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Is It Worth Outsourcing Your Software Development?

Outsourcing is no longer a trend but a popular cost-optimization strategy of hiring a third party who provides access to more technology, skills, and expertise and does it all quickly. Some time ago, companies tried to hire in-house first because they preferred to work with their teams face-to-face. They felt this business model was more secure. However, they often discovered that expected salaries were high, especially in the U.S., and it could take months to find and hire someone. Besides, this someone could not be exactly who they expected to hire, but the only one more or less fitting the position and available for the moment. And there are many other issues associated with in-house employees that have to be considered. So an increasing number of companies have started switching to outsourcing business models. This model allows scaling up and down resources easily based on their current needs and applies to all, from startups and small businesses to enterprise-grade and Fortune 500 companies. Covid-19 has only accelerated the tendency growth. In a landscape influenced by a global pandemic, when companies struggled to keep their teams running smoothly to ensure business process continuity, the demand for outsourcing has only increased. 

According to Deloitte's 2021 report, I.T. services are among the most commonly outsourced services. I.T. outsourcing spending is projected to reach $519 billion in 2023. Software development is one of the prime I.T. tasks which is outsourced. Companies like GitHub, MYSQL, Skype, and Slack all started with outsourcing during the earliest phase of the business, and now their growth story speaks volumes. I.T. outsourcing statistics for 2020-2021, published by Computer Economics, state that about 60% of companies now outsource at least some of their application development. So let's discuss further why outsourcing your software development team may be a better idea than assembling it somewhere on Upwork or Virtual Staff Finder. 

Startups and small businesses usually opt for outsourcing software development because those tasks require proficiency and skills they might not possess internally. Other main reasons are cost-effectiveness, time management, and enhanced quality.

Outsourcing provides access to skilled developers. Hiring developers for a particular project is extremely difficult, especially when we speak about an early-stage startup. Startup and small business owners often have no idea about the technology they should use and what developers they should look for. Startups rarely have in-house experts who can find and interview developers or other required team members.

Developers, in their turn, tend to сlimb their career ladders at established organizations that list a ton of perks to attract and maintain their employees within the organization. Really good developers simply don't want to work for a non-tech company. Startups and small businesses can hardly compete with Silicon Valley giants. Even if you manage to figure out what developers you need and what technology is applicable to your application and run into promising I.T. developers to join your team, they could be headhunted by the large organizations mentioned above at any stage of your software development. One day you will anyway face the choice of offering the same benefits or losing good developers that joined your team after much effort. And if it happens, you will be dragged into the second round of job ads and interviews,  team building, setting processes, etc. All this causes additional expenses and, more importantly, disrupts your time-to-market schedule for months. You won't have all these headaches if you choose to outsource. 

Also, with outsourcing, you're no longer constrained to the local pool of talent, which can be pretty limited. In some cases, an external vendor can be your only solution if you need someone with specific skills. Outsourcing not only brings you the best of talents but also assures you do not engage in a permanent hire. With the risks faced by an early-stage startup, it's reasonable to engage developers on a project basis. When you finish a project, you can switch to outsourcing maintenance.  

Outsourcing is cost-effective. According to a Deloitte survey published in 2020, the top reason to outsource software development is to save money. 70% of companies outsource because of this reason. This trend in the software development industry statistics persisted throughout 2021 and 2022, and it is reasonable to assume that and will prevail in the future.

First of all, outsourcing lowers the costs associated with hiring in-house staff. It will take 20+ hours from H.R., 40+ hours from technical experts, if you have them (heads of Back-end and Front-end, CTO), and very often even the CEO himself to select, test, and interview the candidates. Would you want them to spend time on interviews rather than on work on the project? Obviously not.

Secondly, the hourly rate of a full-time employee (with vacation, sick time, and other benefits) can be higher than the costs of an external service provider. If you need an employee for a specific project or only for a few hours a month, it is often cheaper to hire outside workers, even if their hourly rate is high compared to in-house workers. You also don't need to provide office space and all the overhead costs required for an in-house employee. Providing the latest technology to every employee, their professional growth, and gaining access to innovations, are also no longer your concern - an outsourcing firm will take care of it as part of its core business. 

And finally, to lower costs even further, companies use offshoring models of I.T. outsourcing. It means outsourcing not in your own country but moving business/services overseas to take additional advantage of a more favorable economic climate and/or labor costs. According to various sources, the top I.T. outsourcing countries are Ukraine in Eastern Europe, Poland in Central Europe, Argentina and Brazil in South America, and India in Asia. They are rapidly growing tech hubs with many experienced software engineers and I.T. specialists of various skills. Offshoring software development makes it affordable as never before. It has everything in place – people, processes, and equipment – to get the job done and allows you to get, for instance, an experienced senior from Europe instead of, say, a graduate from the U.S. for the same rate. 

When considering the offshoring type of I.T. outsourcing, such issues as language barrier, mentality issues, and timezone may cause your concern. If the maximum matching of working hours is critical, you can opt for nearshoring I.T. outsourcing. Nearshoring is similar to offshoring, but the business is transferred to another country nearby, often sharing a border with your own country. Nearshore outsourcing provides not only matches working hours but also presupposes that there are no significant cultural differences between your company and your outsourced software development team. Such an approach can help align with your business values and deliver the desired results more easily.

