How effective are in-house designers vs agencies for pre-seed and seed startups?

Pre-seed and seed startups have limited resources, and the right strategies become crucial for growth. Design plays a vital role in this process. It's not just about making things look good; it's about user satisfaction and building a strong design system.

The decision between hiring in-house designers or working with a design agency is more than a budget consideration; it's about choosing a path that aligns with the startup’s goals and needs, like finding product-market fit and outperforming the competition.

Merge’s goal is to help you make an informed decision in your design strategy, so let’s look into the advantages and disadvantages of each option.

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Understanding pre-seed and seed startups

Pre-seed startups are in the phase of further developing and validating their ideas, building a team, and securing initial funding. At this stage, the main focus is on giving the green light to the business concept and bringing in the first clients. 

Seed startups are a step ahead. They invest to further develop the product or service, conduct market research, and build a customer base. The goal here is to establish a viable business model, prepare for future growth, and empower the product.

At both these stages, startups often face tight resource constraints. Budgets are usually limited, and teams are small. Strategic priorities include validating the business idea, securing funding, and laying a solid foundation for future growth. The clock is ticking, and you need to hire the best talent as well!

Every decision, especially in design and development, must be cost-effective and bring the maximum ROI in conversion, retention, and delivery speed.

In-house designers: pros and cons

For pre-seed and seed startups, having an in-house design team can offer several distinct advantages, but it's not without its challenges, either. Let's dissect the various aspects of this option.

Advantages of choosing in-house designers for your pre-seed or seed startup:

• Culture alignment. As part of the company, in-house designers are typically in sync with the company’s culture, communication with the team, and objectives.
• Focus. In-house designers dedicate their efforts solely to your brand, potentially resulting in outputs more consistent with the company’s needs.
• Direct oversight. Employing in-house designers allows for more direct oversight and tighter control over work processes and employee engagement.
• Understanding team dynamics. Being part of the team, in-house designers understand the strengths and weaknesses within the team, allowing for more efficient task distribution and realistic expectation setting.

Disadvantages:

• Hiring hassles. Recruiting an in-house team involves not just the salaries but also additional expenses like health insurance and equipment, which can be significant for startups.
• Training costs. Onboarding new in-house designers can be time-consuming and costly, as they need to acclimate to the team's dynamics and workflow.
• Finding and retaining talent. The broad field of design means that finding designers with the right skill set can be challenging.
• Risk of monotony. In-house teams might face monotony in their work, which can stifle creativity. It’s important to keep the work environment dynamic to foster creativity.
• Lack of expertise. In-house teams, especially in startups, may lack a wide range of expertise, limiting the variety and depth of design solutions they can offer.
• Absence of mentorship. Without a seasoned design leader or head in the team, in-house designers may miss out on mentorship opportunities that are essential for professional growth and skill development.
• Capacity challenges. Startups may experience periods of high demand that the in-house team might not be able to meet, leading to stress and project delays. 

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Design agencies: pros and cons

Design agencies also offer a range of advantages and challenges that are particularly relevant for pre-seed and seed startups.

Advantages of choosing a professional design agency for your pre-seed or seed startup:

• Diverse expertise. Agencies employ many skilled designers, each with unique strengths, allowing them to offer a wide range of creative solutions.
• Industry experience. With experience across different industries, agencies bring unique insights that might not be apparent to in-house teams focused on a specific sector.
• Efficiency. Established agencies are known for their efficiency, having honed their processes over years of working with diverse clients.
• Customer service. Agencies understand the importance of customer service in building long-term relationships, focusing on the LTV of each client.
• Data security. Agencies typically have stringent protocols and advanced security systems in place to protect sensitive information. They understand the importance of confidentiality in client relationships and are equipped to safely handle proprietary data. 
• Flexibility and scalability. Agencies can scale up or down more easily according to project needs and offer various design services​​​​. This flexibility is particularly beneficial for startups facing fluctuating workloads or requiring specialized skills for specific projects.
• Better onboarding. Design agencies often have streamlined onboarding processes and frameworks for quickly immersing into the business context, allowing them to hit the ground running without the same initial time and resource investment.

N.B. It’s important to choose a design agency that understands your unique journey as a pre-seed and seed startup. Come check out this case, for example.

