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In-house Development vs Outsourcing: That’s the Question

When you have a startup idea and a clear vision of your product, it’s tempting to start pulling together a dedicated team of designers, developers and QA engineers. First of all, ask yourself: is it worth it at the early stage? In this article we help you gain insight on the in-house development vs outsourcing debate. Also, we outline the cases when in-house development would do well and when you can’t make it without development outsourcing.

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in house development vs outsourcing
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The term in-house development is more or less clear, whereas software outsourcing is often confused with outstaffing. But these are two different things. To avoid misunderstandings and align our visions, let us clarify what’s what.

Outsourcing and outstaffing: let’s nail down the terms

Outsourcing is when a client company hands over tasks or functions to a vendor. This is exactly how Purrweb works. For example, a startupper turns to us with $50K and an idea to create a matching platform for musicians so that a guitarist could find a drummer and put a group together. We draw up a quote, approve it with the client and develop a turn-key app.

Outstaffing — when a client company gains access to seasoned professionals of a contracted software development company. We don’t follow this particular approach. But if we did, it would look like that.

The same startupper reaches out to us but they already have a team and they’ve been developing this platform for the last 3 months. However, right before the release their frontend developer got tired of a nine-to-five job and left. You won’t find a frontend developer right away on your own, but outstaffing may help. Purrweb provides a middle-level React Native developer and assigns them to the client’s team. 

Outsourcing versus outstaffing

Outstaffing fills your in-house gaps, whereas outsourcing means delegating your software development project

Now that we are clear on the terms, it’s time to move over to the in-house development vs. outsourcing debate. Let’s start with breaking down the essence of outsourced software development.

Outsourced software development: overview

Digital product ideas often come from those who don’t have a background in development. For such entrepreneurs, outsourced development is a golden ticket to a professional rollout. You just have to be mindful to protect the product as your intellectual property

External teams have streamlined development processes and by virtue of expertise they run hassle-free. This also comes in handy if you’re about to validate some hypotheses to see if they are a hit in the market or not. This approach is called a minimum viable product release

Outsourced software development companies perform the full cycle of product building from initial product discovery up to release and further maintenance if needed. They are already fully organized with all the staff you need to release your first application or website including:  

  • project managers,
  • UI/UX designers,
  • frontend- and backend-developers,
  • QA engineers.

Let’s see what makes startuppers lean toward outsourcing software development over in-house development.

Pros of outsourced software development

First the perks. There are four main grounds for outsourcing software development.

2x lower costs

The hourly rates of developers from the USA and Eastern Europe differ by 2,5 times. The average hourly rate of a senior developer in the USA is $78-125, in Eastern Europe — $30-59

See also  We can help struggling companies to pivot: rebooting a British startup. Purrweb’s case

Let’s take an example like WhatsApp. The story of software outsourcing in this company started in 2009. Back then the messenger market was empty, though the first versions of Blackberry and Facebook messengers had already hit the market.

WhatsApp now and then

Owing to outsourcing, the first WhatsApp versions met the market demands though the app didn’t stop there

One had to act quickly to take up a position. The founders had a choice: in-house development vs outsourcing. There was no time for putting an in-house team together. That’s why WhatsApp submitted iOS mobile development outsourcing to a group of developers from Russia. It helped them to save on fixed costs without sacrificing quality and speed.

No shortage of resource capacity

Development outsourcing is a more flexible approach in terms of the team’s line-up. For example, a team lead, a QA engineer, and a backend and frontend developer are usually working on the project for 3 months. But there is no use for such a big team after release: 20 hours a week of front- and backend along with 5 hours of QA will do well. Development outsourcing makes this framework possible. If you have an in-house team, you will need to find side tasks or pay for partial workload.

Here is another case: tight deadlines are in play and you need to develop a product within 2 months. We had a similar situation on our project Headcount: a B2B service for transferring money to contractors around the world.

in house development vs outsourcing

Meet Headcount, a vivid case of rapid MVP development

Generally, we assign 3 developers to make it in 3 months but the client needed to have an MVP in 2 months. That’s why we added 2 more developers and made it on time. 

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You get access to an international pool of talent

For example, it’s harder to find a developer in a small city than in the capital. But relocating a team of 20 just to fill a couple of vacancies is illogical. Development outsourcing allows you to look beyond your local labor market.

Alibaba started using development outsourcing as early as in 1999. At that time, in China, there were no specialists at the required level to fuel the rapid growth of the platform.

Alibaba interface in 2000

Proof from 2000 illustrating that Alibaba has greatly evolved since the release

On top of that, the founder used external expertise and focused on the core competence of Alibaba — eCommerce. As history shows, the strategy turned out to be successful: Alibaba’s value recently reached $570B.

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Possible to delegate particular processes

You don’t necessarily need to use full-scale development outsourcing. Simply delegate part of software development tasks, say team leading or project management. It worked like that on our project, Mamado — a service for parents which need children’s products and services.

