Developers don't come cheap. You can probably find someone on Fiverr or Upwork who would agree to work for 1/2 of the US average rate. But you can actually do even better.
If you're a non-techie founder the chances are pretty high that when it comes down to coding, your first thought would be of Upwork or Fiverr (the latter offers cheaper workforce than the former). Indeed, where else to look for a developer? Obviously, not through the agency where you have to pay for the dev's time plus the agency's overhead.
Though this plan is quite reasonable, it has its downsides too. How does the platform pay the freelancers? It takes huge pay-cuts from the freelancer's fee. As a result you will be able to afford a less experienced specialist for the same rate level. For example, you can pay $40/h, but you’ll be able to hire someone who agrees to take $35/h ($5 goes to the platform.
What other options have you got? Is there a way to hire a developer and pay less for the better talent? There is.
1. Use new players on the freelance sourcing market that keep their fees lower to get more workforce
The world needs more and more freelancers. Therefore, the number of marketplaces that offer a service where you can hire a freelance developer, designer, video editor, copywriter, etc. constantly grows. New players are motivated to solve the chicken and egg problem: they need more freelancers to get more customers. And the best way to make a freelancer sign up to their platform — is to offer a lower pay-cut fee. The vetting process is the same everywhere, so you will get the same quality of workforce on new platforms. But because the pay-cut is lower for a freelancer you'll be able to afford a better talent at the same rate you're paying through Upwork or Fiverr. Or, if you are ready to hire a mediocre developer you will pay less.
Where to look for freelancing platforms? Go to Product Hunt and type in "freelancing" there. A list of new players will pop up.
Another hack — go to local, not global platforms. There are platforms where you'll meet mostly freelancers from India (ex. Broxer), Brazil (ex. Foton) and Eastern Europe (ex. Lemon). Great (not mediocre like on Upwork) dev will charge here about $35/h. Still not cheap? Use better option!
2. Hire a long-term contractor and smart-structure their compensation plan
This plan presumes some time investment but might get you tremendous results.
Step 1. Search
Go on Twitter or LinkedIn and look for a person you'd love to hire. I'll cover this subject in another article. For now, let's presume you've done your homework and found a person who does side gigs or works as a freelancer. Time to reach out in DM. What do you offer?
Step 2. Build a compensation plan
You manually crafted compensation plan should include 3 parts:
and continuity bonus.
Easy. But it's not the same amount of cash you'd pay if you hired on Upwork. How so? Hang on — the explanation is coming in the next paragraph!
Deferred cash is a great way to make compensation more reasonable and motivation-focused. By introducing deferred cash you basically say to the employee that they will be paid some chunk of their compensation rate in the future — let’s say, only and when you get your first 1000 paying users. This approach lets you:
motivate the developer to stick around and not ditch you in the middle of the project, as well as work faster (to launch faster)
remove some immediate cash burning pressure from your shoulders (you will pay, but only when money from customers start coming in).
Sounds like a life saver, right? Why doesn't everyone do it?
Here's a trick. Deferred cash is riskier from the employee’s perspective. What if you don’t get customers at all? Therefore, there must be an additional perk for a person to sign up for this deal. This “perk” is usually manifested itself through the risk factor multiplicator: you basically say, if you agree to this form of compensation, you will get more in case the event in the future happens. Let’s say a person asks for $30/hour. You, in return, offer to pay $20/h in cash. Plus $10/h when you raise your seed round. You have to add a risk factor to it (for instance, 1.5) and say: “When I raise my round I will pay you an additional $15/hour — this way your rate will be $35/hour”.
Not everyone likes to use it. But you can structure the compensation plan to redistribute the cash burning burden even more if you offer this bonus. Plus, it's another great tool for motivating an employee to finish the project they have begun.
Offering continuity bonus you simply say that if you stick around, say, for a year, I will pay you extra something. This extra can be defined in equity, in cash, or mixed. Anyway, the amount is released to the employee only when the specified period is over and the work specified in the contract is done. You can also lower down the cash rate proportionally. For example, the specialist’s competitive market rate is $35/h. You suggest paying $30/h in cash plus continuity bonus 5 x hours schedule (let’s say, 40h/week) x desired period (ex. year). The bonus will be paid out at the end of 12 months. It's like a vesting but not necessarily about equity.
Step 3. Reach out with the compensation plan and your pitch
Why pitching? Because great people want to work in great companies. Your goal is to explain why your company is great.
Step 4. Negotiate
The person you've reached out to would not probably agree to your offer straight away. They will ask questions, do due diligence of you and your company, and ask for referrals. It's a regular practice, don't get defensive. Be ready to offer all the data and negotiate. Great employer is always the one who can negotiate their way out of anything. If you can do it — you'll crash it.
If you want to learn more hacks on hiring top talent for less, Or how to find a tech cofounder check out my course 👇