Disadvantages:

• Cost. This one doesn’t really belong here, yet we’re going to mention it anyway. For a startup with a limited budget, money is a touchy subject. Compared to hiring and maintaining an in-house team, you can save a bit, but you have to choose your partner carefully, especially with overpriced agencies. We’ll bring it up again later in the article.
• Company culture. Agencies might have less immersion in the day-to-day culture of the startup.

However, now, thanks to remote working capabilities, the right design agency can potentially perform even better than a full-time in-house designer. This dynamic allows agencies to bring fresh, external perspectives that can be valuable for creative projects.

Potential misalignment with brand vision. Agencies, while skilled, might not have the same intimate understanding of your brand and its vision as an in-house team would, possibly leading to a disconnect. Tip: remedy this situation by paying more attention to the initial steps of your partnership.

Cost considerations

When comparing the financial implications of hiring in-house designers versus contracting with design agencies, here’s what we advise you to consider. 

Hiring an in-house designer can be less expensive in the long term, especially if you have steady, ongoing design needs (in which case, a dedicated design team is also a great option). However, this includes expenses like salaries, benefits, training, and potentially higher costs during periods of lower design demand. 

On the other hand, design agencies might appear expensive initially but can offer flexible costs and engagement terms, scaling up or down as needed. Agencies might be more cost-effective for short-term, specialized, or high-volume projects​​​​​​. 

Cost-effectiveness. For the budget of one in-house designer (~$70,000/year or $5,800/month), startups can access a broader range of expertise, quicker turnaround times, and potentially higher ROI with agencies. For example, Merge could offer two on-demand specialists for this budget.

Overpriced agencies may charge $80-$200/hour, while quality agencies in Eastern Europe could provide similar or better service for $30-$50/hour, delivering pretty much Californian-quality projects.

Case studies and examples

This guide would be incomplete without mentioning several real-world examples and case studies.

Merge and Insure+

Merge helped Insure+ enhance its health insurance management app by integrating AI and user-friendly design. This collaboration focused on creating an intuitive AI-driven underwriting platform and a clear, approachable app design. The partnership led to an improved product with a compelling pitch deck, accelerating Insure+'s market entry and investor engagement.

A dedicated team for Invisibly

This next case showcases the success of a remote dedicated design team in addressing both B2B and B2C needs. Initially hired for banner redesign, the design agency team rapidly expanded their role to encompass comprehensive UX research, UI design, and marketing design, seamlessly integrating into Invisibly's fast-paced startup environment.

They tackled challenges like creating user-friendly B2C interfaces for data control and B2B solutions for data analysis. The team even maintained effective communication and agile project management despite logistical challenges like different time zones.

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Other factors to consider when making the decision

We’d like to discuss a few more factors that quite often come into play during this decision - your business goals, the nature of the design work, and project timelines.

Business goals and nature of design work

In-house designers are deeply integrated into your company culture, which can be beneficial for building your design infrastructure and expanding offerings. They offer a consistent approach to design, aligning closely with your brand values and business goals. 

However, without anyone in the team having a design background, managing a designer effectively and developing a product with a strong UX focus can become challenging. This lack of design expertise may hinder the ability to create a truly design-driven product.

Agencies bring a diversified skill set and are particularly useful when dealing with unique or specialized design challenges. They often have experience across various industries, which can bring fresh perspectives and innovative solutions to your projects​​​​.

Project timelines

For urgent projects or when quick scaling is required, agencies can provide immediate support without the time-consuming process of hiring and training involved in expanding an in-house team​​​​.

In-house designers are readily available and can be reprioritized easily, making them suitable for ongoing projects or when you have the luxury of time for integration and training​​.

Want your product to attract, engage, and keep customers?

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Conclusion

To sum it all up, agencies offer flexibility, diverse expertise, and can handle specific or niche projects effectively. In contrast, in-house teams offer deep integration with company culture and consistent communication but require significant investment in recruitment and ongoing costs​​​​​​​​.

Ultimately, the choice depends on your startup's specific needs and circumstances. A blend of in-house and agency might also be a good approach, combining the strengths of each to meet different project requirements and business objectives.