d o so f t w a re st a rt u p s o u t so u rce - uni-kassel.de filei mp o rt a n t st ra t e g i c d e ci si o n o f a so f t wa re co mp a n y. I n ca se o f st a rt u p s, a s o

How do software startups outsource

marketing activities? - an exploratory study of the state of practice

Master’s Thesis Expose

European Master in Business Studies 2016/2018

Written by Aleksandra Stepien

Kassel, October 23rd, 2017

How do software startups outsource marketing activities? | A. Stepien 1

Abstract Background and purpose: The research done in the field of outsourcing mostly focuses on

the field of IT services outsourcing. Little has been written on the opposite perspective -

when it is a software provider who decides to outsource some of its activities.

Outsourcing of the marketing activities seems to be an especially interesting issue in the

software industry. On one hand, marketing is usually not a core competence of the IT firms,

which qualifies it for outsourcing. On the other hand, nowadays marketing is vital for

company’s success. Entrusting it to an external partner may thus entail a strategic risk.

These factors convert the choice between staying in-house and outsourcing into an

important strategic decision of a software company.

In case of startups, as opposite to well established businesses, the decision to outsource

may be even tougher. Limited knowledge, financial assets or human capital can push

entrepreneurs to search for an external partner. At the same time - the increased strategic

risks in the first years of company’s existence may pull him back to in-house marketing.

The purpose of this research is to observe how software startups make this important

decision. What are the main factors that stand behind it? And after the outsourcing is chosen

- what are the perceived benefits and challenges that come along as well as best practices

applied in such cooperation. Finally - do young IT companies entrust their partner the

developing of the whole marketing strategy or delegate only some of the marketing

activities?

Method: Since the purpose of this study is exploratory, a qualitative inductive approach will

be used. The primary data will be collected through 6 semi-structured phone interviews with

representatives of software startups, which currently outsource at least part of their

marketing activities. The interviews will be transcripted and analyzed using content analysis.

The result of the study will be a listing of perceived risks and benefits from marketing

activities outsourcing as well as determinants behind it. The research will also draw

conclusions regarding state of practice in this kind of outsourcing. Any interesting

phenomena observed during the interviews will also be discussed.

Conclusion: N/A


Table of contents

List of abbreviations 4

1. Introduction 5

2. Problem statement 7

2.1 Research gap 7

2.2 Research questions 7

2.3 Expected contributions 8

2.3.1 Theoretical contributions 8

2.3.2 Managerial implications 8

2.4 Research approach 8

2.5 Thesis overview 9

3. Theoretical background 10

3.1 Outsourcing 10

3.1.1 Literature review 10

3.1.2 Definition of outsourcing 11

3.1.3 Types of outsourcing 12

3.1.4 Risks and benefits of outsourcing 13

3.1.5 Theories on outsourcing 15

3.1.5.1 Outsourcing process 15

3.1.5.2 Transaction cost economics 16

3.1.5.3 Resource-based view 16

3.1.5.4 Core competencies theory 16

3.1.5.5 Information asymmetry 17

3.2 Marketing 17


3.2.2 Outsourcing of marketing 18

3.2.3 Marketing levels 19


3.2.3.1 Marketing strategy 19

3.2.3.2 Marketing plan 20

3.2.3.3 Marketing action 20

3.2.4 Marketing performance measurement 21

3.3 Software startups 22


3.3.2 Definition of startup 22

3.3.2.1 Definition of software startup 23

3.3.3 Startups’ organizational conditions 24

3.3.3.1 Lean startup methodology 24

3.3.3.2 Organizational learning 24

4. Methodology 26

4.1 Research design 26

4.1.1 Setting 26

4.1.2 Participants 26

4.2 Data analysis 27

5. Plan of work 28

6. Bibliography 29


List of abbreviations BPO - business process outsourcing

HRM - human resource management

IT - information technology

KPO - knowledge process outsourcing

ROMI - return on marketing investment


1. Introduction This chapter presents the background and purpose of the research and shortly introduces

the reader to the area of the study.

Since its rise in popularity in the 90s, outsourcing has become a widespread business

practice and, thus, drew attention of many researchers. Theories have been developed on,

for instance, why firms decide to outsource (Holcomb & Hitt, 2007) and how it affects their

efficiency (Doz et al., 1990). The very process of outsourcing has also been thoroughly

studied, from choosing the service suppliers (Huang & Keskar, 2007) to managing the

long-term collaboration with them ( Takeishi, 2001).

The majority of related studies were narrowed down to the field of IT services outsourcing.

This is hardly surprising, as IT invariably places itself among the top outsourced areas, as for

example in the Global Outsourcing Survey published by Deloitte in 2016. Entrusting the

usually resource-heavy IT services to an external provider increases the company’s focus on

its core competencies and thus raises its efficiency. Little research, however, has been done

on the opposite perspective - when it is the IT services provider who decides to outsource

some of its activities.