The client came to us with a ready-made code. The team had been coding an app for one year but couldn’t make it run though. We needed to help the team tweak the app to release it.

Along the way we aligned the management: established Scrum, sprints, and daily stand-ups. As a result, we released the app on time, the client’s team now understands how to manage the project to meet a schedule.

Mamado app

This is what Mamado looked like when we released it

Cons of outsourced software development 

Even the sun has dark spots. We want you to be prepared for the ins and outs of outsourcing software development in order to make the best of working with a software development partner

Low cost ≠ high quality

Miracles don’t happen: when you choose a software outsourcing company for $20/hour, it’s naive to expect a result worth $50. You have to pay for a fine product.

If you don’t want to get buggy code, you’d rather address middle or a bit higher-priced software outsourcing companies. Recently, we compiled a checklist that can help you choose a decent contractor for development outsourcing. Check it out ⬇️

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Not the best stack, but an available one

A software outsourcing company may offer not the best tools but the ones they have experience working with. It’s crucial for a software outsourcing agency to be able to say objectively if they can help out or not.

For instance, our core competencies are React, React Native, and Electron. When we start making a quote for development outsourcing, we’re looking for ways to use our stack. If a client’s app will be functionally limited on our stack, we clarify it right off the bat and find balanced trade-offs.

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A contractor doesn’t understand the difficulty of the task

Young web studios lack experience and they strive to close the deal quickly with the mentality of: “sell now and figure out how to do it later”. It’s an ineffective framework because it’s hard to predict the timeframes and shape the client’s expectations.

For difficult projects where we lack initial data and the app business requirements are vague, we suggest analytics and prototyping services. This way the client sees how the app will work and whether this is exactly what they need. From our side, we can give a precise quote for development outsourcing.

When will development outsourcing do well

Based on all the factors listed above you can judge whether an outsourced team fits your case or not. But just as a safeguard, we’ll share some scenarios of when handing in the development process over to a vendor seems the most reasonable option. 

At the start

The most fragile moment of a startup’s life cycle is the beginning. Business angels aren’t lined up in a queue ready to invest their $100K and there is no lucrative product yet. That’s why it’s not smart to take up the salaries, rent expenses, and taxes.

To make the most of the limited budget you can go for outsourcing development of a minimum viable product. Just like our clients did with Kem, a mobile payment platform in Kuwait. Its owners contacted us to make a basic application that could attract investors and let them see that the idea was worth supporting.

Kem interface

MVP version of Kem fully conveyed the hypothesis our entrepreneurs wanted to demonstrate to investors

To enhance the product, potential our software developers used mock data. This gave a clue to the banks of how the application would perform in the user’s hands. 

Development outsourcing is more predictable and foreseeable. If you use development outsourcing services, you’ll have a detailed quote with timeframes and a plan.

For one-time or non-core task

When you need to make a website or a CMS with a clear functionality, it’s easier to leave it to development outsourcing. It’s a product that doesn’t need many enhancements. You don’t need to assemble an in-house team or have a support team.

FC “Spartak” works like that. They have their IT department working on the ticket system and the stadium infrastructure. The app and website development is contracted out to a software outsourcing company. 

Spartak website and application

For “Spartak” website and application serve as a supporting tool to boost fans’ engagement

To shut the resource gap

When you already have a team but lack management processes or particular expertise, you can contract out some processes to a development outsourcing team — the Mamado case. Or say, you have HTML/CSS developers but need to develop a mobile app, then development outsourcing is an option. 

See also  5 reasons for outsourcing the MVP development for startup

How to set up cooperation with an outsourced team

In nine out of ten cases, startuppers just skim through resources like Clutch to select a contracted software development team. You just study client reviews, portfolio, and experience in your niche.

Purrweb’s account on Clutch

We highly recommend Clutch as an objective picture of a vendor’s performance

But as soon as you have picked, there arises another predicament. You will want to ensure a predictable development process, transparent communication, and proper quality control

Here is a small checklist of the things you can do to leverage the partnership with a development team: 

  • Specify your business objectives and why you want to achieve them. 
  • Share everything you know about your customers and competitors. 
  • Provide references with desirable and undesirable interface elements. 
  • Arrange an initial meeting to get acquainted with the team and set communication rules
  • Agree on how often you will hold check-ins. 
  • Stay involved on each development stage to ensure quality control.
  • Set achievable deadlines. 
  • Contact your project manager or arrange a meeting in case of any issues to support productive communication 
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In house development: overview

With in-house development, it’s fairly simple. This is a classical way of hiring your own development team. This means undergoing the full process from searching through CVs to onboarding and mentoring. 

In-house software development serves better for those familiar with the market and capable of arranging design and development processes. The in-house model requires self-management and coordination. Apart from stressing out about the product release, an entrepreneur will have to resolve administrative issues. 

The filling of an in-house development team is the same as outsourcing. But remember that outsourced teams always have internal leads who are there to check the quality of code or design mockups. So, for in-house development, you may have to hire the same experts as well. 

