In times of economic uncertainty and consistent innovation, software product development outsourcing is a route many startups follow. By researching and finding a partner that fits their needs, these companies are able to build better products, at a lower cost, and in a shorter amount of time.

This article will help you understand why companies outsource their software development, the pros and cons of doing so, and the process you need to follow to find the right partner.

A quick definition of outsourcing

Outsourcing stands for the process of handing over tasks that could have been done internally, to an external agency or freelancer.

Software product development outsourcing derives from the prior. In short, it refers to the transfer of tasks related to the development of a software product. By doing so, companies can focus on their core business and save money.

Reasons to consider software product development outsourcing

1. Limited time - Building digital products in-house can be a long and complex process. This is especially true when developers are working on several tasks simultaneously. On the other hand, software development agencies can deploy several (exclusive) developers to work on your project and deliver results by a set deadline.
2. Lack of skill & expertise - The internal team may not be experienced or versatile enough to handle a particular challenge. Until you build a capable team, outsourcing is the most reliable way to build your product. Through the experience, you will also understand what skills and characteristics your in-house developers should have.
3. Budget restrictions - In most cases, the value for money ratio is going to be better when outsourcing your tasks. We will further analyze this point in the following chapter.

Software development pricing

The web is full of content that compares the hourly rate and points out the best countries to outsource software development. This is not the best way to understand the pricing structure, as the information is limited and often selective, depending on the author of the content.

The cost of developing a digital product depends on multiple factors:

• Skillset and experience of the developers
• The load and complexity of work
• Geographical territory
• Experience with the industry
• Hourly rate vs fixed price
• Nearshore vs offshore outsourcing*

Overall, when it comes to pricing, software development agencies only charge you for the time they spent on your project. You don't need to worry about costs associated with in-house employees. These include insurance costs, holiday money, heavy taxation, and even a budget for employee satisfaction. Based on this, it is safe to say that outsourcing offers a better value for money as compared to an in-house team.

*Nearshore vs offshore app development

Following the points mentioned above, it is important to briefly explain the two types of outsourcing.

Nearshore software product development

This outsourcing option entails that startups choose to work with a team that is in a similar timezone and/or geographic location.

• Best for: Companies that prioritize communication and value a cultural fit, while having the possibility to meet the team in person.

Offshore software product development

When outsourcing overseas, communication is still important, but not the main priority. This option is all about finding the best value for money.

• Best for: Companies with a lower budget and a willingness to adjust their communication methods. Also optimal when looking to do simple jobs that do not require a detailed explanation.

There are even more models of software product development outsourcing.These go in further detail when it comes to the geographic location of the outsourcing partner. Check the following video to get a better idea:

Advantages of outsourcing software development

• Faster results - When outsourcing, you can build and test your product quicker. This results in swift adjustments to your offer according to the feedback of your target audience.
• Broad skillset - Agencies provide more value in the form of experience and skills. A dedicated team that handles your project will always be more powerful than a single, in-house developer.
• Adjustable according to your needs - Agencies can scale their efforts according to the needs of your project. If there is more work to be done, they can allocate more developers.
• Better product - When it comes to the quality of your product, outsourced teams usually outperform in-house employees.
• Lower cost - Outsourcing is often cheaper than hiring in-house and offers more flexibility according to the phase of development.
• Know what to look for in future candidates - When working with an MVP development company, you will learn more about their methodologies, time planning, and skillset. This information will improve the effectiveness of your hiring strategy.
• Focusing on more important tasks - For early-stage companies, every task is a priority. Sales calls, fundraising, and networking may not be directly linked to your product, but are very important for the survival and eventual success of your company. As such, outsourcing may help you "free up" time to focus on what matters most.

Challenges of outsourcing software development

Following the benefits of outsourcing, it is also important to keep in mind the risks and challenges that come with this decision.

• Not understanding the goals - Most agencies offer introduction and discovery meetings, but not all are able to understand the needs of your company. This is especially true when working with offshore developers.
• Communication issues - When language or culture barriers come in play, product quality and deliverability may be affected negatively.
• Good salesman, bad agency - Agencies with a strong sales pitch and good-looking case studies may seem more experienced than they are. In some cases, this can cost you a lot of money and wasted time.
• Protecting intellectual property - When choosing a partner to work with, you might need to share private information about your company. The legal framework differs depending on the country you operate in, making in-depth research essential.

In the following chapter, we will explain what steps you need to take in order to tackle these challenges effectively through strategically learning about and understanding the methodologies of your potential partners.

Finding the right partner - A step-by-step process

The following steps provide a structured approach for the steps you need to follow when looking for software product development outsourcing partners.

Step #1 - Create a list of the tasks you need to outsource

Before you start looking for agencies, you need to know what you want to achieve. By creating a list of tasks or at least a specific business goal, you will be able to:

• Understand what kind of expertise you are looking for
• Have a productive introduction meeting with the candidates
• Help the agency understand how to deliver effectively

Step #2 - Compile a list of agencies

Now that you have a general idea of what needs to be done, it is time to find the best companies for outsourcing software product development. Ideally, you'd want to get as many recommendations as possible from founders that chose this path as well.

There are three ways of doing this:

• You can take the cold outreach approach - Ask founders in your industry, or with a relevant product if they've had a positive outsourcing experience. If so, which agency would they recommend?
• You can find popular software development agencies on Google, then head over to their list of previous clients, and try to reach out for more information.
• Check popular, third-party reviewing platforms that are hard to influence through financial compensation. For example, when looking through candidates on Upwork, you can check their Work History on the bottom of the page.