Outsourcing of the marketing activities seems to be an especially interesting issue in the

software industry. On one hand, marketing is usually not a core competence of the IT firms,

which qualifies it for outsourcing. In the era of digital marketing, where most of its activities

are conducted online, even an offshore cooperation does not seem to be an obstacle. On

the other hand, nowadays marketing is vital for company’s success (Kotler & Keller, 2014).

Entrusting it to an external partner may thus entail a strategic risk. Finally, the very non

numerical nature of marketing makes it hard to measure and evaluate. All together, these

factors convert the choice between staying in-house and outsourcing into an important

strategic decision for a software company.

In case of startups, as opposite to well established businesses, the decision to outsource

may be even tougher. Limited knowledge, financial assets or human capital can push

entrepreneurs to search for an external partner. At the same time - increased strategic risks

in the first years of company’s existence may pull them back to in-house marketing.


How do IT startups face this dilemma? There is very little known about it, as this research

area still lacks empirical evidence built on the existing theories (Vaxevanou &

Konstantopoulos, 2014). The purpose of this study is thus to explore and describe the

current state of practice in regards to why and how software startups outsource their

marketing activities.

The final findings will be a helping hand to entrepreneurs who are yet to make this choice.

Through raising their understanding of the process of outsourcing of marketing activities, the

study will have the potential to increase the efficiency of outsourcing decisions among IT

startups and mitigate its related risks (Brown & Wilson, 2005).


2. Problem statement This chapter provides the reader with a specification of the research problem as well as

exact research questions that will be addressed in the study. It also lists down the expected

contribution and descibes the chosen research approach. Finally, it contains an outline of the

following chapters.

2.1 Research gap

The popularity of outsourcing among startups is growing in the last years, mostly with the

spread of lean startup methodology. This movement encourages entrepreneurs to reduce

the initial investment in their new business and choose outsourcing rather than in-house

activities (Ries, 2011). Despite the growing trend, however, little research has been done on

the outsourcing in the context of young companies and most of the empirical studies regard

outsourcing practices in corporations. The lack of directly related literature justifies the

exploratory research approach.

The purpose of this research is to observe the decision making process regarding

outsourcing of marketing activities among IT startups. It will determine what is the

entrepreneurs’ perception of it as well as what are the main factors standing behind it. It will

then analyze the collaboration phase from the perspective of the startup, trying to identify its

biggest challenges and benefits. Simultaneously, the study will intend to identify best

practices applied in such partnership. Finally, it will assess the extent to which marketing is

being entrusted to a third party - whether it is the whole strategy or simply its single activities.

2.2 Research questions

How do software startups outsource marketing activities?

- an exploratory study of the state of practice

What are the factors behind software startups’ decision to outsource marketing activities?

What are the perceived risks and benefits from outsourcing of marketing activities?

What are the practices regarding marketing strategy planning in software startups?


2.3 Expected contributions

2.3.1 Theoretical contributions

The study is intended to be an inductive basis for further research. Through an empirical

study, it will develop a framework on outsourcing of marketing activities in the IT industry,

which can later be used as a basis for a confirmatory large-scale quantitative study.

2.3.2 Managerial implications

This research is meant to help software startups in deciding between in-house and

outsourced marketing. The drawn conclusions will provide entrepreneurs with a listing of

pros and cons of delegating marketing tasks as well as the state of practice of already

existing, successful startups.

At the same time, it will be of great use for the providers of marketing services. Getting an

insight into the perspective of their customers, they will be able to better understand and

address their needs.

2.4 Research approach

Since the purpose of this study is exploratory, a qualitative inductive approach will be used.

The primary data will be collected through 6 semi-structured phone interviews with

representatives of software startups, which currently outsource at least part of their

marketing activities. The number of interviews is meant to satisfy the data saturation norms

proposed by IPA (IPA, O., 2005), while its form was chosen to assure the holistic

perspective on the topic (Bausell, 1986).

The interviews will be transcripted and analyzed using content analysis.

The result of the study will be a listing of perceived risks and benefits from marketing

activities outsourcing as well as determinants behind it. The research will also draw

conclusions regarding state of practice in this kind of outsourcing. Any interesting

phenomena observed during the interviews will also be discussed.


2.5 Thesis overview

The remaining part of the thesis is structured as follows:

Ch. 3: Theoretical background

relevant information in the field of outsourcing, marketing and software startups,

which will serve as a basis for the empirical part of the research.

Ch. 4: Methodology

description and justification of the process of data collection.

Ch. 5: Analysis

collection, refinement and final analysis of the data collected for the purposes of this

study.

Ch. 6: Conclusion

presentation of the results of data analysis and formulation of the answers to the

research questions.

(to be edited)


3. Theoretical background

3.1 Outsourcing

This chapter introduces the reader to the definition of outsourcing and related theories. It is

important to notice that the latter were mostly developed based on the practices in well

established corporations. In order to assess whether they are being applied in case of

software startups, likewise, the patterns presented in this part of the study will then be

searched for among the primary data collected in this study.

3.1.1 Literature review

The following list of literature on the subject of outsourcing has been used as a theoretical

background for this research:

TITLE AUTHOR YEAR PUBLISHED IN/BY RELEVANCE

The black book of outsourcing: How to manage the changes, challenges, and opportunities

Brown, D., & Wilson, S.

