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    Foster Value Proposition Innovation

    Submitted by: Varun Gupta

    Abstract

    [Context] The software startups could continuously innovate business model value proposition by involving freelancers as a source of innovative ideas (that enhance customer perceived value) and as experts for implementing the innovative ideas (by undertaking software engineering tasks). Startups employ one of three strategies for associating with freelancers i.e., task based (association ends with completion of the outsourced task), panel based (outsourcing task to a panel of freelancers associated with startup), or hybrid. Uncertainties, terminology issues, high technical debt, lack of documentation, lack of systematic decision making processes, lack of resources, lack of brand values, need for the continuous involvement of the freelancer to incorporate continuous validated learnings, merging freelancer perspectives, and deciding the level of their involvement in individual requirement engineering (or value proposition innovation) activities, are the main inhibitors for associations with freelancers. The availability of good freelancers and their long term and continuous commitments are necessary requirements for value proposition innovation. The theory about freelancer association with the software startups is extended by studying the real practices of startups, which successfully involved freelancers for value proposition innovation by capturing innovative ideas and acquiring the freelancer’s skills to implement those ideas.

    [Objectives] The objective of this paper is to explain the strategies adopted by the software startups to foster value proposition innovation by continuously involving the freelancers and the way they overcome the challenges arising because of the associations. The findings are driven by the study of real practices of startups that proved to be successful in the market by involving freelancers and continuous innovations leading to increased market shares.

    [Method] This paper performs empirical studies through case studies of three software startups located in Italy, France, and India, which are at the verge of being transforming into big companies, with large market share. The current practices highlighting the successful way of executing freelancing association strategies for value proposition innovation and the way to overcome the arising challenges are reported. The findings are also compared with those of two young startups based in Switzerland and India, to bring useful lessons for the young startups. The case study results are validated by employees from the studied startups (both those who participated in data collection and those who did not).

    [Results] The results indicate that freelancer involvement during value proposition activities, which is the core business operation, is beneficial to the both freelancers and the startups. Startup teams could reduce the development costs, shorten time to market, and increase customer satisfaction (by providing features addressing real market needs) by correctly involving the freelancers uniformly across value proposition activities. The startups could manage innovation with small teams (compared to human resources in companies) if done jointly with the freelancers, that helps the team members to learn new skills, upgrade their skills, and learn new perspectives about their markets. Business impacts due to freelancer involvement are stronger if the level of freelancer involvement across various value proposition activities is higher compared to their involvement across few activities only. The studied startups are not completely dependent on the freelancers but the freelancer’s perspectives and skills are valued as a rich source of market success. Freelancer involvement is taken as an opportunity to gain access to global market perspectives, which otherwise would be effortful for in-house teams to collect. In addition, they resolve technical debt, are a source of upgrading skills for undertaking future innovation, and help reaching customers for marketing (promoting product and gaining access to the feedbacks). Overall, the value proposition innovation in the studied startups have different levels of involvement of the freelancers but these startups have reported positive impacts on the business in terms of development cost reductions, shorten time to market, and high customer satisfaction (measured on early attainment of product/market fit and fast growth thereafter).

    1. Introduction

    Freelancers are self-employed persons that do not have full time employee relationships with the companies. They temporarily work for a short duration to successfully execute some outsourced tasks. Freelancers could also be involved in the execution of outsourced tasks on a continuous basis, with freelancers continuously innovating their work products by better utilizing their experiences. Freelancers bridge the lack of in-house expertise in the company for the completion of tasks, by providing their services in exchange for monetary rewards. Freelancers are not employees of the companies and, hence, not covered under the employee benefits like tax benefits, insurance cover, social security cover, allowances etc. The companies hire freelancers for individual tasks by selecting them from their professional networks, referrals, and freelancing platforms like freelancer.com (www.freelancer.com), Upwork (www.upwork.com), Guru (www.guru.com) etc.

    The different platforms have different ways of associating companies with the freelancers. However, in general, each platform allows a company to upload details of the task to be outsourced (like price, duration, quality expectations, milestones etc.), freelancers to register their interest for the outsourced task, support hiring process in form of access to reputation metrics and conducting interviews, providing mechanisms to support communication between the company and freelancers, payment release, and sharing of the completed work documents. Freelancers through their expertise and skills help make business processes agile as they give them the ability to quickly respond to market changes as reported in [1]. The long term association of freelancers with the companies helps the latter to develop the firm-specific human capital, which brings competitive advantage to the company [2].

