The Internet can separate time and distance from expertise, allowing start-ups to obtain talent at a great price regardless of location. At the SXSW conference, I sat down with Fabio Rosati, President and CEO of for a discussion about the ways start-ups and small businesses can use a virtual work force.

Elance acts as a marketplace, where employers can list jobs, and providers can bid for them. There are roughly 105,000 active providers at any time, and 80% of employers are in the small business category. (Some weekly quarterly statistics on the kinds of jobs being bid on are available on their Online Talent Report. )

The issue that often comes up when hiring online is trust. How does an employer know that the person they're hiring is going to come through on the job? Rosati said 'Universal principals of hiring good talent remain unchanged. You still have to evaluate proposals, evaluate profiles, interview candidates, and work on a trial basis. Just because you can hire with a few clicks, you can't skip the standard steps of getting a good match.'

Elance user Chris Sanders, the Director of the Rural Technology Fund, agreed with Rosati's assessment. In creating his 'startup non-profit' he sourced talent for an assistant, a non-profit lawyer and accountant. 'For grant writers, since I'm using them on an assignment basis, I often give them small items to write up, as a test for their skill level and trustworthiness. I've had good luck with it – it helps weed out people.'
Rosati noted 'We enable hourly work and fixed price work.  The fixed price work can be based on milestones funding is kept in escrow. Employers can review work before you release payment.'

For hourly work a small software application lets providers pick the job they're working on and have Elance track the work. A brand new, just-announced feature is that the provider can also allow their screen to be captured randomly during the time working, helping prove to the employer that the work being billed is actually being done at that time. Employers get a film-strip-like view of the work, helping build trust and provide awareness of what's being created at any time. 'As a freelancer, you pick job, it tracks your time, and at end of week, it collects the time and presents time sheets to clients,' said Rosati. 'The client has 5 days to review or dispute time. For the 20% of hourly projects delivered on the site, if providers load their screen captures, and an employer fails to pay for that hourly work, Elance will guarantee the payment for that reported time.' What kind of work can be outsourced like this? 'Based on the data from over 100,000 businesses using Elance, our primary users find online talent from IT and marketing areas, as well as creative talent.'

Julie Babikan, a multimedia designer and illustrator who owns Modern Renaissance Design became an Elance provider after being downsized in December 2008. By April 2009, she had turned to the online service for temporary work. Her background as a designer in a training department helped her find initial work with a Harvard professor creating a presentation. She's since gone to getting several jobs per week via Elance. 'I've ended up with repeat work, then getting referrals, and being referred again to the 4th level of connection.' Julie's reputation has helped her be a top provider. 'When I first started, there were 10 jobs for bid, but the economy is picking up and now there are 20 or 30 at a time.'

Sanders' imperative was to 'keep costs down, so money could fund the scholarships. I have great people working for me, from California, Florida and Hawaii to India and Australia. I've used the feedback and recommendations from previous jobs as well as the description of past jobs to help me find the right providers.'

Babikan says she has a 40% acceptance rate for her bids. Since the system is world-wide, there are people who can under-bid her, but her reviews tell people she brings jobs in on time and on estimate. Elance takes an average of 8% of the job the provider bids (but employers see it all as one total price.) Julie says 'I add the fee into my estimate, as long as it doesn't raise the price too much. But I'm not doing other advertising, so I'm saving costs there.'

Elance grew 42% last year, and providers earned $75MM via the site in 2009. There are over 30K new jobs every month.

Have you had experience working for, or obtaining services from an online marketplace like Elance? Share your experiences with other startups in the comments.