2005 John Wiley & Sons

- introduction to the topic of outsourcing - definitions and theories on the process of outsourcing - suggestions regarding the choice of a partner and management of the relationship

Outsourcing: Its benefits, drawbacks and other related issues

Kakumanu, P., & Portanova, A.

2006 Journal of American Academy of Business

- basis for identifying the main pros and cons of outsourcing as a general practice

The benefits and risks of knowledge process outsourcing

Sanchez, C.

2010 Ivey Business Journal

- basis for identifying the main advantages and disadvantages of choosing outsourcing over in-house solution in case of knowledge processes

A business process outsourcing framework based on business process

Mahmoodzadeh, E., Jalalinia, S., &

2009 Business Process Management Journal

- framework for classification of different outsourcing types and identifying the most relevant one for this study - introduction to business process


management and knowledge management

Nekui Yazdi, F.

outsourcing

Outsourcing process and theories

Perunović, Z., & Pedersen, J. L.

2007 Proceedings of the POMS 18th Annual Conference

- framework for understanding of the outsourcing process - description of five main stages in the outsourcing process

Models referring to outsourcing theory

Vaxevanou, A., & Konstantopoulos, N.

2015 Procedia-Social and Behavioral Sciences

- literature review of the most relevant theories in the field of outsourcing - identification of interdepence between the outsourcing theories - adjustment of each theory to a relevant stage of the outsourcing process

Understanding outsourcing contexts through information asymmetry and capability fit

McCarthy, I. P., Silvestre, B. S., & Kietzmann, J. H.

2013 Production planning & control

- introduction to the topic of information asymmetry -analysis of the phenomenon of information asymmetry in the context of outsourcing

3.1.2 Definition of outsourcing

Outsourcing means obtaining services, usually forming part of business processes, from an

external source. The motivation behind entrusting the tasks to a third party, rather than

keeping them in-house, is to “incur business-level benefits” (Sanders et al., 2007). Those

usually include raising the company’s productivity by increasing the focus on its core

competencies.

Based on its geographical scope, outsourcing can be divided into four categories -

homeshoring, nearshoring, offshoring and best shoring (Brown & Wilson, 2005).

Homeshoring, also called onshore outsourcing, happens when the partner chosen to fulfill

some of the company’s tasks externally has the same country of origin. Here the biggest

advantage is the lack of cultural or language barriers, rather than the minimization of costs.

Collaborating with a company from the same country may also pose a limit to the acquired

innovation.

Nearshoring, or nearshore outsourcing, means that the contractor is located in the

neighboring country, usually sharing a common border. This can be advantageous in case of


physical products, where the transportation cost comes into play. At the same time, this

solution may give the company an access to a wider array of technologies, or allow it to

reduce the total cost of services.

The third type - offshore outsourcing, or simply offshoring, is the situation when the

counterparty comes from a geographically distant country, with usual destinations being

India, China or, for example, countries of Eastern Europe. The motives behind this choice of

collaboration may include cost reduction or exploration of new technologies and search for

innovation. Last but not least, bestshore outsourcing, also known as best shoring, refers to

the process of identifying the most advantageous locations for contracting. The choice is

usually based on numerical criteria, such as the country’s productivity, cost of wages or

infrastructure.

Outsourcing can also be divided into three levels depending on the scope of involved

activities. These are accordingly - tactical, strategic and transformational outsourcing (Brown

& Wilson, 2005).

Tactical outsourcing is applied as a solution to specific problems encountered by the

company and is expected to give short-term, immediate results. An example of such

contracts can be an employment of additional work-force for the period of high season or

contracting a marketing agency to help the firm in launching a new product.

Strategic outsourcing, on the other hand, takes place when the company subcontracts

activities which could be done in-house, but in this case it would be less beneficial. The

advantages of such move may come in different forms, such as reduction of operational

costs or focusing on company’s main functions. An example of strategic outsourcing could

be a startup letting an external agency develop and execute their marketing strategy, since

keeping it in-house would be more costly and of lower quality.

The last level - transformational outsourcing, can be used as a tool in shifting the existing

company’s strategy. In the era of ever changing economy, firms’ survival often depends on

their ability to transform and adapt. In many cases, this can only be achieved with help of

innovation brought to the company’s by an external partner. An example of such outsourcing

is a situation when a company contracts a marketing agency to develop a new pricing

strategy that would be more appealing to the customers than the existing one.

3.1.3 Types of outsourcing

There are three main types of outsourcing based on its subject - manufacturing outsourcing,

information technology outsourcing and business process outsourcing (Mahmoodzadeh et


al., 2009). The first type refers mostly to subcontracting the production activities of physical

products, and thus, is not relevant to this research. IT outsourcing, on the other hand,

consists on entrusting information technology-related activities to a third party. Software

startups, which were chosen as the subject of the empirical case study of this research,

often act as a contractor in this kind of collaboration.

