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In a rare act of cooperation by an increasingly divided US government, last month President Obama signed the bipartisan JOBS (Jumpstart Our Business Startups) Act into law. As described by CNET, the biggest benefit the JOBS Act, which relaxes SEC regulations on how startup companies raise capital and promote themselves, provides businesses is simple. “They can raise money from anyone.” JOBS is designed to stimulate the creation of growth of startup companies in the US, which could mean a potential flow of new business to nearshore BPO and ITO providers.
Giving Startups the Most Bang for the Buck
If JOBS works as planned (and as it has been law for less than one full month, obviously we will have to wait for a while to see how well the legislation actually performs), the US economy should produce a slew of new startups, including many in the IT sector. In addition, many struggling IT startups will have access to new streams of money without having to go public or seek out traditionally deep-pocketed, SEC-approved private investors.
Funded by “regular people,” these companies will enter a cutthroat marketplace dominated by large players with sophisticated IT infrastructures, well-trained in-house experts to manage those infrastructures, and existing BPO contracts to help manage operations as efficiently as possible.
Now how can a fresh new startup try to level this decidedly slanted playing field as quickly as possible? By building its own IT infrastructure and hiring and training its own expert workforce? Or by finding an outsourcing provider (or providers) to help it quickly get off the ground with qualified systems and personnel? Which option gives startups the most bang for their newly minted buck?
Even ardent outsourcing opponents would have to admit this situation is ripe for outsourcing. And a small company that may not have 24/7 staffing or the resources to travel halfway around the world to investigate, sign contracts and set up operations with a “farshore” outsourcing provider is an ideal client for a less costly nearshore provider that features close proximity for travel, minimal or no time zone difference, and much less significant language and cultural barriers.
While the customer in this scenario is a US startup with money to spend thanks to investment enabled by the JOBS Act, the phrase “caveat emptor” (or “buyer beware”) also applies to the nearshore outsourcing provider in this case. As dramatically explained by investigative financial/political journalist Matt Taibbi in a recent Rolling Stone article, the JOBS Act potentially opens the door to a whole host of shady companies with flimsy business models to raise lots of capital and quickly disappear.
While Taibbi tends to present the worst case scenario when it comes to Wall Street, he does raise valid concerns about looser investment regulations allowing startups that really shouldn’t see the light of day to obtain access to funds from inexperienced investors. Business partners of JOBS Act beneficiaries, as well as their investors, need to do their homework to make sure a startup is on secure financial footing and has a viable product ready or near ready to release to the market.
But by using caution and common sense, nearshore outsourcing providers can sift through the potential customer base that will hopefully be created by the JOBS Act and obtain some quality new clients.