Whichever type of I.T. outsourcing you choose for assembling your ideal outsourced team, you should consider that your team members should have related experience and development competencies, English language proficiency, enough overlapping working hours, and come at reasonable prices.

Outsourcing improves time management. Time is the most critical factor when you've come up with the idea that you must get to the market before someone else does it. According to a Statista survey, the number of applications available in Google Play and App store as of the 2nd quarter of 2022 reaches 3,507,688 and 2,184,586 applications, correspondingly. An average of 1,152 new applications are released on the Apple App Store per day. While for Google Play, this figure is even higher - 1,931 new apps daily. Do you still have time not to hurry? 

If you are 100% sure that nobody will come up with your idea in the next three years, then alright, take your time and do everything by yourself. It's as efficient as going to the forest to cut some trees to make a house. But when time-to-market speed is critical, outsourcing is your only right choice. With outsourcing, you don't waste time (and consequently money) on recruitment - hiring and then firing employees, along with accompanying requirements, testing, training, accounting, payroll, tax reporting, etc. You also don't waste time on team building, choosing tools, and setting processes - you get a team ready to go from day one. With outsourcing, you can launch products as fast as possible. For instance, by engaging, say, six developers, you can build your MVP. Then you can maintain it as cheaply as possible with, for example, 1 or 2 developers for the next three months for bug fixes and minor improvements. And even at a later stage, when it's usually cheaper to have your own team, you can still benefit from outsourcing when you need some specific skills unavailable within your in-house team, or you need to add some functions/features very quickly.

Outsourcing enhances quality and productivity. Software development outsourcing used to have a somewhat negative connotation and dubious reputation due to such myths as difficulties in communication, cultural differences, time difference complexities, security flaws, etc. But, as mentioned above, you can mitigate such risks with the current outsourcing options. On the contrary, with outsourcing, quality and productivity only enhance. Companies that outsource I.T. processes lighten the workload on their employees and allow them to focus on their own areas of ​​expertise, thus improving their performance and productivity.

An external vendor is also typically able to provide a more consistent level of service than you would expect from internal employees. They have up-to-date systems and, follow fast-changing trends in technology, have particular domain/industry expertise, for instance, in FinTech, EdTEch, InsurTech, HealthTech, etc. Your outsourced team can have dedicated resources for testing and quality assurance to ensure that the final software product is stable for a better user experience. It may also have fresh ideas on making your software solution better, and they might even suggest new approaches to solve existing business problems.

While not essential to your business, many functions related to your business may nevertheless be critical to your success. For example, it can be essential that your customers can get technical support 24 hours a day. You can provide this service through an external provider that specializes in this. 

Now that you are already sure that software development outsourcing is the best idea for your business, choosing a company that will meet your needs and expectations is the most exciting part of your work. And it is not easy, as you can get frustrated with the choice of custom software development companies that will be happy to have you as their client. Among the variants, you will see large and long-established companies with outstanding portfolios. However, not all such big companies can work with startups. Some of them are too big, and working with a small company is not worth the effort, and some just don't understand how the startup world works. You will also see small young companies trying to attract clients with their discounted prices. Whichever you choose, there is always some risk involved, just like in any other business partnership. But if you are not going to fly blind and pick the very first company you see but make a conscious choice based on your set goals and business needs, you can surely find the right fit. Just be rational and don't trust easily.

Before starting a conversation with software development vendors, prepare a list of questions you may have. Among the tips to help you handle the challenge of selecting your outsourcing vendors are the following: 

1. Clearly express the task and your expectations. Document all your requirements regarding your project. Specify business objectives if you want MVP, application, CRM, etc.

2. Whether you want to supplement your existing software development team, or outsource the entire project, evaluate options based on expertise: technical experience, skills, the experience of developers, access to the latest technology, industry knowledge, etc. All you need to do is sort out the best professionals among those suggested to suit your software development requirements. Interview the candidates to make sure that you feel comfortable with them. 

3. Don't be tempted by unrealistic offers of quick deployment at a low cost. Make sure you communicate the financial details. Know your budget, but remember that going after the cheapest option will cost more than you think. 

4. Evaluate Time Zone options. If you want to keep in touch with your developers 24/7, narrow your choices to nearshoring countries. 

5. Check reputation by reviewing customer feedback, case studies, and previous collaborations.

6. Make sure the company guarantees data security according to all accepted international standards, and you get the software's copyright and receive the source code.

7. Choose a vendor who can implement agile methodologies in their work processes.

8. Clarify how you will be involved in the development process, including direct communication with developers, quality assurance checks, bug fixes, software updates, and overall maintenance.

9. Be cautious of vendors with surprisingly low prices, no referrals or case studies, slow response times, and poor English communication. It is also alarming if the company's website doesn't reflect the level of work promised and the company is not listed on review sites such as Cluth or rankings like "Top 100 outsourcing software development companies".

If you have any product development ideas, feel free to contact Scrumlanch to discuss the questions mentioned above in detail.

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Maryna Kharchenko

02/10/2023

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