Cod3r Staffing is a B2B startup staffing Russian and Ukrainian programmers with small- and mid-sized firms in North America and Europe. Using differentiated management strategies for their outsourced programmers, Cod3r Staffing has begun to make a name for itself in the staffing space. I caught up with co-founder Boris Alergant (Wharton MBA ’19) to learn more about his unique business model and plans for the future.
A Gap in the US Tech Labor Market
The US Bureau of Labor Statistics anticipates that employment of software developers will grow 21% from 2018 to 2028, much faster than the average for all other occupations. In 2016, US CIOs reported the highest technology skills shortage since the Great Recession. This is hardly unsurprising – as A16Z anticipated eight years ago, “software is eating the world.” US “tech” companies have always needed developers, but in recent history, more and more industries are determining means to automate lower-skilled work.
Enter Eastern European programmers. Eastern European programmers are lauded as among the top programmers in the world, winning the International Collegiate Programming Contest every year for the last 15 years. The reasons for this are largely historical – the Soviet education system placed great emphasis on STEM fields, with curricula including algorithmic and computer literacy classes as early as the 9th grade. Today’s federal elementary school standards (FES) even mandate that students write and execute on algorithms.
Highly-skilled Eastern European programmers continue to be available at a low-cost today. As such, multinationals and startups alike have slowly moved to outsource their programming needs to Eastern Europe, given an hourly wage as low as $20 vs. a typical domestic rate of $50-100 per hour in the UK or the US.
Cod3r Staffing co-founder Boris Alergant
The son of Ukranian refugees to the States, Boris Alergant self-describes himself as a “scrappy business guy from Queens.” Given his international background, during his stints in banking at ABN Amro, JP Morgan, and Mitsubishi MUFG, Boris’ colleagues asked him if he knew any Eastern European programmers and developers looking for remote work. While Boris wasn’t a programmer (he holds a Bachelors in Finance from Fordham), his Russia-based third-cousin happened to have decades of experience working as a PM at various tech firms, including Google.
On a whim, Boris reached out to his cousin, who had a network of front-end, back-end, and full-stack programmers. His cousin recommended Russia-based personal connections for such jobs, and Boris in turn connected the programmers with his US-based colleagues – thus began Boris’ foray in the coder staffing world.
Economic Arbitrage with White-Glove Curation
Upon starting at Wharton in September 2017, Boris formally established Cod3r Staffing as an S-Corp. He focused on revenue-generation by cold-calling potential clients and scouring t weets and job boards in the US, while his cousin worked on developing a comprehensive Rolodex of ~1,500 programmers within two degrees of separation.
“I’m in the fairly simple business of economic arbitrage. I help highly-talented programmers who would like to work in the US but are limited by sanctions and visa restrictions”
Boris and his cousin additionally developed a relatively unique paradigm in the context of the outsourcing/staffing world. Instead of project-managing remote programmers that simultaneously work on multiple projects for multiple firms based on hourly wages, Cod3r Staffing operates using a hybrid “outstaffing” model. Under this model, programmers are salaried full-time remote employees working with only one client at a given time and therefore, integrated within client’s internal communications and workstreams.
Cod3r Staffing’s programmers work for 40 hours/week from 9am-5pm ET under direct oversight from their clients, are fluent in English, and constitute ~1/3 the cost of US/UK programmers. This model enables 1) selection of higher-quality talent, as higher-quality programmers seek out full-time jobs, 2) more effective collaboration given common working hours, a common working language, and the lack of a project management middleman, and 3) synergies derived from company-specific knowledge across projects.
Cod3r Staffing earns its revenue by taking a monthly cut of companies’ payments to programmers, which typically are on the order of ~$5,000/month. Boris notes, “We could charge more, but we’re not greedy with our margins.”
Cod3r Staffing has been profit-positive since Day 1, with a total top-line revenue of ~$800K across five employees and nine clients. The business has grown largely organically through word-of-mouth and referrals, with some Facebook marketing.
When asked about determinants for his success, Boris referred to the combination of headwinds and tailwinds constituting “the perfect storm.” The combination of scarcity of programmers in the US and the rampant normalization of remote work culture has further increased companies’ willingness to hire remote programmers in different countries. Boris’ cousin’s emphasis on personally interviewing and selecting programmers for clients has additionally helped maintain a quality of talent, to the extent that existing clients have hired increasing numbers of remote programmers from Cod3r Staffing over the years.
Boris is optimistic about his ability to continue bootstrapping Cod3r Staffing’s growth. He has been wary of rushing into pursuing outside funding from venture capital firms, given Cod3r Staffing’s success to-date has hinged on personalized matching of programmers working US hours.
In the past year, Boris has added one new team-member in France to assist with sales development efforts. France’s restrictive labor laws and relatively expensive domestic contractor fees of 200-300 Euros per hour render it a promising outlet for Cod3r Staffing’s growth.
The Elephant in the Room
As Cod3r Staffing begins to scale, more complicated challenges stemming from politics, IP, and security may curb growth. Specifically, US-Russia relations remain tense, with many US companies cautious of Russia’s state-sponsored hackers who have thus far “meddled in elections, blacked out power grids, hacked the Olympics, and unleashed the most destructive worm in history”. While Cod3r Staffing has no relationship with the Russian government, some US companies remain wary of outsourcing to Russian programmers. This climate has escalated US companies’ concerns over stolen IP when outsourcing programming to Russia, despite Russia scoring median results on the US Chamber International IP index in 2017, and Russian programmers’ financial difficulties converting stolen US IP into viable domestic businesses.
Cod3r Staffing attempts to mitigate the risk of stolen IP in several ways. The relationship-heavy nature of the tech industry in Eastern Europe facilitates Cod3r Staffing’s ability to engage in robust background checks and vetting to gauge a candidate’s prior qualifications and references. This works both ways – similarly, if a Cod3r Staffing programmer were to steal IP from a client, Cod3r Staffing has significant influence in the programmer’s ability to find a new job. Cod3r Staffing’s identity as a US entity additionally enables clients with stolen IP to seek damages through a trusted legal process.
Cod3r Staffing is a compelling story of applying management strategies to capitalize on geographic connections and economic arbitrage potential, in order to provide a solution to the US programmer shortage. While there may be some intangible issues creating uncertainty, Cod3r Staffing is well-positioned to succeed. Cod3r Staffing has begun to demonstrate that a salaried outsourcing business model in programming produces better results to the previous hourly model. We must see if this trend continues and how other staffing companies correspondingly react. Cod3r Staffing’s current addressable US market is only tangibly curtailed by data privacy limitations – as Boris notes, “some industries are currently inherently untouchable by Cod3r Staffing given their US emphasis, such as financial services and healthcare.”