How to build high-performance offshore teams in software engineering?

Oleg

Hello Danny! Thanks for finding time to join our Devico Breakfast Bar today. Could you please tell me about yourself and your professional background?

Danny

Yeah, thanks for having me on here, Oleg. My name is Danny He. I'm the Founderand CEO of Soapbox Inc. We're a supply chain logistics fulfillment technology software. We are based out of L. A. Well, I'm based out of L. A. We kind of started a year right before the pandemic. So, everybody's remote, and it's kind of a unique situation. But my background is in technology, but on the business side of tech. So, I worked at IBM managing a large enterprise customer – I was with Royal Caribbean as a digital product manager. And then prior to starting this company, I was at a private equity group with about 50-something consumer group brands and consumer package brands. And through that process, we were able to discover some pretty major gaps in the supply chain and fulfillment technology infrastructure. And that's when we started Soapbox, yeah.

Oleg

Okay, great. Can you please tell me more about Soapbox and the problems it solves?

Danny

Yeah, sure. So, we started Soapbox, like I said, about four and a half years ago, really based off of a necessity. So, I was saying in the previous role I was leading the operations, and one of the things that we were tasked with was to create this consolidated third-party logistics, the 3PL for their brands. We needed to launch their eCommerce and then modernize the business. They were effectively like pen and paper, everything in the business. And as we were looking at technology solutions and as we were scaling and growing the company and consolidating a lot of these efforts, what we realized is that a lot of the technologies, well, every technology in this space really funneled into either point solutions, meaning like shipping or inventory management, warehouse management, storefront management, all within each silo or you'd have these really large monolithic, like NetSuites, SAPs, IBMs of the world that had these large programs that were incredibly expensive and just required like a Ph.D. to be able to use. And so, the problem that exists there is that most CPGs are not, they're not technology companies. They don't have a lot of robust technology resources unless they get to a certain critical mass. But even larger companies, in this case, this company was like 300 million a year, and we didn't have any technical resources. We outsourced our IT basically.

And so, then we're kind of left with, okay, well, you have to use all these tools to be able to have an effective business workflow, but at the same time, you have no technical support for it, right? You have to figure out how to integrate each one of these. At the very minimum, you have to understand how API connections work. Then once that works, and you have different versions across the board for these technologies, how do you maintain it? How do you sustain it? So, the first issue was the fact of just the technology barrier – the resource constraints on the technology side. The second issue is that these tools were built as side load platforms, but for us, as operators, this is just one workflow. It's every day in the life that we have to worry about shipping, and inventory, and order management, and storefront management, and returns, and shipping. So, there wasn't really anything that made a lot of sense from a tech stack perspective because I had to use like 10 different solutions to be able to make this work for us. But that's just not how operations works, right? It's one seamless workflow for us. But then the third and most, I think, glaring piece of this is across all of these technologies it's the same data set, right?

So, when we were exploring this and we're kind of figuring out, 'Okay, where's the order coming in from and where, where the orders need to go out to and the information flow in between them,' it always distilled down to order origination, which is, you know, your Amazon's, Walmart's, Shopify's of the world coming in to all of these different platforms. And then what we get and send it out is the shipping information, inventory information, basically everything that's already part of their core data set. So, you've got these like three factors that, quite frankly, no technology was able to solve against because they were so separated out. And that's why we decided to start this business where, I mean, each one of these silos were really multi-billion dollars, right? Like inventories – multi-billion dollars, shipping – multi-billion, warehouse i– multi-billion dollars. Interesting enough, supply chain logistics fulfillment is a multi-trillion-dollar industry. So, rather than tackle on these multi-billion-dollar problems, we decided to take on the multi-trillion-dollar problem.

Oleg

Thanks. Thanks for such detailed information. Are there any specific areas with your industry that you are particularly passionate about?

Danny

Yeah, I think that what's really interesting for us is we're able to solve a very age-old problem in a very unique and new way. Although it doesn't feel like it's unique, right? Because as an operator, it's just a day in life. But from an offering a technology stack perspective, it is unique. And so, we're really passionate about them putting this in front of customers and then letting them decide what it means. So, unlike a lot of technologies out there, Soapbox is not this infinitely customizable, infinitely configurable tool. Actually, we put pretty tight rails around how you can use it and what the configurations can be with minimal customizations. And the reason for that is as an operator, we had all these different types of companies that did all these different types of things, but everything kind of distilled down to the exact same workflow more or less.

And so by simplifying this, we're able to really help improve the efficiency and efficacy of the warehouse workers that really the lowest common denominators within that workflows. But more importantly is because we're in such a tightly railed software and features that it's really up to our customers how they want to use this. And so, what we found is that when we give them a tool where they can't do a lot with it in terms of the customizations and configurations, what we find is innovative use cases of like: 'Hey, this is really great that you can help us standardize certain things.' This is what we can do with standardization. So, we found some pretty unique use cases of our technologies. And that's really the most exciting part about our businesses. We've built what we've built, and to be able to see our customers bring it to life is really awesome.

