Overview

Most successful startup unicorns started out with just an idea. But is a breakthrough idea enough to be one of the success stories? 

No. The execution of product development matters even more. 

Executing the idea into a real product is as crucial. If not materialized, the product idea will hold no value. And this is where the main struggle starts. 

Not every startup has the technical expertise, tech skills, IT and physical infrastructure, and most importantly the team to turn the idea into a real, functioning product. It’s challenging to find the required talent, considering the limited budget, time constraints, and geographical limitations. 

So, like any other firm, any new startup also finds itself standing at crossroads, with a choice to make between the two paths that lie ahead - 

  • Expand the infrastructure, hire employees, and build an in-house product team to get started with the product

  • Search an outsourcing company and outsource product development to them. 

Top Product Development Trends In 2021_Remote Product Development1

Outsourcing versus in-house development, that’s the real dilemma for any startup with an idea and looking to launch its new product. 

So, how do you make the decision between in-house and software development outsourcing? Let’s find out in this guide below. 

Understanding Development

Before indulging in the battle of in-house versus outsourcing product development, it is imperative to understand the full startup product development process. 

Understanding the process of product development for a startup will enable entrepreneurs to find the direction they want to pursue with their product. It would help them analyze the different aspects of their product and the steps involved in building them. This can be the foundation with which they can compare their available resources and make a sound decision.

Now, startup product development is also not a single process. There are three different approaches to startup product development. Let’s understand those first. 

Product Development PRocesses

The Lean Startup Product Development Process

Conceptualized by Eric Ries in 2008, the lean startup product development process is more about continuous innovation. It follows the Build-Measure-Learn approach. It helps build a prototype or final product through an iterative process. It involves the following steps:

  • Planning: Analyzing the startup product idea, the problem it is trying to solve, and its need in the market. 

  • Building: Getting developers to build the first/simplest version of the product or its MVP to test it on the early adopters. 

  • Measuring: Testing out the results of your prototype, reactions, reviews, flaws, etc., to compare with your expectations. 

  • Learning: Go through the data and analyze it to know if it is viable to move ahead with the launch or there are certain iterations required. 

New Product Development Process

The next startup process is the new product development process. This process is also popular as the Stage-Gate process. This process has been used by startups since the 1980s to build their new product. Here are the steps involved:

  • Idea Generation & Screening: This is the process where the startup product owner comes up with the idea, brainstorms with the team, and performs SWOT analysis.  

  • Development & Testing: This is the phase where you create a concept of the idea and test it with the early adopters. 

  • Business Analytics: This is the stage when you start analyzing the scope of the product, marketing strategies, branding options, pricing models, competition, profitability, etc.

  • Product Development: This is the part where the magic happens and your product idea turns into a full-blown product. 

  • Launch, Review, & Pricing: This is where you launch the product in the market, review the launch response, and correct its pricing options to improve profitability. 

IDEO Process

The next process that we have is the IDEO process. This is where the product is more centered on the human aspect of the product. It follows the human-centered design thinking process where your product is tested on the parameters of human response. Here are the steps that follow in the approach:

  • Observation: This is the very first step in this process and you completely observe the idea and the corresponding target audience.  

  • Ideation: This is where the idea is analyzed and observed against several factors to fit the customer expectations. Rameez Usmani, Marketing Manager at GSDLovers also believes that ideation is an important step especially when you are bringing a new product. He says, "When creating new digital products, there are no existing users to review, which can make UX and UI design difficult. It's important to make sure you're developing the product for real consumers' desires and needs, rather than simply for your business objectives. As a result, defining and understanding consumers before beginning development is a critical phase in the product development process. Conducting practical consumer research is one effective way to do this." 

  • Prototyping: This is where the startup product team builds the minimum viable product or the simplest version of the product. Prototyping acts as the perfect solution to innovate in such cases. 

  • User Feedback: This stage is where you collect feedback on the prototype from the users and analyze it for product iteration. 

