Software outsourcing is a powerful strategy that can transform your business operations. I have successfully run a 50+ agency for the past decade and currently consult for over 40 businesses, guiding them in leveraging outsourcing to optimize various aspects of their operations.
Outsourcing development services is a prevalent topic, and this guide directly addresses the key concerns and misconceptions that business owners and executives must confront. Outsourcing is essential for businesses seeking efficiency and cost-effectiveness.
As a business owner, you understand that handling everything on your own is simply not feasible. You must concentrate on your strengths—whether that’s product development, marketing, or sales.
By outsourcing, you can delegate tasks that fall outside your expertise to professionals who can execute them more effectively and swiftly.
Furthermore, outsourcing provides you with the flexibility to scale operations as needed, without the complications of hiring or firing staff. This flexibility is particularly advantageous in industries with fluctuating demand.
While outsourcing clearly enhances efficiency and adaptability, it is crucial to thoughtfully evaluate the pros and cons before proceeding. Make informed decisions that will drive your business forward.
As your company grows, it gets more tempting to handle all operations internally.
But what if you need to…
- Build an entire call center, along with noise insulation, specific cubicles, supervisors, and processes for shadowing seniors?
- Build a warehouse with mechanical engineers and a myriad of cross-disciplinary experts to produce a few dozen physical items?
- Find, attract, recruit, and train a diverse team of engineers (in different niches), QA experts, project managers, senior architects, a CTO for managing your web application platform?
Scaling operations effectively, maintaining a healthy recruitment flow, onboarding processes for everyone, different shifts and more is a tedious effort. A wildly expensive one unless it truly is the core of your business.
The Most Common Reasons for Outsourcing
Outsourcing exists for a reason. I’ve outlined 8 core reasons why businesses outsource to third parties and when it makes sense to offload an entire vertical externally.
Check this out and let me know what outsourcing means to you.
- You don’t want to build an in-house team – Building an entire team not only requires a team of experts on key areas in the business but also senior managers who can oversee the work – both of which can be very challenging.
- You lack industry experts – It’s difficult to hire experts if you have no idea what you are looking for and if you are heading in the right direction with your recruitment process.
- This isn’t your core specialty – If you are not an expert on a specific aspect of your business and you don’t want to go through the hassle of building a team limited to the task, then it makes sense outsourcing.
- You want to leverage lots of industry expertise – It gets tricky to become an expert if you have a narrow view of what concerns a skill or a project. Leveraging the knowledge of industry experts via outsourcing is a highly efficient solution.
- If you’re looking for some competitive advantage – People looking for PR companies want to hire a small team, not a single person who can only do limited tasks. A team of experts is always better than a single person you are looking to hire if you don’t outsource.
- If you need reliable on-time support – It’s crucial to always have people around. There can be technical issues at any given time. If your office is limited to the regular shift hours, then imagine the losses you could incur.
- If you want a flexible volume of work – We, at DevriX, offer a variety of retainer plans that have flexible offers. Our clients can conveniently sign up for a specific plan any time they need another service.
- Finding and retaining top talent is really hard – Agencies, especially consulting agencies, bring top talent in house and see to it they provide mentoring all the time. It’s a competitive market and as a smaller agency, your only chance to get access to top talent is outsourcing to a bigger agency.
How We Started Outsourcing
Early on, it made practical sense from a business standpoint to outsource some of the services we need. Freelancers and smaller agencies were more flexible in the events of lower workload. You don’t pay a full salary all the time, holiday leaves, etc. You focus on results and outcomes.
Also, you don’t pay for office expenses, desks/chairs, laptops, etc. Plus, a larger office, electricity bills, insurance, or anything you can think of can be very challenging to handle internally.
Later on, we’ve brought most of the manpower internally (for our core business).
We still outsource activities that we don’t want to offer as integral services — like having an accounting and legal firms on retainers.
Cost efficiency is a slippery slope.
In terms of purely hourly rate… a full-time hire is 2-5 times cheaper. That is if you can… Find them, vet them, convince them to start, and train them. Combine them with the other couple of dozen great people in the department who have 200 years of industry experience combined. Then, there’s the office space and all of the other expenses (plus sick leaves, and paid leaves, and insurance, and 401K, and the list never ends).
So yes, if that’s your bread and butter, if that’s the nature of your business, building an in-house team or so makes sense. For all sorts of tangible activities, outsourcing simply makes a ton of sense.
The caveat in most long-term partnerships is analyzing and coordinating the ongoing strategy across multiple fronts in addition to tech. This includes user experience, inbound marketing, ad operations, monetization strategy, and a lot more. That’s where project management comes as a necessity whenever the work revolves around the rest of the business ecosystem (not purely implementational).
