Staff Augmentation with the Buy-Out Option

Staff Augmentation with the Buy-Out Option

Introduction

It is no news that the software development industry has changed drastically this year.  Over the past few years, many software developers have preferred remote work over traditional jobs at the office. The pandemic accelerated the process, and now working from home is not a benefit companies offer but a standard commodity. Plus, many businesses worldwide were suddenly forced to embrace virtuality and remote work. In fact, some companies had the opportunity to access talent worldwide easier than ever before and software professionals can now apply for jobs in a wide-ranging variety of companies, in different countries, without even moving from home. Thus, software development professionals' costs skyrocketed.

In this context, some tech companies got interested in hiring remote professionals directly instead of hiring an agency to deliver the talent they need the most - this is particularly true for startups and SMBs with some recruiting capacity. Thus, they manage talent directly, perform Human Resources management, boost retention initiatives, and reduce recruitment costs, especially when hiring and retaining great talent is more expensive and challenging than ever.

How Coorva Changed 

Early this year, one of our most important clients brought to our attention that he would be interested in buying out the contract of some of our engineers. That wasn’t the first time a client asked to hire one of our engineers directly. In fact, this is the first year we have received more inquiries related to this matter since Coorva’s foundation back in 2016. 

The market had spoken, and we needed to listen. That’s to say, we used to focus on staff augmentation arrangements, and now we have to update our business model to allow clients to eventually hire professionals directly. That’s how the market works these days.

We used to focus on staff augmentation arrangements, and now we have to update our business model to allow clients to eventually hire professionals directly.

Therefore, we defined a set of rules to make the buy-out option successful for everybody (Coorva, our client, and our professional).

How Our Buy-Out Option Works

Back in the day, staffing agencies placed professionals to work with clients, and after some time, the client had the chance to hire them directly. There used to be a buy-out fee that phased out over time. That model no longer works for us because finding great talent is an arduous task, and lots of companies desperately need that talent.

Yes, there have been a lot of layoffs in the tech industry. We get it. But those layoffs are a tremendous opportunity for most startups and SMBs to finally hire the talent they have always needed. 

Now, we have a different buy-out policy with an amount that persists, provided our value proposition doesn't phase out over time. That's to say, not only do we staff open positions promptly but also make our Service Delivery (SD) team available to ensure our professionals deliver according to our clients' expectations. After staffing their open positions, we don’t abandon our clients to their fate.

We have a buy-out policy with an amount that persists, provided our value proposition doesn't phase out over time. After staffing their open positions, we don’t abandon our clients to their fate.

Our professionals are the greatest assets for Coorva. We ask clients to pay a buy-out fee because we consider it to be a reasonable estimate to cover our expenses to find, recruit, screen, train, and replace each professional. In addition, we ask for that fee due to the opportunity cost of letting any of our professionals go. For example, we might have open positions we would quickly fill with those engineers if they were available, and finding someone else with the same skills and experience would be pretty challenging. Clients struggle to find top-notch professionals and so do we.

Our professionals are the greatest assets for Coorva. We ask clients to pay a buy-out fee because we consider it to be a reasonable estimate to cover our expenses to find, recruit, screen, train, and replace each professional. In addition, we ask for that fee due to the opportunity cost of letting any of our professionals go.

Nowadays, some recruiting agencies and headhunters ask for at least 40% of the professional's annual gross salary, when they used to ask for 1.5x salaries or 25% of annual gross salary tops. I’d like to point out that our new buy-out model is more affordable than the market average.

How It Won’t Work

One of our clients (Alice) wanted to hire one of our engineers (Bob). Alice discussed with Bob the possibility of hiring him directly and also discussed compensation. Coorva learned about this later.

Alice should have done it differently by agreeing on buy-out terms with Coorva before discussing the direct hire opportunity with Bob. Then, Coorva and Alice will be on the same page before moving forward, thus making the process smoother and not risking a contract breach because of our non-solicitation terms.

For example, suppose Alice made an offer to Bob, but then Coorva and Alice didn’t come to an understanding about the buy-out terms. Then, Alice would have to roll back with that proposal, and Coorva would need to manage Bob’s expectations to keep him motivated. That's a scenario we have to avoid.

Coorva and the client will need to be on the same page before moving forward, thus making the process smoother and not risking a contract breach because of our non-solicitation terms.

After all, it has nothing to do with the buy-out fee but managing everybody's expectations promptly to make the transition successful.

The Process

We defined a simple process to allow our clients to hire our engineers directly:

1. The client communicates the buy-out intention with Coorva’s Service Delivery team first and not with the team member.

2. The Service Delivery team will bring to our Sales team's attention the buy-out interest.

3. Our Sales team will reach out to the client to agree on the buy-out terms and conditions.

4. Once the buy-out agreement is closed, the Service Delivery team will inform the team member about the buy-out intention.

5. After the team member is aware of the buy-out intention, the client will be enabled to discuss an offer.

6. If the team member accepts the offer, we will sign a written consent to waive the client and the team member from our non-solicitation clause.

7. The client will receive an invoice for the buy-out fee.

That's it.

TL;DR

The market has changed on how companies hire tech talent. Some time ago, staff augmentation was good enough for most projects, but now they want to hire software professionals directly rather than through agencies.

Coorva has adapted its business model to consider the buy-out option so clients can hire our professionals directly with well-defined rules. 

Consequently, we are closer to fulfilling our mission of delivering peace of mind to our clients by bringing the talent their businesses need the most.