  • Iteration: This is where you implement and integrate the feedback into the product and make your product the best version. 

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These are the three approaches that most startups take to build their product. However, here, we will discuss two other approaches. As we are comparing in-house development with outsourcing for startup product development, we will discuss remote product development or product development outsourcing. This would also comprise two sub-models - when outsourcing end-to-end product development and when onboarding an outsourcing company onto an existing project. 

While all the three approaches discussed above, ie., lean startup, new product development, and IDEO process, are also included in product development outsourcing, outsourcing has some extra steps to get the product out.

End-To-End Remote Product Development

When outsourcing product development, many startups hand over their complete product to an outsourcing company. The company takes care of everything from ideation and analysis to MVP development, promotion, and scaling. Typically, an end-to-end remote product development comprises the following steps:

  • Ideation & Analysis: You discuss the product idea with our project managers who bring the developers, QA teams, UI/UX experts, technology experts, and other members of the team together for a discussion. They analyze your idea and add their views on new features that can be added to make your product stand out. 

  • Market Research: The remote product team also ensures there is a need for your product in the market. The remote team researches the market trends, performs SWOT analysis, and makes recommendations. 

  • Creating Roadmap: A roadmap is a direction in which the development would flow. It has each step in the development process to ensure the startup owner knows what the remote team is working on at any particular time. 

  • Tech Stack Selection: There are several frameworks, technologies, and versions rolled out every year. The tech expert or product consultant goes through your product features, cost of technology, and time to find technology resources and come up with the best technology selection

  • MVP Development: The emote team builds your MVP with the basic features that will make your product stand out. Startups like Uber and Airbnb started with an MVP or product prototype to launch the product faster and iterate based on user feedback.   

  • Final Product Development: The remote developers then make the prototype into a full-fledged product. They add new features, improve the UI/UX, integrate more functionalities, add APIs, and launch the full and final product. 

  • Delivery & Promotion: This is where the product is launched and promoted. The outsourcing company takes care of the launch and post and pre-launch marketing. 

Onboarding Onto An Existing Project

There are many startups who have initiated the product development process in-house or with their two-three developers but eventually get overwhelmed by all the work. They realize that they need a team of experts to come in and assist with the development. This is where an outsourcing company onboards onto an existing project for a startup product and builds it, scales it, or fulfills any other requirements. Here are the steps when going from in-house development to outsourcing:

  • Defining The Requirements: This is the most important step as here you define what you need from the remote team. You should have a clearly defined scope of the project, clearly defined requirements, expected outcomes, and briefs of the objectives. An outsourcing contract with details of all the prerequisites helps here.  

  • Knowledge Transfer: This is where you transfer the knowledge that you have accumulated over the course of development. No matter how much work you have done for the development, make sure to offer complete knowledge. Share the research performed, data collected, deployment guidelines, roadmap, test cases, techniques, tools, workflow, user stories, technical documents, etc., with the outsourcing company.  

  • Project Continuation: With everything in hand, the outsourcing company starts with the development work. They take over the complete work and transform your half-built product into a full product. The steps from here follow the same as end-to-end development. 

A startup product development process becomes uncomplicated once you know the steps involved in it. Above, we discussed the different processes of product development along with the steps involved in each. 

Outsourcing Vs. In-House

With an understanding of the product development process, startups face the dilemma of choosing between in-house development and outsourcing the product development. They have several questions to ask and are unsure whether they should hire in-house developers, testers, QA analysts, product managers, and others to build the product or outsource it to an expert offshore software development company

There are several ways you can find out whether you should outsource or keep your product development in-house. Here, we have discussed:

  • The reasons to keep in-house or outsource
  • The challenges startups face in choosing either of the approaches

Reasons To Outsource Product Development

We know by now that product development is a tedious process. It involves extensive steps and many iterations. Even then, there may be errors that might delay the product launch. Without a dedicated team of product developers, testers, designers, and others, a successful product is hard to imagine. This can easily overwhelm any startup. Hence, many startups resort to outsourcing product development. But overwhelming with tech is not the only reason why startups outsource. Here are some common reasons why startups outsource their product. 

