The Business Case for Startups to Outsource Software Development

Skype, Klout, GitHub, Basecamp, MySQL are just a few examples of startups who successfully outsourced their software development and grew to become billion dollar organizations. Why did they follow this path, can your startup go the same way?

“Alone, we can do so little, together we can do so much” – Hellen Keller

With technological advancements and the rise of digitization, the world has become smaller and increasingly interconnected. Add new emerging markets and the rise of a skilled workforce and the case for companies looking to outsource software development becomes quite strong. There has been over a period of time a lot of discussion over whether a startup should outsource software development – some say that it is hard to find reliable vendors. Other say managing timelines and an offshore team poses as a challenge. Though these concerns are not unfounded it is also true that once you find the right outsourcing partner there are some clear benefits to be had.

Startups are always walking a tightrope. With limited resources, both financial and human, it does make sense to focus on the core business and outsource the rest. It is also a reality that the software product development environment is in a constant state of flux. The ‘it’ technology of yesterday could be no longer viable for the product that you are trying to create. Platform demands keep changing. Development methodologies evolve… Startups doing product development in-house may get dragged into the many operational aspects of the development and the other aspects of building the business such as identifying markets, business opportunities or revenue sources can get lost.

Let’s face it, the proof of the pudding for a startup will lie in the end product. And who makes a great product? A crack team of technical professionals. It’s by no means certain that a startup will be able to find, hire, and retain such top talent – the founders apart, of course.

So, the fundamental grounds for startups to outsource their software development is apparent. What are the actual benefits that they can reap from doing so though?

  1. Lower Development Costs:
    Hiring a team of experts can cost quite a pretty penny. Plus, the buck doesn’t stop with hiring an in-house team. You also have to spend some time investing in the right infrastructure, building processes and delivery methodologies and in training. By outsourcing, a startup can almost reduce its development cost by half since they do not need to incur any of these expenses.Even in the rank and file developers, cost advantages can accrue. Labour arbitrage has traditionally been one of the accepted advantages of outsourcing. Research from Aberdeen Group shows that outsourcing software development activities cost approximately “30- 65% less than in-house development initiatives.”While being face to face with your developers seems good, it is no longer a necessity. With mobile and internet technology evolving at the pace it is, doing business with anyone across the globe has become convenient. Having geographically distributed software teams is now par for the course anyway. Scrums, meetings to discuss product features, design, or other inquiries, can easily be done using collaboration tools or video conferencing.
  2. Access to Technology Experts:
    It is getting increasingly common to get horses for courses, the right expert for a specific task, during the development process. Perhaps among of the greatest advantages of outsourcing for a startup is the kind of access they can gain to an array of technology experts. Working with an established outsourcing organization gives you access to highly skilled technology experts whose contribution would help in developing a stronger, feature-rich and robust software product. These experts can also help in identifying ways to make the product better, and assess if the product can be developed in other cost effective ways. The advantage here is that the technology expert can be brought in for a specified period of time to perform a particular task without any long term commitment and the associated costs.
  3. Team Scaling:
    While the thought of an in-house development team sounds enticing, the reality is this restricting when startups need to ramp up teams or scale down because of the demands of the business. Hiring trained developers is not easy and is time-consuming and overstaffing is costly. Outsourcing gives startups the flexibility to add resources or reduce them according to the speed of development, project demands, and time-to-market amongst other considerations.
  4. Partner for Growth:
    There are many outsourcing companies that instead of a pure fee-based model, are willing opt for working on more innovative partnership models. Many are willing to offer their services for a stake in the company. The money saved can be used for other activities such as marketing and sales. This model works to the advantage of the startup as their outsourcing vendors become invested in the success of the company and partners in their progress. All the typical concerns that startups looking to outsource harbor, such as commitment, product quality, delivery timelines, communication etc. get resolved easily with this level of partnership.

All this, of course, presupposes that the outsourcing company will provide timely delivery of service, is resourceful in identifying new solutions and executing them expertly, and has deep technical implementation skills. Since no two development companies are the same, look for one who shares your vision and is willing to work with you as a partner. A great software product then becomes a natural consequence of this partnership.

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