Lessons From Hiring for Software Contractors

I tried hard to make my first hire an FTE. As an early-stage startup with minimal funding, that proved difficult, and I ended up hiring a contractor. Initially, things worked out great, and we quickly got the first version of the product out to clients. However, once we started gaining traction and faced tight deadlines, the hourly model didn’t work. We needed to work smarter and harder, but the contractor wasn’t willing to make exceptions to his 9–5 Mon-Fri window. This reinforced my belief that we needed FTEs. The contractor was great at what he did and continued working with us, but I decided to only hire FTEs from then on.

Three years later, in the spring of 2018, LiveLike was working towards building VR apps for the 2018 FIFA World Cup (FWC). We had signed up to deliver 28 customized apps for 10 international broadcasters and needed to move quickly. The FWC was an order of magnitude more effort in custom development services than what we had been working towards so far. I needed additional engineering manpower on the services team. My solution was to travel to our offices in India and make 12 FTE hires in 2 weeks. The FWC products exceeded client expectations, and we celebrated. Three months later, with demand dropping back to pre-FWC levels, I had to let 8 FTEs go. These were people I had convinced to join us on our mission, and now I had to let them down.

If you know exactly what needs to be done, and you’ve only got a few months to build it, as we learned with REDspace, the right contractors on a fixed-price model could work well. While FTEs need to be mission-driven and are essential to iterating toward product-market fit, contractors can be deployed quickly and effectively to execute a short amount of known work. Further, it gives you time to make the right FTE hires in-house while still making progress on the project.

As a side note, aspiring entrepreneurs often ask me about using contractors for building their first MVP. Unless you’ve got experience with software projects and have validated the concept through customer discovery and low-fidelity prototypes, the scope of your project is likely not well-defined, and more importantly, might be a waste of money if you approach it as such. That’s not to say you shouldn’t use contractors or an agency but don’t expect it to be a fixed scope.

Contractors generally aren’t aligned or even aware of your company’s mission and vision. Without that understanding and the institutional knowledge possessed by FTEs, they are more likely to make sub-optimal decisions. For example, REDspace initially suggested we build our product using HTML5, something we hadn’t yet considered and was worth thinking through. However, our internal team felt a native mobile experience was more in line with the premium product our clients expected. After much discussion, we went with the native approach. In another instance, our iOS and Android teams consisted of a mix of FTEs and contractors and were able to effectively engage in formal architecture reviews, code reviews, and other agile processes. However, the lack of FTE web devs at LiveLike meant we weren’t able to follow the same process with our contract web dev. The result was a system that had to be rewritten when we hired our first web FTE.

We wanted LiveLike to be a pure product company. Everyone in the product organization came from product-driven backgrounds, and we all wanted to build a high-value zero-marginal-cost product. The concept of services was anathema, and “agency” became a bad word. Employees would often complain that we’re an agency, while the leadership team would say it’s temporary and brush off concerns. I personally followed a narrow-minded approach of learning solely from product companies through mentors, blogs, and books. I never once spoke to founders or business leaders in the services industry. If I had accepted that our business has two arms — products and services — and each needs to be managed differently, I might have avoided the layoffs.

In a product company, you’re likely to iterate heavily and engage in continuous R&D. Further, you’ve likely hired top-talent missionaries, and in many cases when faced with a pivot, you’re better off retraining staff (like we did for the new product) than engaging in layoffs and re-hirings.

On the services side, however, you’re more likely to face ups and downs based on client interest. This is especially true if your revenue comes largely from one-off projects rather than recurring contracts. The FIFA World Cup was an order of magnitude larger than our previous projects. I mistakenly assumed demand would continue to rise after the FWC and hired FTEs to keep up with that perceived demand. When demand inevitably fell and many employees were left twiddling their thumbs and inventing work, we had to let them go.

The decision around hiring FTEs for the FWC probably worked out economically for LiveLike. FTEs working long hours was much cheaper for the company than hiring similar-quality hourly contractors to do the same, even with the four-week severance. But layoffs just suck, especially when six months ago, those people joined you convinced that your mission was worth dedicating their time and careers towards. This also made me realize the importance of making the right FTE vs. Contractor hiring decision, not just for the company but for the individual as well.

While this is by no means a comprehensive guide to deciding between employing FTEs, contractors, or agencies, I hope it sheds some light on my experiences and learnings. There’s a lot of detail and nuance missing here, and I’d love to hear your thoughts and questions below.

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