Reason 1. You Get An Experienced Partner

The first perk is obviously the experience that you get. An external technology partner can add the much-needed expertise that young entrepreneurs and startups lack. This means that an outsourcing company can add the skills and experience required to build a product. While you are starting out in the industry, an external company has already worked on similar products. 

Irrespective of the product idea you have,  they might’ve already developed something similar in the past. This provides you an edge in the game and your lack of experience is balanced out with their expertise. 

Reason 2. You Get The Freedom To Scale Up Or Down

Need the core developer for writing the product codes? Or the complete team to help with ideation, research, development, and launch? A product development company takes care of it all. You need not worry about hiring new developers or keeping some developers in spare for ‘when you may need them’. 

It is really easy to scale your product team up and down when you are working with an outsourcing company. In fact, you don’t even have to worry about scaling. The company analyzes your product’s requirements and keeps adding new technology experts as per the requirements. 

Also Read: Complete Guide To Hiring Remote Developers In India
 
Reason 3. You Save Costs

This is a given in outsourcing. There are several costs involved when you keep the development in-house. Be it the system setup, IT infrastructure, physical environment/space to work, and various other things, there are many costs involved in product development in-house. And we all know how the budget works in startups. Whether you have crowdfunded, gotten an investment from VC, or taken loans, each penny counts in startups. 

You cannot go lavish with the infrastructure. But at the same time, you cannot compromise on the quality of the product. Outsourcing saves money by acting as a viable and cost-effective solution to your needs with capped financial commitments. 

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Reason 4. You Get Faster Development

In a market where getting outcompeted is not a rarity, faster development is the need of the hour for any startup. They need to build their product and they need to do it fast. Else they would be another name in the list of companies who were slow enough to see their innovative ideas being implemented by someone else. 

With an outsourcing company, speed is something that is guaranteed. They have different sprints for development and promise to get the product out within the committed time. You can accelerate your time to market with outsourcing. 

  • They already have the product team ready, so you save time on putting together a team. 
  • They have the experience, so you save time on trials and errors. 
  • They have a tried and tested strategy, so you save time on unwanted delays. 
Reason 5. You Find The Dream Development Team

It isn’t easy to find the right team that is fit for your product. You might not find the technology experts. You might have trouble finding developers in your budget. You might even take days to put up the dream product team. Outsourcing saves you all of this.

Most product companies analyze the startup’s budget, requirements, and product idea to come up with the best experts. You have the freedom to choose the ones you deem fit. Moreover, you do not compromise with the specialties. Finding local talent is hard. And outsourcing solves this problem too. With an offshore product development company, you get the expertise you need to build the product and overcome any challenge that may hinder its launch. 

Reason 6. You Have A Happier Founding Team

The startup founding team has the passion and the mindset where everyone wants to do everything on their own. And sure they can be a jack of all trades, but can only be masters of one. And if they try to be masters at all, they are only going to end up being frustrated and overwhelmed. With an external product development team, your startup founding team is much happier and satisfied with the results they see at their work. They have experts handling the product development while they manage the bigger goals. 

Challenges In Outsourcing

While we all sing hymns in praises of outsourcing, there are some challenges that might keep the startups from going the outsourcing way. These challenges are nothing but some obstacles that make outsourcing a bit demanding. Nonetheless, the benefits of outsourcing stay the same. If you are wondering why, despite all the benefits, some startups keep the product development in-house, here are some challenges that make them stray away from outsourcing. 

Challenge 1. Miscommunication

Talking to a team face to face versus talking to them virtually is undoubtedly different. One can go to the desk and convey any thoughts or ideas about the progress in the development when working in the same physical location. Working with remote teams means there can be several things unsaid, missed out, assumed, or even misunderstood. There can be some miscommunications that can lead to the failure of any outsourcing venture. 