The last type of outsourcing - business process outsourcing, consists on entrusting a

whole business process to a third party. It can be divided into several subsegments, among

which the most relevant for this research is knowledge process outsourcing. KPO refers

to outsourcing of information-related business activities. The main differentiator between

knowledge and business process outsourcing is that the former involves considerably more

skilled personnel. It is important to mention that the outsourced activities form an important

part of company’s value chain and enhance its competitiveness (Sanchez, 2010). Contractor

is required to have a lot of expertise in the field and the process as a whole is more complex

than in case of other types of outsourcing. Examples of KPO may include financial

consultancy, business analysis and various types of research. Marketing, especially its

strategy development, is also classified as knowledge process outsourcing.

3.1.4 Risks and benefits of outsourcing

Since the subject of this research is the outsourcing of marketing activities, the above

section focuses on risks and benefits associated with knowledge process outsourcing.

The main benefit coming from any kind of outsourcing, which stood behind the initial

development of this concept, is the cost reduction of services or products involved. It also

allows to avoid the initial project investment, which is especially advantageous in case of

startup companies, which dispose of very scarce human and knowledge resources. KPO

minimizes not only operational but also recruitment costs.

This is, however, not the only advantage of KPO in the field of HRM. It is also a good

solution in case of shortage of experienced and skilled employees, where the company is

not able to find or afford a new expert to join their team. Finally, with short-term outsourcing

contracts, companies gain flexibility in terms of cost of wages and knowledge capital.

KPO can also give a company an access to internally developed knowledge or expertise of

their partner that would not be available anywhere else on the market and thus impossible to

acquire or copy.


Outsourcing is also said to let the companies focus on their core competencies, rather than

the supporting activities. This lets the entrepreneurs gain competitive advantage by

increasing their expertise in their core business processes. In case of knowledge process

outsourcing, however, the outsourced activity still plays an important role in company’s

overall strategy.

Entrusting some of the business activities to a third party allows the firms to mitigate the

involved risks. Since the contractor disposes of long experience and high expertise in the

given field, he is able to predict the environmental threats with higher accuracy and to react

to them accordingly.

Although the list of advantages related to knowledge process outsourcing is long, the

opposite side of the coin also has to be considered.

Firstly, the company is often obliged to share confidential data with its partner. This involves

a security-related risk in form of public revelation of classified data, which can be then

misused by the competitors. Trust, however, is not the only concern here. Since every firm

works by its own standards, outsourcing may not always allow assuring high quality of the

final work. The expected outcome has to be determined very specifically in the collaboration

contract. This, however, in case of KPO can be very difficult to achieve. The contracting

company may not have enough expertise in the given field in order to be able to specify its

requirements and measure the results accurately.

The complexity of knowledge process outsourcing makes it also more time consuming than

any other kind of such cooperation. Finding a suitable partner often requires a lot of analysis

and negotiating and thus does not allow the company to obtain immediate results. At the

same time, even after the collaboration has already started, KPO can be affected by

communication problems, such as dealing with cultural and language barriers. This can be

observed especially in case of offshoring. All of the above factors lead to high dependence on the contractor. Due to the difficulty in finding the right partner and the complexity of the

outsourcing activities, there is a high risk of being locked-in with your contractor and having

to bear high switching costs in case of change.

Finally, there are two drawbacks related to KPO, which can be especially disadvantageous

for the startup companies. First of them is the loss of managerial control over a vital

activity of a company’s value chain. This can negatively affect the firm’s strategy, which in

case of young companies has to be extremely adaptive to the changing environment.

Secondly, entrusting one of the business processes to an external party impedes the


organizational learning of the startup, which is usually a crucial factor in fostering its

innovativeness (Sanchez, 2010).

3.1.5 Theories on outsourcing

This section contains the description of main theories explaining the very process of

outsourcing as well as the reasons behind firms’ decision to outsource. These theories

represent the literature-based perspective on the subject.

3.1.5.1 Outsourcing process

Despite the big popularity of subcontracting, the frameworks describing the very process of

outsourcing are a scarcity. The simplest existing layout of this process divides it into five

stages. Those are accordingly - preparation, vendor selection, transition, managing

relationship and reconsideration (Perunovic & Pedersen., 2007).

In the preparation phase, the company answers the questions why and what should be

outsourced. Simultaneously, it decides on the strategy of a given business process. After

evaluating various sourcing possibilities, the entrepreneur chooses preferred length and form

of the cooperation.

Subsequently, in the phase of vendor selection, the decisive person finds and evaluates

potential vendors. Through negotiations of conditions, the content of the contract is decided.

Signing the document brings both parties to the next phase.

During the transition the actual collaboration commences to take place. All the necessary

information is exchanged and the ways of communication are being adapted. If needed, a

new management and organization structures are adapted.

After the collaboration is well established, the parties continue into the relationship management phase. This is a vital part of the outsourcing and often decides on the length

of its duration. Here the company monitors the performance of the contractor and solves any

problems that are encountered on the way. If needed, the contract conditions are

re-negotiated and the outsourcing strategy changed. Both parties should strive to maintain

seamless communication and identify and foster the success factors of their cooperation.