    Startups could associate with the freelancers by motivating them to be the part of the freelancer panel maintained by them (panel based association), associate just for the execution of the outsourced task (task based freelancing), or use an optimal combination of the two types (hybrid association) [3]. Uncertainties, terminology issues, high technical debt, lack of documentation, lack of systematic decision making processes, lack of resources, and lack of brand values are the main inhibitors for associations with freelancers [3]. To involve freelancers for the value proposition innovation as a source of creative ideas and as experts to implement the high priority ideas, continuous involvement of the freelancers to incorporate continuous validated learnings and merging freelancer perspectives with the startup team learning, further complicates the freelancer involvement [4].

    A startup is a novel organization that offers innovative products to the market and searches for repeatable and scalable business models. Often, startup teams have little understanding of the markets which require continuous involvement of the customers (and users) in the software development process. This helps the startup team to continuously perform experimentations to validate their assumptions (also called hypothesis) about business model canvas (like value propositions, customer segments, customer relationships etc.) to continuously improve their understanding of the market (and, hence, the business model). This is equivalent to saying that startups use a lean approach to continuously perform experimentation with customers using the build, measure, and learn (B-M-L) cycle which allows them continuously to improve the underlying hypotheses because of the validated learning brought by the co-creation process with the customers. As the experimentation progresses and new learning enhances the market understanding, the level of uncertainty decreases and the business model evolves to a more accurate version, finally resulting in a model that is repeatable and scalable. Once this happens, the maturity of the startup team with the market enhances, which increases confidence in assumptions about business model aspects and, hence, reduces the uncertainties.

    However, after finding a scalable and repeatable business model, startups must maintain competitive advantages in the highly competitive markets by innovating the ways to create, deliver, and capture value. For competitive advantages to be maintained, the startups must continuously innovate, i.e., change the way they work in a manner that generates more value for the customers (or users). Continuous innovation requires ideas from different stakeholders and accordingly it could be closed or open innovation. If the ideas are collected from within the organisation then the innovation is closed innovation and if they are collected from outside the organisation boundaries (i.e., from external stakeholders, especially customers, users, investors etc.) then it is called open innovation. Involving freelancers for value proposition innovation is a form of open innovation.

    Innovation, thus, requires a continuous flow of ideas to the startup team responsible for innovation, continuous evaluation of ideas, and implementation of those ideas that enhances the conceived customer value of the product (benefits minus cost). Business model innovation requires creative ideas about a different business model canvas, which affects the customer value directly or indirectly. Value proposition innovation deals with creative ideas about value proposition canvas, i.e., what value the software is providing to the users that will force them to buy the product or service. Moreover, the innovation must be continuous and sustainable.

    Value proposition specifies the value that software is promising to deliver to the customers by addressing their problems in an efficient manner (i.e., addressing customer needs by addressing their pain points and enhancing the benefits). For example, software startups could get ideas about value proposition innovation in the form of new functionality to be implemented (value proposition canvas), ideas about how to lower the development costs, or ideas about new programming technology, which improves performance of the software, which directly affects the customers’ perceived value.

    Freelancers could be interested in suggesting innovative ideas and providing their expertise in implementing those ideas by undertaking corresponding outsourced software engineering tasks for which startups do not have in-house expertise. Freelancers’ involvement in suggesting creative ideas helps to provide the startup team with different perspectives about the problem domain that serves as a magnifying lens to the underlying problem domain. The startup team could get new directions with the freelancer perspectives and could incorporate the features that match the market needs in a unique way. This paper divides the innovation management into three categories including:

    • Invention of ideas related to value proposition. This includes exploring problem domain, identifying new ideas about solutions addressing identified problems, and validating these solutions using prototypes. The ideas in form of the software features could be further refined, prioritized, and documented. This activity is analogous to the requirement engineering activity of the software engineering.

    • Implementation of the innovative value proposition ideas. This includes the software engineering activities like designing, coding (both minimum viable product (MVP) and software version), testing, and release to the markets.

