During the past 24 months, four venture-backed, rapidly growing U.S. startups specializing in Big Data, search, CRM and performance management software were acquired for nearly $2 billion dollars collectively. Recently, the acquiring electronic marketplace company of one of them also was acquired for billions of dollars. What did they have in common besides visionary management teams, innovative IP and impressive customer adoption? This: Latin America-based, Agile-driven nearshore software engineering services partnerships enabling on-demand engineering rapidly scaled.
In a time when the exit path for consumer, marketplace, eCommerce, social, SaaS, Big Data and other startups is split — the second quarter of 2014 saw more IPOs than any since 2000, while M&A hit its highest level since 2007 — an important common denominator for success remains the ability to scale a talented software engineering team capable of building out the founders’ vision. Increasingly, many turn toward nearshore services partners in Costa Rica, Peru and other Latin American countries offering talented, bilingual engineers who align with the same U.S. time zone.
The inception of many early-stage startup engineering teams has remained remarkably the same over the years: come together in a house, garage, basement or cheap incubator space; develop collaboratively over long hours; iterate fast and often; grow. Then, with the next phase of funding move into bigger, more expensive office space, still collaborating, still releasing quality code fast and quickly scale the initial small engineering team.
Apple. Google. Amazon. All launched in a garage. Disney, the animation and entertainment giant? Even them. Walt’s first studio was a tiny, one-car garage in Hollywood.
After securing funding, the ability to scale engineering is the single greatest challenge to startup growth. And, some say funding right now is easier than finding and scaling developers and testers that can execute.
Startup market is exploding
“Some 242 Bay Area companies received early-stage funding (or seed round) in the first half of 2013,” according to consultancy CB Insights. That is more than the number for all of 2010. In the second quarter of 2014, VCs invested $7.1 billion in tech companies, a whopping 145 percent increase over the same quarter in 2013. That’s also a 51 percent increase over the first quarter of 2014, which, until now, had been the largest fundraising quarter since 2000, according to a report by MoneyTree.
The year 2014 is on pace to be one of the biggest in venture investments in at least a decade, according to industry observers. With this dynamic post-garage growth, startups need software development and testing talent to continue their momentum. Quick.
Here’s the problem — talent demand
According to the employment meta-search engine Indeed.com, four of the top 10 fastest-growing keywords tracked are for mobile developer talent: HTML5, iOS, Android and mobile app. All four keywords are in the top five.
Researchers project that by 2020, the average annual number of job openings requiring a bachelor’s degree in computer science will grow to approximately 122,300 nationally. Yet the forecast also predicts that there will only be 51,474 graduates in the U.S. that year to meet those demands.
A recruiter at Riviera Partners, which specializes in placing software engineers at venture capital-backed startups, said: “The number of A-players in Silicon Valley hasn’t grown. But the demand for them has gone through the roof.”
In February 2014 1,200 technology jobs were posted by employers in Austin, Texas. The city’s technology sector expects to create as many as 9,000 jobs through 2017 and local tech industry officials are worried about the shallow pool of local candidates.
Agile adoption deepens the talent problem
The continued acceptance of Agile as the de facto software development method among startups has only heightened the engineering scale challenge. A startup engineering team using Agile for its software development life cycle leverages the accepted Agile method cornerstones:
Individuals and interactions, particularly co-location desired
Quick response to change and continuous development
Working software is more useful than document presentation
Continuous stakeholder involvement key to offset lack of full requirements early
Quick, real-time development interaction supported by co-location is difficult to achieve with any scale due to the talent demand challenge already described. Turning to legacy outsourcers in geographies such as India and Eastern Europe to fill that gap through rapid engineering scale is a compromise that can deliver inefficiency consequences. Bangalore, India for example, is 10.5 hours ahead of Austin. Kyiv, Ukraine is 10 hours ahead of San Francisco and Seattle. Warsaw, Poland is nine hours ahead of Silicon Valley. Local startup engineers are non-aligned with their distant counterparts during the business day.
Agile engineering breaks down as real-time communication dramatically reduces with an engineering team spread across a 10-hour time-zone mismatch, or worse. Interaction, quick response and continuous development are all affected.
Contrast that to Costa Rica, ranked in 2013 as Latin America’s top country for software engineering services by the international advisory firm for global outsourcing and research, Tholons. Costa Rica is only one hour ahead of San Francisco during daylight savings time. Peru, named by The Wall Street Journal as one of the new economic “tigers” in South America, is the same time zone as Austin.
If you can’t entirely achieve ideal Agile collaboration through local development co-location, near ideal through same time-zone alignment with experienced, Agile aware nearshore software developers is your next best strategy. The benefits include talented, bilingual engineers collaborating real time over Google Hangouts, Skype or other communication tools in the same U.S. time zone; rapid scalability; flat, non-hierarchical teaming and compelling economics.
The stories of the lengths startups will go to for attracting local engineering talent in San Francisco, Seattle, Austin and other cities are well documented. Free cafeterias, gym membership, laundry service and shuttle buses? Yes, old news. Nap boxes, unlimited vacation and housecleaning paid by the company? Check. An electric vehicle subsidy or year’s lease on a Tesla sedan? Of course. Allowing engineers to devote 20 percent of their business time on personal projects? Google does. And, the perks are spreading to some in the startup community.
If you’re offering all these perks and still not hitting your engineering recruitment targets fast enough, it may be time to talk with a nearshore software engineering services company in Latin America. Four venture-backed U.S. startups specializing in Big Data, search, CRM and performance management software did — and they were acquired, and then reacquired, for more than $5 billion dollars.
John Hitchcock has over 20 years of experience in the software industry. Currently a director at Avantica Technologies, one of Latin America’s largest nearshore software engineering services companies, for the past decade he’s managed teams in India, China and Eastern Europe. Earlier John was head of U.S. and Central Europe field marketing for Cambridge Technology Partners, later acquired by Novell. He’s held leadership positions both at fast growing startups funded by Sequoia Capital and Austin Ventures, and the technology group of GE.