Finally, usually around the contract expiration time, the outsourcing process enters the

phase of reconsidering. Here, the entrepreneur faces the decision whether to continue the

collaboration with a given partner or not. He can choose between various options - changing

the vendor, moving the process back in-house or re-negotiating the conditions.


3.1.5.2 Transaction cost economics

This theory is usually applied in the preparation phase. According to the transaction cost

theory, the decision between outsourcing or keeping the activities in-house is determined by

its profitability (Holcomb & Hitt, 2007). This can be easily calculated by comparing the cost of

carrying out a given activity in-house to the transactional cost of entrusting it to the third

party (Grover & Malhotra, 2003). Transactional cost includes, among others - the cost of

finding and selecting the partner as well as negotiating the conditions; preparing and signing

the contract; monitoring the performance and assessing the quality of final results.

Nevertheless, this theory was proven not to be applicable in every case. According to its

assumptions, if obtaining a given service on the market would be less costly than carrying it

out internally, it would always be outsourced. In reality, however, companies facing similar

financial conditions often end up taking opposite decisions. This proves that cost is not the

only factor taken into account when deciding to collaborate with a contractor (Vaxevanou &

Konstantopoulos, 2015).

3.1.5.3 Resource-based view

The resource-based view pictures a company as a collection of its internal resources and

assumes that those resources are the main factor standing behind company’s success.

According to this theory, all of the resources that contribute to the firm’s competitive

advantage should be kept internally (Barney, 2001). On the other hand, if a company

happens not to possess any particular resources that would differentiate it from the

competitors, it should seek for those in a form of cooperating with a partner.

This theory is also mostly applicable in the very first phase of outsourcing and helps the

companies find an answer to what kind of services should be entrusted to external parties.

3.1.5.4 Core competencies theory

This theory has been developed on the basis on the resource-based view. Core competence

is “a harmonized combination of multiple resources and skills that distinguish a firm in the

marketplace” (Schilling, 2013). Such competence should also fulfill three criteria. Firstly, it

should give the company a potential access to a wide array of markets. At the same time, it

has to contribute to the product value perceived by the customers. Finally, it cannot be easily

copied by the competitors.


According to this theory, every company should strive to focus its resources on fulfilling the

activities involving its core competencies. All of the secondary processes can be outsourced

to a third party. At the same time, the outsourced activities should be among the core

competencies of the contractor.

This theory is mostly used in the preparation phase of outsourcing, but can as well be

applied in the relationship management and reconsidering stages.

3.1.5.5 Information asymmetry

Information asymmetry is one of the challenges forming part of the outsourcing cooperation.

It is especially visible in case of companies who do not have big experience in outsourcing;

and companies, which subcontract processes that are not at all related to their core

competencies. Due to the above reasons, it is likely to be observed in the cases of software

startups outsourcing marketing activities.

Information asymmetry is observed when the parties involved in the contract do not posses

the same information, be it quantity or quality related (Corbett & Tang, 1999). This

discrepancy may be caused by confidentiality of data or lack of expertise in a given field.

Such difference can negatively affect the outcomes of the outsourcing as well as the

relationship between the partners. The impact of this obstacle on the outsourcing process

can be mitigated by conducting additional research before signing the contract (McCarthy et

al., 2013).

3.2 Marketing

This chapter contains information about marketing, which are relevant to its outsourcing

process, such as the steps of marketing strategy development or best ways of measuring its

efficiency. This theoretical background will be a basis for identifying best practices among

marketing-outsourcing software startups.



The following list of literature on the subject of outsourcing of marketing has been used as a

theoretical background for this research:


Marketing management 14th edition

Kotler, P., Keller, K. L.

2014 Pearson - introduction to the topic of marketing - presentation of marketing-related theories, being a base for identifying marketing levels - description of tools used for market research - importance and development process of marketing strategy

The marketing plan: a step-by-step guide

Westwood, J.

2002 Kogan Page Publishers

- presentation of the outline of a marketing plan - description of actions needed to create a marketing strategy and write marketing plan based on it

Return on marketing investment: demand more from your marketing and sales investments

Powell, G. R.

2002 Guy Powell - explanation of the concept of marketing performance measurement - description of the return on marketing investment indicator

3.2.2 Outsourcing of marketing

Nowadays, marketing is an integral part of every business. It is said to be the major factor

behind a company’s success or even that it justifies the existence of any kind of businesses

(Kotler & Keller, 2014). In simple words - marketing is indispensable. This is why realizing

marketing functions within any company is not questionable. Thus, the only decision

regarding this department is whether to keep it in-house or entrust to a third party. This

makes marketing a perfect case for evaluating the factors standing behind the decision to

outsource.

Hardly any academic papers have been written on the outsourcing of marketing activities.

Having to cover such a vast research gap, this study is aimed at answering a lot of


questions. Apart from looking into incentives, advantages and challenges related to the

outsourcing of the marketing activities, it will also evaluate the very process of such

collaboration. What is more, the research will discover whether software startups involve

outsourcing from as early stage as marketing strategy development or rather apply it only to

fulfill simple marketing activities. It will also scrutinize the process of evaluating the quality of

results delivered by the partner. Thus, relevant theories regarding levels of marketing and its

measurement are presented below.

