Despite the firm’s international outlook, COO Larry Mieldezis struggled to make offshoring work for some parts of the business, so decided instead to cook up a rural sourcing plan with his alma mater Southern Illinois University, snagging well-educated but lower-cost recruits from a region not exactly known as tech hotspot. We called him up to ask how it’s going and what advice he has for other organizations who are considering setting up shop in America’s heartland.

Why did you decide on rural sourcing versus offshoring?

I’m responsible for our technical delivery services, so basically our managed services. I’ve done that with this company for about 12 years. Over those years, just like our competitors, we went down the path of offshoring to try to lower our costs but also expand our just-in-time capacity in terms of development, technical delivery and customer service. We’ve run at that for a number of years, but we’ve had mixed results, ranging from quality issues with the data that came back, to availability, to turnover and really understanding the business practices that we’re trying to solve. The solutions that we’re delivering aren’t just people that can go in the corner and code. They actually have to interact quite a bit with our customers.

Some years back I had had an idea. I’m from a rural part of the country. I know there’s some good talent that comes out of local university systems in those areas, yet the opportunity for those people to stay is typically limited. I thought, let’s try an alternative to offshoring.

The experience we saw with offshoring, and what we were able to do with people here in the U.S. – common time zones, business cultures, communications and all the security issues — have been completely more than what we had anticipated. We still do some selective offshoring on our development side, but we’ve moved managed services 100 percent to rural sourcing.

Are you happy with the workforce in Illinois? Have your turnover issues decreased?

I definitely think we’re seeing better results than what we saw in offshoring. The offshoring model has become so fluid and transient from the perspective of employees moving from one company to the other, and then in recent years providers moving from country to country because of the wage escalation in those markets.

What we’ve seen in rural sourcing is quite the opposite. I think the key was to build really strong relationships between our company and a local university, so as a result of that we partnered with Southern Illinois University, which is a pretty good-sized university with very good computer science and applied engineering programs. We went in and worked with the deans and professors to identify top candidates out of those programs — candidates that are from that region and want to stay in that region. You’re going to find people coming out of school that want to go to New York, L.A., San Francisco, whatever it may be. That’s fine. But you’re also going to find people that want to stay local, raise a family, invest in a way of life and are strong, intelligent contributors in technology. We’re seeing a lot less turnover if you target the right people with the right message.

Let me say, our population up there is not exclusively recent graduates. A third are seasoned people who have either moved back to the region after having a high tech job elsewhere or people that have found opportunities in the region even though they were sparse.

How were you able to locate those more seasoned people?

Basically, tap into those local communities, the Chamber of Commerce, professional networks in those markets. You’re not going to necessarily get there by using things like Monster and Indeed. People don’t look there if they want to stay local, so it’s mainly been people on the ground, word of mouth, and making an investment in the community. These communities embrace this like you wouldn’t believe because it’s an opportunity for these people to take on some important, challenging technology roles. Otherwise they’d be working for a local bank or an attorney.

How about on the financial end – was this a money saver for you?

I look at it overall as a winner. There’s a cost component, and there’s the ability for us to respond competitively. There’s new business that we’re able to obtain that otherwise we would not. On the pure cost side, I have data that shows anywhere from 1.5 to two offshore resources can be replaced by one domestic resource – just the effectiveness, the creativity, the understanding of the business, all the other challenges of offshoring. I’m hiring less people than I have to hire if I go overseas, so obviously that’s a cost savings.

The cost in that part of the country, whether it’s rural Illinois or Kansas or Indiana, is obviously going to vary, but I am seeing somewhere in the area of probably a ten to 15 percent higher salary rate than what you can find overseas, in some places a little bit more than that. But that, by far, gets offset by what I see as more effective resourcing.

Do you find it easier to manage on your end in terms of things like time differences, logistics, cultural differences, etc?