Oleg

Great. How do you see the future of the shipping and fulfillment industry?

Danny

Yeah, gosh. You know, nobody has a crystal ball on this. I think COVID really threw a wrench into a lot of the predictive and expert opinions on this. I would say that in terms of the predictive elements of this, I don't have a crystal ball here. What I do know is that as people start growing into this industry, into this space, and as eCommerce starts becoming more tied in with supply chain, certainly it was previously kind of like almost a separate entity, right? Especially large companies, you see this previously, right? Large companies separate out eCommerce from their retail business. It's almost always the case. So, as you see these businesses start to integrate, you're going to see, I think, more opportunities for full vertical integration. And so, what that means is probably more transparency for all of the shippers, more transparency for the customers, and better operational capabilities and capacities for the warehouse workers, the freight haulers, and such.

Oleg

Okay. Yeah. What are your thoughts on the role of AI in transforming the shipping and fulfillment industry? Do you believe AI will primarily enhance it or have concerns about potential drawbacks?

Danny

Yeah. So, I think what we are doing here is one of the unique sectors in the world that will be I don't want to say immune to AI, but we're going to be highly resistant to AI being a major disruptor in the space primarily because what we deal with is where the digital meets the physical, right? The products need to go onto a shelf. They need to come off a shelf. They need to be put into a box and they need to be shipped out. Even if you had robotics involved, there's still some element of human intervention, right?

I mean, it's not possible to not have that, at least from the technology set that we have currently. But that's robotics, right? That's not AI. AI is decision making. Robotics is workflow process improvement.

So, in terms of actual AI, I think what AI can do within the space is help us find better ways to do things, but it doesn't necessarily replace the physical aspects of what I just mentioned, where the digital meets physical. And you can actually see that this is actually really apparent within the investment and supply chain. So, I think you see investments in a lot of different technologies taper off in terms of valuation. I was speaking with one of our investors literally just last week, and they gave us this rundown on SaaS valuations. And within supply chain, you're still looking at a 6 to 10x multiple, where in most other industries now it's down to like 4x, 5x, and such. So, it kind of shows that even in this space people I think are aware that AI isn't going to be overtaking supply chain anytime soon.

Oleg

How do you keep yourself up to date with the latest updates in the industry?

Danny

Yeah. So, we have a really awesome team that really focuses on specific parts of the supply chain logistics and fulfillment, workflow, and infrastructure. And basically, they're tasked with keeping up with the industry, and anything that's newsworthy gets shared with the company. So, I think having kind of like in our internal dashboard of what's relevant within specific spaces would really help us. We're also plugged in a lot with other leaders within the space. It's kind of an incestuous business. Once you get into logistics supply chain, you kind of just bounce around different logistics supply chain businesses. And, a lot of us know each other. So, when Convoy went out of business, I got a message from a senior executive that's we would consider to be our top competitors. And we have a lot of competition going on. It's not really like a little-known secret, it's pretty a well-known secret that people within every industry will talk. So, there's what the news shows, and then there's the back channels that we all share. We just get the news a little bit quicker. It's not like we get any insider information.

Oleg

Okay. Got it. What do you perceive are the biggest challenges or obstacles that you currently face as the CEO at Soapbox?

Danny

For us, because we're a pre-series A company, currently, it's still early on for us. I think the biggest challenge is for us just resourcing – be able to find the right type of people, the right personality for a real startup phase. Honestly, we're not really highly capitalized. Finding a good enough talent to get us to the next phase is always a challenge. We don't have infinite dollars, like some of the companies out there to be able to hire whoever they want. So, we have to be really strategic about who we hire, and how quickly, and how frequently we hire, and how quickly we onboard them. So, all of that factors into output, like meaningful output, So, being able to prioritize that – that's probably the hardest issue as an early-stage startup.

Oleg

Okay, got it. That would be my next question, but you have already answered a similar question. Okay, what role do you think IT outsourcing play in solving these challenges you mentioned?

Danny

Yeah, we do outsource pretty heavily on our development team. And in fact, I would say probably something to the range of like 90 percent of our development efforts are outsourced out to different parts of the world. We cover like nine different countries. We have developers in nine different countries. To be honest, for us, it works very well. I know that there are some firms that really having a really hard time with outsourcing resources. But for us, because we've been product-led growth, our product team is I would say our strong suit, our engineering is our strong suit. And because of that, we're able to really kind of synthesize the management capabilities of our nearshore team to be able to then have an effective management of the outsource team.