3.2.3 Marketing levels

Marketing is an umbrella term including a very wide array of terms and activities - from

setting up main business goals of the company, through establishing the price of a product,

to creating content posted on social media. For simplicity’s sake, it can be divided into levels

according to the complexity of a given function. Based on the relevant literature, this

research applies the division of marketing into three main sections - marketing strategy,

marketing plan and marketing actions. Those represent, accordingly, the process of

establishing the marketing goals, the choice of tools to achieve these objectives and the final

realization of the chosen actions.

3.2.3.1 Marketing strategy

Marketing strategy is the reflection of a company’s business strategy in a form of clearly

stated goals. It usually aims at increasing business profitability and achieving a competitive

advantage (Baker, 1999). Well defined marketing strategy is the essential basis for effective

marketing.

There are many analyses and theories, which can help the entrepreneurs in defining their

marketing strategy - such as Porter’s 5 forces analysis, PESTLE analysis, Porter’s generic

strategies or Ansoff Matrix (Kotler & Keller, 2014). A specific analysis of their application,

however, is not included in the scope of this research.

Marketing strategy is being formed by defining a company’s mission and vision as well as

main business goals that should be achieved. It requires conducting a primary market

research and identifying the target market segment that should be addressed. Finally, it

converts overall goals into clear numerical thresholds defined specifically and limited by

time. Those are usually set for a period of several years.

All in all, marketing strategy can be seen as a direction towards which the company should

proceed. It is a stepping-stone for writing a detailed marketing plan.


Since it is closely related to business strategy, this level of marketing is crucial for any

company. Thus, entrusting it to a third party may involve high risks regarding data security,

or alignment with the organizational processes of the company. It can also lead to a big

dependance on the outsourcing partner. On the other hand, keeping it in-house can

negatively affect the quality of final outcome due to the lack of relevant expertise and

experience.

3.2.3.2 Marketing plan

Being based on the marketing strategy, marketing plan contains the outline of all the

activities and decisions that are meant to lead to the achievement of company’s business

goals. It is usually limited to a time frame of one year (Westwood, 2002).

Apart from specific activities, marketing plan also describes current situation of the company

on the market, analysis of the target group and specification of the marketing mix.

The development of the marketing plan requires a detailed analysis of the company and its

environment, setting up a financial forecast and determining the detailed action program.

Finally, a way of measuring achieved results have to be established together with a

contingency plan.

Because of its complexity, writing a well-adjusted marketing plan requires a lot of resources

such as time, knowledge and analysis tools. All this makes it challenging for young

companies, with no experience in marketing. Developing marketing plan in-house requires a

big investment in human resources and knowledge capital. Entrusting it to a third party can

thus give startup possibility of cutting the costs and accessing to the high level of expertise.

Nevertheless, such decision always carries some trade-offs such as loss of management

control or organizational learning.

3.2.3.3 Marketing action

Marketing action is a single activity that forms part of a marketing plan of a given company. It

is the smallest step taken towards achieving the goals set up in the marketing strategy

(Kotler & Keller, 2014). Examples of such can be publishing content on social media,

conducting a market research, search engine optimization through link building, collecting

customer feedback, running an AdWords campaign, sending out a newsletter, etc.

Marketing actions are very resource-intensive in terms of both time and expertise. At the

same time, however, they are of a little strategic importance and low complexity, in

comparison to the development of the strategy or marketing plan. This makes it a perfect fit

for outsourcing. By subcontracting basic marketing activities the company is able to cut


marketing costs and raise the quality of final outcomes - its partner, specialized in marketing,

has both higher level of expertise as well as the possibility of reaching the economy of scale.

On the other hand, however, the contracting startup loses its opportunities for organizational

learning and its control over the quality of the final outcomes.

3.2.4 Marketing performance measurement

Measurement of the quality and efficiency of results delivered by the partner is a vital part of

the outsourcing process. It is especially crucial in the relationship management and

reconsidering phases of the collaboration, where the entrepreneur has to make sure that all

of the conditions listed in the contract have been fulfilled.

Unfortunately, marketing is not an easy matter to measure. The effects of marketing

activities oftentimes are not directly related to the sales volume and may not be visible

immediately (Kotler & Keller, 2014). There are, however, some established forms of

measuring the efficiency of marketing.

Firstly, marketing performance can be assessed by the fulfillment of the goals included in the marketing strategy. This solution, however, usually does not provide the entrepreneur

with data detailed enough as to evaluate the performance of specific marketing activities or

different outsourcing partners. The results may also be easily affected by the situation on the

market or changing trends among customers.

Secondly, marketing effectiveness can be measured with the use of specific indicators, such

as Return on Marketing Investment (ROMI) (Powell, 2002). In contrast to the traditional

indicators, such as the mentioned above goal fulfillment rate, ROMI separates the results

achieved through marketing from other sources of profits. This way it is able to indicate the

exact contribution of marketing investments into profits.