    • Supporting activities: These include the activities that are neither idea inventing nor innovation activities. These activities support the activities that convert the ideas into working software solutions. For instance, requirement documentation is a supporting activity.

    Often, large companies undertake innovation by using intrapreneurship, bootlegging, R&D, internal venture, subsidiaries, joint ventures, venture capital, spin-offs, and crowdsourcing [5]. Startups are characterized by being innovative, having lack of resources, having more uncertainties, working under time-pressure, having small teams, being highly reactive, and rapidly evolving [6]. Software startups have challenges which are unique to them. This includes little or no operating history, limited resources, multiple influences from stakeholders, dynamic technologies, and markets [7]. Moreover, they have a less experienced team, high degrees of uncertainties, and tight market release deadlines. They are not self-sustained, highly innovative, highly reactive to changes, and face rapidly scaling requirements [8]. High level of uncertainties and lack of resources do not make the innovation initiatives like intrapreneurship, bootlegging, internal ventures, and spin-offs feasible in startup contexts. External crowdsourcing (involving crowds of customers and freelancers) could be employed by startups but these will be light weight, flexible customized processes within startups contexts.

    The knowledge transfer of innovation practices from large companies to startups is yet to be investigated by researchers. Freelancers could be a good source of not only getting innovative ideas related to creating, delivering, and capturing values but also using their skills to implement these ideas within limited time and cost. The objective of startups is to turn into large organizations in the future, so the innovation practices must evolve into effective processes that could best take advantage of freelancing support for fostering innovations.

    Authors in [3] reported through an exploratory study the various freelancing models executed by software startups to involve freelancers, challenges, and issues with such associations and quantitative business benefits brought to the startups. The exploratory study was conducted because literature lacks reported studies about freelancer’s involvement in startups. The freelancer involvement in value proposition activities in two young startups along with their associated challenges are reported in [4]. The practices are yet to mature as startups are yet to mature to turn into big companies and face innovation challenges to keep competitive advantages. The study [4] highlighted that the freelancer’s involvement from the beginning of the startups could help innovate value propositions by providing different perspectives (which are very effortful to collect otherwise) by virtue of their expertise and interactions with customers as startup team members. The freelancer involvement in requirement engineering activities at varying levels depends on startup contexts and is highly influenced by the difficulty to select them optimally, ensuring long term association, building trust, mechanisms to integrate their perspectives, establishing communication, negotiations, and strategic pricings.

    This entry performs the exploratory case study to explore how the studied startups successfully involved freelancers for value proposition innovation activities and how they were able to turn the challenges into business opportunities. The same startups were interviewed in a case study reported in [3] but the previous study differs in terms of objectives and validation of their freelancer association practices.

    The objective of the previous study reported in [3] was to explore the way the startups involve freelancers, the challenges faced by the startups in involving freelancers, and business impacts of such associations. The focus was on a holistic view of freelancer association rather than specifically on individual aspects of the innovations. The studied startups have successfully involved freelancers for the value proposition innovation, which have helped them to successfully innovate their offered products to continuously capture the changing market needs, compared to the time when data was collected for the previous study. The results are based on data provided by the startups that have attained growth in the markets and are on the verge of turning into big companies. The focus of the case study reported in this paper is to explore the freelancer supported value proposition innovation.

    The freelancer association strategies in the previous case study were subjected to continuous experimentation for improvement as the startups were in the process of fostering market growth as they were in the mid of the growth phase of the startup life cycle. At the time this case study was conducted, the startups were able to continuously evolve their freelancer association practices over the time (relative to the time when data for the previous study was collected and companies were struggling to acquire success) by a continuous process of implementing, measuring results, learning from results, and incorporating validated learning to further improve practices. These practices are now more matured and better validated in a real context than those reported earlier. These practices were in the stage of being continuously evolved and their market results were initial during the previous study. The considered startups have involved freelancers for value proposition innovation, an activity that is usually not preferred for outsourcing, as it is the core business operation deciding the future of the startups in the market.

    The results of the study are also compared with results reported in [4] about the freelancer involvement in value proposition innovation in the two young startups based in Switzerland and India, to bring useful lessons for the young startups. The sample of startups is limited because the number of startups with large involvement of freelancers in their software development process and innovation practices related to the value proposition is limited.

    The entry is from 10.3390/su12218922

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