Oleg

Got it. And what are the benefits and drawbacks of outsourcing based on your opinion? Maybe you heard something from your colleagues.

Danny

Yeah. Yeah. So I think the easy one is going to be the cost, the cost per talent ratio. We have a couple of folks on our team. Our tech stack is on Python Django. These folks were literally on the notes of Cliff, they were part of the team that developed it, right? And at the same time, they are a fraction of the cost of domestic resources. They quite frankly are able to create new and innovative things. Certainly, we can find somebody here to be able to do that. But near here, meaning nearshore in the US, within the U S., to be able to find a resource like that would cost us probably four to five times as much. And then we have to deal with other things as well. What we find with international and outsource resources is they're just there to do the work, and that's what we're about. We're just here to do the work. There's no agenda. There's no policy. There's nothing involved other than let's just get this done, which we're all about that. It's not about optics for us. It's about output. So that's the positives.

I think the drawback is that it does require a little bit more micromanagement. It's not really even like micromanagement. I guess it kind of is micromanagement. So, the difference between our onshore team versus our offshore team is that if we have a ticket that we assign to our onshore team, they can help with the grooming process of it and just scoping out whatever development requirements are needed. It's very difficult to be able to do that for an offshore team. One, because of a language barrier. And two, because, what we do is so highly specialized that without the context of actually physically being in these spaces and seeing all these things, which all of our team has done as part of training, it's hard to be able to conceptualize these things. But again, we bridge that gap by having really tight product cycles and workflows. We were able to overcome that on our end the drawbacks of outsourcing.

Oleg

Okay, great. So only the benefits left. Sounds cool.

Danny

Yeah, exactly.

Oleg

What were the factors that prompted you to consider IT outsourcing?

Danny

Yeah, beyond the cost, I think it's just finding people who can just put their heads down, get the work done, and that's basically it. There's no distractions. We have basically hired contractors from day one, and those contractors have now become more or less like full-time international employees. I would say from our team. the longest-tenured person has been with us for four years. Well, we've been open for four and a half years, right? So, most of the contractors we have on our team are two plus years, three years. So you kind of don't find a lot of that within the contractor space, right?

There's quite a bit of turnaround and turnover for that. We haven't had that and we actually haven't had any issues with are we going to potentially lose this person because they're looking for... That's their job, their job is to be able to outsource or offshore. I don't want to call it offshore, outsource at this point. I get that it is outsource, but we find them more as offshore. They're really a part of our team. I think that was the big thing because we're a startup. Because we have resource constraints, we need to make sure that whoever we hire is going to be cost-effective - number one. But number two - that we don't need to continue hiring again and again for the same role because we have attrition. So, outsource has actually been a really, really fantastic way for us to bridge that.

Oleg

Okay, great. And how do you measure the success of collaboration with IT outsourcing vendors?

Danny

I think the first foremost and most important is being able to find the right type of resources for us. Certainly, every outsource team has their specialization of the resources they can tap into. But even within the ones that have our specific tech stack there are just some that are better than others, and just the resources that they have. And it speaks to the leaders within the outsourced teams, right? Can they recruit great talent? And if they can, it's probably because their company is also pretty great as well. So, we like to work with companies like that. And that's what's successful first and foremost is 'are you able to effectively source the right candidates for us?' And that's really the biggest measure of success because everything else is a byproduct of finding the right person for us. For us, the biggest measure of success is the quality of sources.

Oleg

Okay, great. And finally, what advice would you give to other companies considering IT outsourcing?

Danny

Do it! That's it. Get it, get it done. I think we've talked to a lot of companies that are very guarded about their technology and they have this fear that if they outsource, the technology isn't going to be theirsm and it's owned, and such. And I find that while that may be true if you are a tech company that churns engineers every two years, I feel like that's actually worse for your company in terms of safeguarding your trade secrets or whatever you're developing because you've got somebody domestic that's there for two years and they're going to take everything that they learned in two years with your companies and take it and apply it to some other company, probably within the peripheral space.

That doesn't make a lot of sense for us. I think what we can find here is pretty solid loyalty within the offshore team. As long as we pay them well, as long as we treat them well, and as long as they're engaged in interesting products and development cycles that we can send off to them, they're here to just work and get the work done. From our team right now, I think three of the four of our engineering leads came from... We're like promoting our internal engineers that are outsourced from within. Opportunities like that, I think, are also pretty exciting. It just makes a lot of sense that people can have an open mind about outsourcing their IT and development efforts and find a great partner to do it.

Oleg

Danny, thanks for your answers. Thanks for talking to me today. It was really a great conversation. You shared valuable insights, recommendations for companies that are probably in the process of considering outsourcing, haven't started yet, thinking about it. And I'm sure that this information would be valuable for them.

Danny

Awesome. Happy to help. And thank you for having me on your podcast.