As part of this research, it will be evaluated whether software startups use any form of

marketing performance measurement, and if yes - what form of doing so is the most popular

among them. The study will also identify what are the biggest challenges faced in this phase

of outsourcing collaboration.


3.3 Software startups

The purpose of this chapter is to specify the concept of software startup applied in this

research and provide the reader with list of factors, according to which the study participants

will be chosen. This section also describes the organizational conditions specific for startups,

which may affect their decision to outsource.


The following list of literature on the subject of outsourcing of marketing has been used as a

theoretical background for this research:


The founder's dilemmas: Anticipating and avoiding the pitfalls that can sink a startup

Wasserman, N.

2012 Princeton University Press

- description of the startup organizational conditions as opposed to well-established companies - identification of the biggest challenges faced by software founders

The lean startup: How today's entrepreneurs use continuous innovation to create radically successful businesses

Ries, E. 2011 Crown Books - presentation of the lean startup methodology - description of best practices in the startup environment - identification of the benefits from outsourcing of startups’ business processes

Organizational learning: Creating, retaining and transferring knowledge

Argote, L.

2012 Springer Science & Business Media

- introduction to the concept of organizational learning and relevant theories - description of the process of knowledge creation and transferring

3.3.2 Definition of startup

Despite becoming a buzzword in the recent years, startup still remains a term without a clear

definition behind it. It can be described as an entrepreneurial venture, which still remains in

an early stage of the company’s life cycle. It usually commences with a business idea and


then proceeds to the investment-seeking stage. The objective behind a startup company is

meeting a market need by creating an innovative product (Robehmed, 2013).

For the needs of financial classification, startups are oftentimes defined as business entities,

which do not yet fulfill the Initial Public Offering requirements. These, however, being very

high, and sometimes avoided on purpose, create a lot of misunderstandings around the

concept of a startup, letting well-established companies remain with this status long after

they overstep the early development phase.

Nevertheless, since this research aims at focusing on the differences between established

companies and startups, a more strict conditions will be applied. Recently, the government

of India adapted an official definition of a startup, listing out several factors that classify a

company as such (Startup India, 2015). Firstly, it has to remain within the period of 5 years from its foundation date. Secondly, its competitive advantage has to be based on

innovation and it has to develop a new, scalable business model around it. Thirdly, it

cannot be formed through a split up of an existing business entity. For simplicity’s sake, this

research interprets this rule as to being founded by entrepreneurs independent of any other

existing company. Finally, the government of India proposes a financial limit to a startup’s

turnover. However, because of lack of access to such information, this rule will be omitted in

this study.

3.3.2.1 Definition of software startup

Software startups, also known as IT startups, are young businesses operating in the

software industry. This includes development and maintenance of any kind of software as

well as offering of software-related services. The industry includes both business to business

and business to consumer markets.

The examples of such startups are mobile app developers, providers of cloud services, web

developers, software consultants, etc.

Software industry was chosen as a subject of this research because of two reasons. Firstly,

information technology is usually listed among the fastest growing industries in recent years.

Thus, the obtained results will be relevant to a vast number of readers. Secondly, in most

cases marketing is not among core competencies of IT companies. This makes them a good

subject for assessing the application of the theories on outsourcing.


3.3.3 Startups’ organizational conditions

The biggest differentiator between well-established companies and startups are their

organizational conditions. Startups usually face the challenge of having to function with very

limited resources - in terms of knowledge capital, financial assets or human resources. Their

environment is characterized by enormous uncertainty and unpredictability (lean startup

ries). Lack of information raises the level of risk entailed with any decision that an

entrepreneur may take (Wasserman, 2012).

These huge differences in conditions between the young and long-existing businesses can

drastically affect the decision regarding the outsourcing of marketing activities as well as the

very process of such collaboration. There are, especially, two concepts that may represent

an advantage and a disadvantage of outsourcing in case of startups. These are, accordingly,

lean startup methodology and organizational learning.

3.3.3.1 Lean startup methodology

This methodology, developed in 2008 by an entrepreneur Eric Ries, is constantly gaining

popularity among startups. Its main assumption is eliminating waste of time, money and

other resources by minimizing the initial investment in the company and perpetual collection

of customer feedback, also known as validated learning (Ries, 2011).

In other words, running a lean startup means constant reduction of business processes,

which are not essential to its initial success. This helps to mitigate the risks entrepreneurs

bear in the early stages of their company’s life cycle and allows them for a quick adjustment

to changing environmental conditions.

Because of the above presented assumptions, outsourcing has become a popular practice

among startups. Entrusting some of the non-essential business processes to a third party

helps to reduce the initial investment and shortens the overall lead time of a company.

3.3.3.2 Organizational learning

Organizational learning is a term describing the process of creating, maintaining and

transferring knowledge within a company. The experience, which the organization gains

throughout its functioning, is later converted into knowledge. With time, this internal

knowledge becomes a company’s valuable asset, which can help the business retain its

competitive advantage and survive on the market (Argote, 2012).


Alliances and other forms of cooperation with peer companies may foster knowledge sharing

and the diffusion of innovation. In a broad sense, the bigger the difference between the

companies, the higher the inter organizational learning (Schilling, 2003).