Once you have a list of potential candidates, place them in an Excel sheet and list all the important information that you need to remember. Here is an example of the structure you should follow:

Note: You can save a copy of the template above by clicking here.

Step #3 - Evaluate your candidates

At this point, you want to reach out to the agencies and arrange an introduction meeting.

• If your list is somewhat small, you can reach out manually and schedule a meeting using Google Calendar.
• If the list is bigger, you can create an email template to send it to all the contacts through GMass. When choosing this option, it is easier to allow agencies to choose a date and time option that suits both. This process can be fully automated with a free scheduling tool like youcanbook.me.

Before the introduction meeting, create a list of questions that will help you understand how experience, punctuality, and motivation of the agency in question. Here are a few questions to consider:

• Has this agency worked with companies in your location and industry?
• Is this agency specialized in a particular field or programming language?
• Does the agency have a blog or a dedicated page with case studies that your team can look into if needed?
• Do the agency and its staff operate in a timezone that makes frequent communication easy?
• Is the agency a good cultural fit? If not, are they willing to understand and adapt to your needs?
• Is the agency willing to appoint exclusive developers and guarantee that deadlines are met?
• What kind of experts does the agency consist of? Is it only technical staff or are there also project managers, designers, and other roles that are important for your project?

Aside from the above, you should create questions about factors that you consider important for your particular project.

Step #4 - Decide on your partner

After having an introductory meeting with all the agencies on your list, host the second round of interviews with your favorite candidates. In this round, ask them to prepare a proposal with the exact plan of action. Once all agencies deliver and/or present their proposals, place them in your sheet and conduct a final review.

Note: The downloadable template has an additional tab for the second round of interviews.

After carefully considering all your options, it's time to make the final decision. This may be one of the most challenging aspects of the process, as you might have multiple suitable candidates, each one with their own unique strong points.

Step #5 - Sign the contract

After the selection is made, the two parties will draft a contract. If you are outsourcing overseas, make sure that the document takes into consideration all legal aspects that may influence the working relationship. This will naturally require some additional research, but it is well worth the effort.

As mentioned previously, it is best to start your collaboration with a probation period to get a first-hand impression on their methodologies and work performance.

• If the agency delivers upon its promises, you can keep working together.
• If not, you should be able to cancel the agreement and find a more suitable partner.

Step #6 - Get everyone on board

This is an often overlooked yet extremely important step. When the selection is made and the contract is drafted, ensure that all relevant parties are able to communicate efficiently. This can be done in multiple ways:

• Organize weekly, virtual meetings involving all relevant employees of both your company and the agency.
• Utilize business communication platforms like Slack to create subgroups and improve the flow of communication for each aspect of the project.
• If possible, consider meeting the team in person to establish a more personal relationship. For nearshore outsourcing options this can even be done on a monthly or quarterly basis.

Ready to outsource software product development?

If you rather skip the painful and time-consuming process of filtering through multiple software development agencies, we are here to help.

Coara is much more than a software development agency. Our team consists of experienced founders who have a track record of building digital products for themselves and their reputable clients, including Volkswagen, InterSport, Condor, and more.

Apart from building digital products, we complement startup teams by sharing our experiences and providing valuable resources. Having gone hrough multiple successes and failures, our team knows exactly what it takes to build and grow a successful business, and we are ready to help you as well. If you are ready to materialize your idea, contact us, and see what we can do for you.

Frequently Asked Questions

What are examples of outsourcing?

Software product outsourcing is not the only form of outsourcing. You can hand over a wide array of tasks to external partners:

• Human resources management - Handling everything related to the staff’s well-being and hiring process.
• Content creation services - Finding authors that can regularly contribute to the company’s blog or creating the content of the website.
• Organic and paid marketing management - Marketing services are rather tricky as results may take a long time to show. To avoid any risk during this early stage, you might want to ask us about our growth hacking specialists.
• Customer support - In-house customer support is usually expensive, especially if your product is new in the market and available in countries where English is not the main language.
• Design - Creating beautiful illustrations and everything related to graphic design can easily be outsourced through websites like Fiverr or Upwork. This can go further into more specific design tasks that relate to UI.
• Legal documentation - Whether you need to draft up your latest GDPR compliance document or review your terms of agreement with a qualified partner, you may need to outsource part of your work to people that can handle it best.
• And more...

What is the difference between software outsourcing and IT outsourcing services?

Software development and IT have a few similarity but are inherently different practises.

• Software development deals with designing, developing, and building software.
• IT (Information tech) professionals use software to deal with security, storage and data handling of a server. IT outsourcing models (or outsourcing contract types) are similar to software development when it comes to their duration and specifications.

Overal, IT outsourcing options usually become more important at a later point in time, when your company is more established in the market.

What are the reasons for outsourcing when you already have a qualified team to handle tasks?

Companies choose to outsource tasks to a digital product agency for many different reasons, some of which are not directly related to the options we discussed previously. Adding to the information found above, a team may choose outsource part of their tasks in order to:

• Observe the requirements for a specific task and the experience that accompanies it. Then, based on that information they can choose a qualified candidate for their in-house team.
• Help their in-house team become more familiar with practises they have a hard time understanding. In other words, it is valuable, long-term training.
• The in-house team may cost more $$ per hour compared to the outsourcing partner. In this case, it is more cost effective to outsource a number of given tasks and focus the attention of the in-house staff on more complex work.
• A startup company may choose to test software product development outsourcing models to see if their staff functions better and is not feeling a mental burden that could affect their work in a negative way.