Absolutely. I’ve had six people in southern Illinois get in car on a Sunday and drive down to spend the weekend in Atlanta with the engineers. It’s very easy for them to do that. It’s very easy for them to communicate and plan and be a part of the product planning cycle as well, so the communication disparity is night and day, and the physical availability also is pretty extreme.

If another company were thinking about rural sourcing, what advice would you give them? 

On the university side, building that relationship with the local university. Make sure the technical programs that are being taught in that university are aligned with the skills that you need. Make a connection with the top of that school, whether it’s the president, the dean, the lead professor, to make sure there’s alignment.

Going into these regions, the flexibility that they show in wanting to help and conform to what your company needs is night and day compared to offshore. We’ve had discussions around, why don’t we take some of the real world concepts that Liaison is solving and build it into our curriculum? Then you have students coming out of the program that are trained in real world examples of technology solutions that we’re providing to the market. So number one is, really depend on that relationship to the university. You’ve got to find a university that’s willing and interested.

The other thing is, I think it’s strategic to identify a university where there’s not an overrun of a lot of other companies wanting to do this. You’ll get their undivided attention.

How about bumps in the road – did you run into any problems that others should avoid?

I guess really recruiting that one-third that’s not coming right out of the school system, and building a connection with the local community early on. We didn’t do that right up front. We mainly focused on the university, and as a result we quickly staffed up a lot of people that were freshly out of school and then had to aggressively go after some more seasoned folks for leadership, mentoring and management. So doing that up front at the same pace that you’re building a relationship with the university is critical.

You mentioned it’s a good idea to find relatively fresh territory. In your experience, are you competing with many companies interested in rural sourcing?

I think the concept has been there for a while, but it’s not been called rural sourcing. It’s been very low-key. Where we went into Carbondale, Illinois, there were probably two or three other small technology companies that recruited locally. We found there was plenty to go around. I think the area could even house some additional companies.

What’s interesting was the university’s economic research arm had just performed a study the year before we came in on how to lure technology companies into the region and what the demographics were, so we were able to peek at that to target our message. There are some universities that want to be a driving force for the economy in the region, and I think if you find a university that wants to do that, then they’ll be able to get you the data to show what the availability is and the demographics of the resources.

What are your plans for the future?

We’re actually looking now at expanding our footprint a little bit. We’ve identified two other universities in the region. Each is about 60 miles away. It’s not uncommon for folks to drive 30, 40, 50 miles there — not in traffic, by the way — to work in a role like this, so we’re expanding. The one piece that we have not tapped into that I think there’s opportunity there to help perpetuate this, is tying in to the local and state government. That’s one area I think you’re going to see us look into a little bit more. How do we get our message out through the state government entities, whether it’s through financial help or through reach and marketing?

I absolutely embrace globalism. We’ve got operations in Finland, the UK. We’re serving customers in China. We need feet on the street over there. But at the same time, if I can find a way to help employee people who live here in the US of A and help my company grow, I’m absolutely going to do that. That means we’re going to be a global company, but we’re going to do it out of rural Illinois.

Image courtesy of Flickr user tlindenbaum.

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Imagine you’re in charge of a company that pilots a remote working test program. You find, like many do, that letting your employees work from home leads to greater productivity and lowered support and facility costs, so you widen the pilot program and make a portion of your staff full-time work-from-home employees. Eventually, you realize that you’re getting such great results from your remote workforce that you haven’t had need to see staff in person for weeks or months at a time. In fact, you realize, your workforce could be based anywhere in the world and still be as, if not more, effective.

In much the same way that advances in robotics replaced factory floor workers with automatons capable of doing the work of many with fewer errors and no need for breaks, advances in information technological have made it possible for workers in countries with lax labor regulations to do the work of multiple domestic employees for much cheaper. Offshoring is on the rise, and it’s affecting skilled positions now (PDF) nearly as much as it is unskilled labor.

Luckily, while remote working is part of the reason offshoring has become such a trend, it can also help workers based in the U.S. remain competitive. But it must be used in combination with the two key advantages available to the worker of the developed nation: the luxury of time and the freedom to fail.