On the other hand, however, entrusting any of the business processes of a company to a

partner, especially as a whole, may impede the organizational learning within the company,

given that the knowledge flow may not be both-sided. Thus, from the perspective of

organizational learning in case of startups, outsourcing may be seen as a disadvantage in a

long-term.


4. Methodology This chapter provides the reader with detailed information about the methodology used to

conduct the research, making in replicable. It also justifies the chosen research design and

contains information about technical issues regarding the primary data collection. In the end,

the data analysis process is explained.

4.1 Research design

This research is an exploratory study, aiming at establishing a framework regarding best

practices of software startups in terms of outsourcing of marketing activities. Due to the lack

of relevant literature, the approach adapted here is inductive. Its main assumption is the

need for data collection in order to develop a new framework or draw conclusions. Thus, an

in-depth, semi-structured interview was chosen as a research technique. Prior to primary

data collection, a thorough literature review has been conducted in order to lay the

theoretical foundations for designing the interview outline.

Semi-structured interviews are considered to be a valid sole data source in case of

qualitative study (DiCicco‐Bloom & Crabtree, 2006). They are based on a set of open-ended

questions, which can be modified in the course of the discussion. Their average duration is

estimated for 30 minutes to an hour and the number of interviewees, which results in

obtaining the optimal data saturation level is approximately 6.

4.1.1 Setting

Due to the geographical and financial limitations of the researcher, the interviews will be

conducted via telephone or Skype rather than in person. Since the data collection is not

observational, this form of interaction should not affect the quality of final findings.

4.1.2 Participants

The interviewees will be decision makers (usually co-founders) within software startups,

which currently outsource at least part of their marketing activities. There are no

geographical limitations to this study, as the exact country of origin of the company or the

outsourcing partner is not relevant to this research.


4.2 Data analysis

It is recommended that the analysis of the qualitative data takes place simultaneously with

the phase of its collection, as new topic emerging from successive discussions should be

included into the interview outline and investigated in depth (DiCicco‐Bloom & Crabtree,

2006). This procedure should repeat until no new concept appear, which is known as data

saturation.

After the collection phase is finished, the transcripted interviews will be a subject of a content

analysis conducted with the use of Sphinx software. In the next step, the information will be

interpreted in perspective of the theoretical background presented before. An additional

literature review will be conducted if needed, in order to explain the observed phenomena.


5. Plan of work The below-presented table contains estimated date of completion of the remaining parts of

the research.

COMPLETION DATE SECTION DESCRIPTION

23.10.17 - 05.11.17 Interview design - preparation of the outline of the semi-structured interview - conducting one test interview

06.11.17 - 30.11.17 Data collection - searching for interview participants - conducting the interviews - adjusting the outline of the interview, if needed

01.12.17 - 31.12.17 Data analysis - transcription of the interviews - content analysis - coparison with the theories presented in the theoretical background

01.01.18 - 20.01.18 Results and conclusion

- drawing conclusions out of the data analysis results - editing the remaining part of the thesis - forming managerial implications


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Kakumanu, P., & Portanova, A. (2006). Outsourcing: Its benefits, drawbacks and other related issues. Journal of American Academy of Business, 9(2), 1-7. Kotler, P., Keller, K. L. (2014). Marketing management 14/e. Pearson. Mahmoodzadeh, E., Jalalinia, S., & Nekui Yazdi, F. (2009). A business process outsourcing framework based on business process management and knowledge management. Business Process Management Journal, 15(6), 845-864. McCarthy, I. P., Silvestre, B. S., & Kietzmann, J. H. (2013). Understanding outsourcing contexts through information asymmetry and capability fit. Production planning & control, 24(4-5), 277-283. Perunović, Z., & Pedersen, J. L. (2007). Outsourcing process and theories. In Proceedings of the POMS 18th Annual Conference, May 4–7, Dallas, Texas, 007 (Vol. 3). Powell, G. R. (2002). Return on marketing investment: demand more from your marketing and sales investments. Guy Powell. Ries, E. (2011). The lean startup: How today's entrepreneurs use continuous innovation to create radically successful businesses. Crown Books. Robehmed, N. (2013, December 16). What is a startup. Forbes. Sanchez, C. (2010). The benefits and risks of knowledge process outsourcing. Ivey Business Journal, 74(3). Sanders, N. R., Locke, A., Moore, C. B., & Autry, C. W. (2007). A multidimensional framework for understanding outsourcing arrangements. Journal of Supply Chain Management, 43(4), 3-15. Schilling, M. A. (2013). Strategic management of technological innovation. Tata McGraw-Hill Education, 117. Schilling, M. A., Vidal, P., Ployhart, R. E., & Marangoni, A. (2003). Learning by doing something else: Variation, relatedness, and the learning curve. Management Science, 49(1), 39-56. Startup India (2015). Startup Definition. Retrieved from http://startupindia.gov.in/ Takeishi, A. (2001). Bridging inter‐and intra‐firm boundaries: management of supplier involvement in automobile product development. Strategic management journal, 22(5), 403-433.


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