1. Access to Proprietary Statistical Data
Gain insights that drive decisions.
In many industries, accurate and up-to-date data is the foundation of strategic decision-making. However, gathering proprietary or hard-to-access data can be expensive and time-consuming for individual companies.
By outsourcing to an agency, businesses gain access to industry-specific statistical data that these agencies have already collected and analyzed.
For example, agencies working in software development often conduct market research, gather performance metrics, and track industry trends as part of their standard operations.
When you outsource to such agencies, you benefit from these insights without needing to invest in costly data collection yourself. This not only saves time but also enables more informed and accurate decision-making, giving your company a competitive edge.
2. Expertise Across Industries
Tap into unmatched experience.
Agencies are composed of professionals with diverse backgrounds who have worked on multiple projects for a variety of companies and industries. This exposure enables them to bring a broader perspective to your project, helping you avoid pitfalls, implement best practices, and adopt innovative solutions.
For instance, a software development agency that has partnered with companies in healthcare, retail, and fintech will have a nuanced understanding of challenges across different sectors. This wealth of experience allows them to offer tailored solutions and cutting-edge strategies that an in-house hire—limited to their own expertise—might not provide.
3. Access to a Pool of Talent
Expand your team without limits.
When you hire in-house, you are often constrained by your budget, location, and the skill set of a single individual. However, outsourcing opens the door to an entire team of experts, each specializing in different areas.
This means you’re not just hiring a developer or a designer—you’re gaining access to a network of specialists who can contribute to various aspects of your project.
For example, if your primary need is software development but you also require graphic design, user experience testing, and digital marketing, an agency can provide all these services under one roof.
The collaborative nature of an agency’s team ensures that you receive well-rounded support, ultimately leading to better outcomes for your business.
4. Enhanced Resource Management
Ensure uninterrupted workflows.
Employee absences, such as sick days or emergencies, can severely disrupt your operations. In an in-house setup, these gaps can lead to delays, backlogs, and inefficiencies. Outsourcing eliminates this problem by providing agencies that have built-in contingency plans.
When you outsource, you rely on a team that ensures continuous service delivery regardless of individual team members’ availability. Agencies typically have backup resources and scalable teams ready to step in when needed.
This reliability ensures that your project timelines remain unaffected and your business operations continue smoothly, even during unforeseen circumstances.
5. Industry Connections That Open Doors
Network and grow.
Agencies don’t operate in isolation—they are deeply embedded in their industries and often have extensive networks of partners, collaborators, and other service providers. By outsourcing, you tap into these connections and gain opportunities that would otherwise be difficult to access.
For instance, an agency might connect you with event organizers, conference panels, or specialized service providers that complement your business goals. These partnerships can lead to collaborative opportunities, help you stay informed about industry advancements, and enhance your company’s credibility and visibility in the market.
6. Opportunities Beyond the Initial Agreement
Get more for less.
Outsourcing agencies often offer a wide range of services beyond the specific task you initially hire them for. These additional services might include complementary offerings like marketing support, IT infrastructure optimization, or process automation—often bundled at discounted rates.
For example, while you might approach an agency for software development, they could also offer data analytics, quality assurance, or cybersecurity services.
These additional opportunities allow you to address multiple business needs simultaneously, often at a lower cost than hiring separate teams for each task.
Over time, this can lead to long-term savings and a more integrated approach to managing your business operations.
Scalability and Flexibility
As your project requirements evolve or your business experiences growth or contraction, outsourcing allows you to adjust quickly without the long-term commitments associated with hiring full-time staff.
This flexibility ensures that you can respond to market demands efficiently and cost-effectively. For instance, if you have a spike in demand or need to ramp up for a particular project, you can quickly tap into additional resources provided by the outsourcing agency.
Conversely, if your needs decrease, you can scale back without the complications of layoffs or redundant personnel.
Software Outsourcing
Now, when is the right time to go for software outsourcing?
- Your business requires a complex software (or a web solution that requires new features and maintenance continuously).
- You don’t want to build an entire technical department in-house.
We outsource a number of functions we don’t want to develop internally.
- Accounting is one of them. We’re not a bookkeeping firm but handling taxes is mandatory for every business in every developed country (with the exceptions of the tax heavens and other jurisdictions with a special status).
- The same goes for legal. Reviewing NDAs, modifying contracts, revising proposals, handling trademark matters — tons of legal work though we wouldn’t bother to start an entire law firm ourselves.
- Let alone cleaning services. Or delivering breakfast at the office.