In a recent article about the growing gap between the rich and the poor in the U.S. and around the world, Chrystia Freeland relays the sentiments of one CFO regarding the cost discrepancy between domestic and offshore labor: if your worker is asking 10 times the reward for doing a job, you expect 10 times the delivery. It may seem flippant, but it’s also a harsh reality of the new global economy, and one that denial or justification (like that expressed by many of the commenters of Freeland’s story) won’t make go away.

The only valid answer to such an expectation, at least as far as the balance sheet goes, is to meet it. And remote working can make that possible. Productivity boosts from at-home workers are a demonstrated reality. Part of the reason behind that is that remote workers tend to spend more time working, and less time not. Work can happen at times that would otherwise be lost. And if you happen to have a good idea after hours while watching television, there’s nothing stopping you from taking a few steps to the home office and working that idea out. Work/life balance may suffer, but even having such a balance to enjoy at all is a luxury.

It’s that luxury that allows us the second advantage I mentioned above, the freedom to fail. If you’re working 12 hours a day because otherwise you might literally starve, there’s little option but to stick to a prescribed formula for success. Experimentation isn’t fostered in that kind of situation, and the consequences of risk-taking could be catastrophic.

A remote worker in a developed nation is in a prime position to constantly innovate. Failure has fewer and far less dire consequences, and because of the luxury of time we enjoy, we can make up for botched attempts at doing something new much more easily.

In many ways, remote working leads naturally to an internationalized workforce, but it isn’t a death sentence for domestic employees. While companies generally look at higher cost as a bad thing, they also prioritize wise investment and aren’t afraid to spend in search of a return. By turning the advantages that higher wages afford us back into added value for employers, we can make sure we continue to stand out in a global workforce.

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I’ve been bootstrapping my e-commerce startup, Aroxo, for the last year and blogging about it for Found|READ and on my own site. My previous post explained how to use your network to build a quality list of prospects. Today I’ll tell you how to vet the list to select the right offshore developer.

Step 1: Send a “Request for Information” to Prospective Vendors:

The RFI is a questionnaire you will draft to help you determine which developer can deliver your project within your price range (here’s a sample). Your RFI should produce the following data:

Additional RFI Tips:

Include a hypothetical “technical problem” relevant to your project and ask the developer to show how they would solve it. For customer references, ask for projects similar to yours that were completed for clients physically near to you so you can arrange to meet them in person.

Worried about your IP? Don’t discuss the specifics of your business in the RFI. Describe the type of business that you’re launching in general terms (e.g. e-commerce), or refer to similar companies by way of description.

Give the vendors two weeks to respond, and an opportunity to ask you questions. Include your deadline(s) so the developers have a timeline. Not every vendor will respond to your RFI. Some will, but won’t answer all your questions. Others will will send you “documentation packs” that contain all the answers, but not in the format you requested. All of these companies should be dropped from your list.

Step 2: Vetting Your Vendor Prospects

Two weeks after you’ve issued your RFI, you will have all the responses you’re going to get. (Don’t bother chasing companies that don’t reply.) Now you must work through the list until you have at least four — but no more than seven — prospective developers. This is an important yet difficult step. First, think about who your ideal vendor is. Identify the criteria by asking the following questions:

Now you’re ready to start “the sift.” First, remove any companies that don’t fit the criteria established above. When I read through my RFI responses I arrange them into three piles: Yes, No, and Questions. I then put my additional questions to the vendor again, and update. I continue this until I have complete Yes and No piles.

When in doubt, go to their references. Don’t just ask if the developer delivered on time and to budget. Also ask: Have they given the vendor any new work? Will they in the future?

The reason I recommend getting to preferably four and no more than seven potential vendors is that you don’t want to take too many through your bidding process because you don’t want any more of them than necessary to know what you’ll be building.

If you don’t end up with four candidates, don’t go back through your pile. Approach new developers until you do.

Matt Rogers is co-founder of Aroxo.

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