Here’s something you may not have known. All of the “big dog” companies out there outsource: Amazon, Google, Facebook, etc. They may not explicitly advertise that they outsource, but they do, and they use companies like Deloitte, Accenture, IBM and others to facilitate it.
Startups outsource too. You will commonly hear of startup companies looking towards other countries to help develop their product.
So the biggest of the companies and the smallest of the companies all look towards software outsourcing as a pathway towards tackling their product roadmap. Why? Well, before we dive into specific examples, we first need to understand what software outsourcing is and why so many companies simply get it wrong.
What is Software Outsourcing?
Software outsourcing is the practice of working with another company (not internal employees) to build your software. In today’s world, when people say “software outsourcing,” they commonly are referring to offshore outsourcing, or working with companies or individuals outside of the United States.
The main reason people look towards offshoring their software is due to the price advantage. Arbitraging the US dollar is a beautiful luxury we have here in the states. You can pay a senior-level developer in a foreign country a very handsome wage, according to their local economy, and that wage is significantly cheaper than if you were to hire the same talent and pay a relative-handsome wage to someone here in the states.
So, you’re trying to take jobs away from the States? No. That isn’t what software outsourcing is about, and that way of thinking is how companies tend to get it wrong, leading to the typical software outsourcing horror stories.
Software outsourcing is simply a tool.
Let’s imagine that software outsourcing is like a sword. You can use a sword to do a variety of activities. You theoretically could use a sword to spread butter on a piece of toast. Would it work? Yup. Is it worth the risk of one slip-up and you chop your finger off? Nope. So, put simply, if you look at software outsourcing as just replacing jobs, you’re not looking at it as a tool, but as a blanket solution…if this is you, make sure you don’t cut your finger off!
The Advantage of Software Outsourcing, with a Strategy
Software outsourcing is incredibly advantageous, if used properly. So, as a business, you should consider outsourcing your software, but you should consider it with a strategy in place to ensure that you are reaping in the fruits of software outsourcing to the fullest.
There are four main ways you can think of software outsourcing, four methods that we’ve found to be the most effective and advantageous approaches in leveraging software outsourcing as an efficient tool: MVPs, Teams, Staff Supplementation, Deep Expertise.
MVPs (minimum viable products) are the first stepping stone in any software journey. In order to efficiently launch a product, you need to start somewhere, and that tends to be your MVP.
The purpose of an MVP is to test hypotheses and validate your idea. It isn’t meant to be pretty. It isn’t meant to be complete. It is meant to have the core functionality of what you’re looking to build and provide users just enough so that they can give you feedback on what you’re putting together.
When building an MVP, you want to go about it as cost-effectively as possible because you inherently are going to have A TON of changes to make as you continue iterating your product.
So, if you want a cheap and quick product to get to market and start validating your solution, you can look to outsource the development. This will give you an incredibly cost-effective way to build what you need. In many cases, startups don’t have the capital to hire in-house developers and pay US based wages. So, rather than just have the company die, you strategically work with a team that requires lower wages to help you get your product off the ground. Once things start moving in the right direction, you can then look into bringing on in-house developers to start owning your product backlog.
- Cost efficient
- Quick turnaround
- Focused on the now, not the long-term roadmap
The second strategy and scenario as to why you should consider outsourcing is when you need to build a team, quickly. It is incredibly expensive to hire employees. According to the Society of Human Resource Management, it costs companies on average over $4K to just hire an employee. That is a chunk of change!
If you need to get a team in place, quickly, you can leverage outsourcing with an agency. Let’s say you need 2 front-end engineers, 2 back-end engineers, 1 developer operations engineer, 1 quality assurance engineer, and 1 project manager. That right there is 7 employees. So that means, the operational cost to just hire this whole team is almost $30K.
When you work with an agency overseas, you can leverage their existing team. You can break down exactly what they need and the agency will fill the positions according to your scope of work. This means that you can build teams, instantly! Plus, you don’t have to deal with on-boarding pain-points and miscommunications as your team will all be sitting within the same office.
- Operational efficiency
- Scale quickly
- Minimize hiring overhead
Staff supplementation is very similar to building a team. However, instead of looking to build the entire team, you’re looking to just supplement your in-house team with specific resources.
This is a very common method used by larger enterprise companies. Here is how they do it.
The company is going to analyze their scope of work. They are going to figure out what of their product backlog is complex and what is more straight-forward. In order to retain your in-house team, you want them to be working on the fun stuff, so you make sure that you keep your complex and vital scope of work close to home. Let your in-house team focus on the more proprietary nature of your product.
In order to not bother your in-house developers and let them stay focused on what they need to work on, you outsource the rest! This allows you to tackle some of those lower-hanging fruits in your product roadmap in a cost-efficient manner.
- Speed up development by efficiently “dividing and conquering” your product backlog
- Stronger in-house team retention by letting them focus on the interesting stuff
- Cost efficiency
The last way you can leverage outsourcing in an advantageous manner is to focus on deep expertise. Maybe your product is working within the intricacies of geo-location. Maybe your product is built on blockchain technology. Or maybe, you just need someone who has high-expertise in fin-tech security protocols.
The beauty of outsourcing is that you can search for this specific deep-expertise. Rather than finding developers who can code in a language and then interviewing them to assess their knowledge of your space, you can specifically source for an agency that has vast expertise with the technology or domain you are within. This allows you to leverage the compounded learnings of these developers and be more niche in your focus.
As a business, you should consider this path if you have a very technically specific scope of work and need a team who has experience with the technology or industry you are working within.
- Niche down in industry or technology expertise
- Leverage compounded learnings
- Reduce learning curve costs
So there you have it – businesses of all types leverage outsourcing. It offers incredible advantages that can help support your business. However, you must be sure that you are approaching this landscape properly. Remember, software outsourcing is a tool, not a blanket solution. Use it wrong, and you may face the consequence. Use it right, and it will be your business’ best friend.