In some cases, you just can’t do without the involvement of skilled tech and design leads. Say, when your development project has IoT integrations like in our case with Shockers application. Our client asked for a desktop app that could analyze data collected by the stun guns.

Shockers interface

Our app gets the data about the shots made by the gun and visualizes it

This was a challenge, but thanks to 9 years of expertise we managed to achieve a successful roll-out. 

In-house development also requires a working environment for the team including office appliances like laptops, desks, and chairs as well as some virtual workspace. The latter mostly revolves around task trackers, servers, coding environments, and images or icons for design.

Pros of in-house software development  

Let’s dive deeper into the pros and cons of in-house development.

Internal expertise

During the outsource software development the team goes through the hardest part of the cycle. It works like a flywheel. At first, you need more input of energy to kickstart the flywheel but when things finally get moving, the flywheel gains momentum and fuels the growth. For 3 months, the teammates adapt to each other and to the product. When the product is running, the team is already in the loop and needs way less time for adjustments.

Quick bug fixing after release

One month after release when 1000 users enter the platform, some bugs may pop up. A development outsourcing team at that moment will already be busy with another project. Even taking into account their flexibility, it isn’t possible to onboard the new team faster than in 2-3 days. The website will be frozen during this time. When you have an in-house team after the release, it’s easier to run back to them saying: “The website went down” and they will start fixing it right away.

Team’s involvement

For a development outsourcing team, your startup is just one more project in Jira that they need to bring to release. As a rule, software outsourcing agencies follow the pre-agreed plan and there is little place for initiative. 

Transparent communication

Offline communication with people who speak your language is simple and clear. If you need, you can walk up to a colleague and discuss work-related issues immediately. There is no need to waste time on matching the schedules.    

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Cons of in-house software development  

Compared to outsourced development the in-house model has more flaws. Though here we’re considering the matter from a startupper’s perspective.

The flywheel acceleration takes time

With the in-house team, the time of product development extends. To assemble a team of 5-7 developers you need additional 2-3 months. During the “acceleration,” you have to pay salaries. And it’s a coin toss whether it’ll all work out or not. Many stars should align: developers’ experience, skillful project management, and team communication and understanding.

Hidden costs

An in-house team requires you to pay not only the salaries, but also perks such as sick pay, vacations, social insurance, pension contributions, and taxes. Besides, the in-house team search will usually take around 1,5 months at best.

How long it takes to employ a developer

For example, in the USA it takes on average 43 days to employ a developer

For example, in the USA it takes on average 43 days to employ a developer. What’s more, it isn’t always possible to find a specialist by yourself. Sometimes you simply can’t do without a recruiting agency. On top of that, you need to provide every employee with a laptop, a screen, a table, and an office chair. Don’t forget about the office space.

Distractions in a face-to-face setting

Offline communication is more smooth and accessible but it can come at the cost of productivity. In the office, there’s always room for chit-chat around the coffee machine. There are more distractions in terms of the colleagues running around the office. Besides, it’s you who is responsible for the result, not the development outsourcing team. 

Responsibility for the team

The key risk at the beginning of the project lies in the product itself. Does the world need a social network for painters? Or a new taxi orders aggregator? You never know, until you try it out.

In the case of software outsourcing, if nobody needs the product, the team will just switch over to another project. Assembling your team you partially take responsibility for the professional future of your employees. So, if the project doesn’t play out, it’s not only you who suffer but the team that loses their jobs as well.

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When is it better to develop a product in-house?

Post-release stage

After you launch a product, it soon becomes clear whether somebody needs it or not. Judging by our experience, startuppers use software outsourcing for MVP development and meanwhile, search for a CTO that would take the project over after release.

While the project is supported by the CTO, the startupper assembles a team that then undertakes it. This scenario is less stressful for the startupper and saves time: the process of searching for an in-house team goes hand in hand with development outsourcing.  

Long-term project 

If you plan to contract out a project with a yearly budget over $110K, you should consider hiring an in house development team. In the long term, the rental costs, salaries, and taxes will pay out with such a budget. In case you plan to spend less, you’d do better to use development outsourcing. In-house development is a viable option for software acquisition for small non-technology companies.

You already have IT infrastructure

Say, you own an IT product company and decided to branch out your product and create a new one. In such a case, it makes more sense to put a new team together than hire a development outsourcing agency. All you need is to hire the developers and scale established management and development processes to a new project.

So, as the bottom line

To make the final choice in the in house development vs outsourcing battle, you need to answer 5 questions: 

  • Is it a one-off task or a long-term scalable project?
  • Do you plan to develop a product that will bring you money directly or do you just need a website or an app to make internal processes work?
  • Is the speed of time to market critical for you?
  • Do you have many qualified developers in your city?
  • Is your yearly project budget higher than $110K?

Having the answers to the questions in one hand and our article in another, you can make a well-informed choice. If you’ve decided to use software outsourcing, we are always here to help you out with development outsourcing.

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