The collapse of Silicon Valley Bank has sent shockwaves throughout the startup community. With down round valuations and full-time layoffs becoming the norm, it’s more important than ever for startup companies to find ways to develop, support, and sell their products while operating on a lean budget.

Traditionally, startups would shirk at the idea of contractors, preferring to hire full time technical and creative talent and ideally those with pristine pedigree from other well-established companies. As of Monday, this operating model may not be realistic as venture firms tighten funding and, in some cases, become more involved, or at least aware of their investments.

Labor costs are typically the single largest cost center for any company, startup, global enterprise, and everything in between. One-way startups can reduce burn rates while still building, supporting, and selling products and services is by leveraging contractors, instead of relying solely on full-time employees. For the uninitiated startup founders, below are some benefits of using contractors and how startups can effectively manage them to ensure success.

Benefits of Using Contractors

⬤ Cost-Effective: One of the most significant benefits of using contractors is the cost savings. Unlike full-time employees, contractors are not entitled to benefits such as health insurance, retirement plans, or paid time off. This allows startups to save a considerable amount of money on labor costs.

⬤ Flexibility: Contractors offer startups the flexibility to scale their workforce up or down as needed. This is particularly useful for startups that are just starting out and may not have a clear idea of how many employees they will need in the future or if they need to pull back on resources due to delays in funding or even down rounds. The “try before you buy” model provides the opportunity to evaluate talent in your real-world environment versus via resume, interview, code challenges and references.

⬤ Access to Top Talent: By leveraging contractors, startups can tap into a vast pool of talent. Contractors are often experts in their field and have a wealth of experience that can be invaluable to startups looking to develop new products or services.

⬤ Reduced Legal and Benefits Management: Hiring full-time employees comes with a host of legal and benefit obligations, such as complying with labor laws and providing competitive benefits. By using contractors, startups can avoid many of these legal obligations as they are now managed by the staffing provider who serves as the employee of record.

The recent report by staffing firm Robert Half, found that more than half of US companies plan to add jobs in the first half of 2023 and two-thirds of those polled will leverage contract talent. This is not only a positive sign for the overall U.S. job market, but the fact that companies are increasingly turning to contract workers to meet their staffing needs also indicates a shift towards more flexible and cost-effective solutions in the workforce.

The startup world has changed overnight, those companies that adapt, stay nimble by responding to the new market conditions will prevail while those who continue to run the “old’ playbook may fall behind or even fail.