Our cleaning lady is employed by a cleaning firm that handles scheduling, with a supervisor in charge of covering different shifts and making sure someone is around during sick leaves (or other internal matters). The company also ensures we’re equipped with all sanitizers and utilities, following the hygienic best practices, optimizing the cleaning workflow.
For breakfasts, we use two different catering companies and occasionally swap them. Additional variety plus a more affordable option than a chef and a large kitchen (and an authentic smell at the office all day long).
Software development is far more complicated. Back-end engineers work closely with front-end developers, sometimes paired with designers, occasionally alongside QA engineers. You need a certified product manager on-site, and probably a system administrator, another network engineer, maybe a DevOps expert.
Unless you really plan to build a team in-house (paying for all parties and roles, recruiting a solid CTO or a VP of Engineering, handling competition among the tech world, etc), then outsourcing simply makes sense.
Top outsourcing companies work with dozens of customers. Unless you are at the bottom end of their pricing tier, they will treat you right and are expected to skill up having loads of data from all of their sources. They handle layoffs, sick leaves, vacations, things you don’t need to care about. You pay for the final work done, not salaries for a bunch of people, at once.
What Avenues Work When Looking for a Software Firm?
The best bet is hitting your tech network or attending a large local technical conference and trying to find tech companies to offload work to during busy seasons.
The reason it may work is:
- Finding tech talent is hard.
- It takes a while interviewing people one by one.
- Assembling a complete team is beneficial for larger projects.
Some hesitations that most tech companies like yours have towards outsourcing are:
- Tech companies try to build in-house teams.
- The exception is smaller companies that can’t grow fast enough or attract talent, but it’s unlikely for them to land a large project for a few people and being willing to outsource it for a longer period.
- It’s generally thought as risky, the company won’t have a lot of involvement so they are worried of getting their clients stolen.
Most businesses looking for teams would browse established companies with reputable online presence, legit portfolio, significant contributions and the like.
If you are determined to work together, you’ll need to go through the basics first. You can possibly try with referrals, friends, freelance networks, other small chunks for starters until you establish some credibility with each other.
Of course, recommendations are one of the best ways to move forward. The in-house insights from someone working with a prospective vendor can reveal anything.
They can reveal anything, from the process through pricing to caveats and possible limitations when software outsourcing.
Start with your network first, ask around for recommendations, and then expand your circle until you find the right firm.
Is Cheap Outsourcing Still a Thing?
Full disclosure. It IS possible to find CHEAP development firms out there. But, it is extremely unlikely to pick the right timing without risking too much.
Here’s the thing with cheap outsourcing:
You’re looking for a needle in a haystack.
Why would you charge less in a globalized world when you can charge a competitive rate?
- You lack the skills to produce a quality product.
- Or, you lack the experience to foresee common problems in a high-scale product.
- You understand the theoretical case of building a decent architecture (but every piece of software is unique).
- You lack the manpower to execute every complex piece in-house.
Many business owners or managers in the US or Western Europe or Australia believe that outsourcing can be cheaper when they offload projects to freelancers or countries in less developed regions (financially speaking).
This may be true in some cases.
The cost of living does determine the minimum wage and the costs for talent that works locally and doesn’t actively produce revenue directly for customers.
This means that certain jobs such as office assistants or cleaning staff will be less expensive in an Asian or African agency which should reduce the costs of the firm a bit.
That said, outsourcing has been around for decades.
Inexpensive Software Development Work?
Corporations such as Google, Microsoft, SAP, VMware, Oracle, large aircraft or automotive companies, have been building local offices where talent is available, paying pretty decent salaries.
Costs have been going up quite a lot across the board. Talent is scarce even in countries with massive populations like China or India.
While you may be paying less, probably nearly half of what you would pay for a Bay Area company, you won’t get “inexpensive development work”.
Software development isn’t quite trivial as it touches on different areas of complexity:
- Performance
- Security
- Scaling
- Connecting multiple systems with the same core
- Billing
- Customer management
- Different payment plans
Yes, you can get an inexpensive 5-page business website for $500 in various places, or even host it on Wix or Squarespace. When it comes to professional software development, building scalable systems, managing transactions, PCI compliance and everything in-between, this requires experienced talent which is capable enough of building scalable systems.
These engineers aren’t stupid.
Remote jobs are not uncommon. Some may quit and start consulting jobs if salaries aren’t competitive.
Building professional teams also means that a company should be located in a metropolitan city. They are pretty expensive wherever you want to outsource (compared to small villages across the world).
Yes, paying a fortune doesn’t mean you’ll work with top talent either. But the odds are, finding a credible company anywhere that comes with the right track record and credentials will likely get the job done (which isn’t likely if you simply outsource to a low-cost development shop anywhere).
