. Instapage CEO Quick says he needs cheap, flexible freelancers to compete. Right now, he says, local full-time people are just too expensive.