However, working remotely for the past year has made remote collaboration seamless. Documentation, along with remote working tools, can help avoid any miscommunication. 

Challenge 2. Losing Project Control

Young entrepreneurs are always too passionate about the product and want full control over each step. However, outsourcing doesn’t work this way. It needs both parties to have full trust in each other. Entrepreneurs need to put their faith in the outsourcing company and let their work their magic with the product. But many entrepreneurs see this as losing their control over the project. And this is certainly a challenge. Many startups might lose control if the outsourcing contract is not fool-proof. 

The outsourcing contract should define the extent to which the outsourcing company can exert control over the project. The decision-making and the last say should also be defined to avoid losing any project control. 

Challenge 3. Unfulfilled Expectations

Considering the experience and expertise of the outsourcing company, it wouldn’t be wrong for a startup to have really high expectations from the deal. Many think that once they have joined hands with an outsourcing company, everything will be taken care of by them. These unrealistic expectations can lead to project failure. You might expect something from them which is not covered in the contract. None would take care of the issue and it might escalate. 

Discussing everything in detail is imperative to avoid such unfulfilled expectations. Get an estimate of the budget and the time to eliminate any unsaid expectations. 

Challenge 4. IP Security

Online is always risky. No matter how many VPNs you set up or secure your data, there will always be a risk hinging over the head. For startups, their intellectual property, their idea, is their main treasure. But this needs to be shared with the remote tech team and product developers via several online tools. Other properties like trade secrets, business plans, etc., also need to be shared. There will always be a certain amount of risk to the IP security by hackers and even ransomware. 

The seriousness of protecting the IP should be explicitly mentioned in the contract. Your IP is your property and one should sign a non-disclosure agreement and other legally binding documents to protect it. 

Also Read: Outsourcing Development? Tips To Protect IP

 

Challenge 5. Budget Spike

If the budget, scope of the project, and the output from the outsourcing partnership are not clearly defined, the budget can easily escalate in outsourcing. They might have to spend more time on the project leading to extra charges. 

Reasons To Keep Product Development In-House

While outsourcing proves to be a cost-effective solution, there are several reasons why startups like to keep it in-house. This means the founding team hires developers in-house and arranges for working space for everyone to work together on building the product. They have tech teams working directly for them with shared cultural values and working methodologies. Let’s take a look at some of the reasons why startups take the in-house development route. 

Reason 1. Your Product’s Foundation Is On Technology

This is one of the main reasons why most startups opt for in-house development instead of outsourcing it. Their startup product is based majorly on the technology or tech that is proprietary to their startup. There is a large section of startups that have technology as the core proposition or offer. 

For example, you are offering API development using a specific framework. Your main audience is tech experts and you cannot compromise on it at any cost. You cannot hand this over to an outsourcing company as tech is at the center. But when you are working with a product like Uber, tech is at the second level and your main offering is to help commuters/travelers find rides. 

When technology is at the core and you are targeting the tech experts with a unique implementation, keeping the product development in-house is the way to go. 

Reason 2. You Want Full Control Of Product Development

Control is one thing that startups worry the most about. Entrepreneurs, as we know, are really passionate about their product and are even ready to wear many hats just to keep things in their control. Outsourcing snatches this control away from them. But with in-house, they can keep a tab of day-to-day progress on the development. You know what each person is working on and can promptly give remarks about the progress if it’s not going in the right direction. 

Reason 3. You Want More F2F Interaction With Team

There are many entrepreneurs who believe in face-to-face interactions with their team while working on anything. This means no level of discussions over phones, calls, or even collaboration tools can suffice their requirements. This is why they need to hire an in-house team for their product. 

This allows them to work together and interact with them face to face. They can go over to their desk anytime and share their feedback and even see the changes or progress in front of them. If you also want to build a team with whom you can interact face to face, in-house development is what would suit your startup the best. 

Reason 4. Your Company Culture Affects The Product

There are several products that are unhindered by the startup’s culture of way of working. But if that’s not the case with your startup product, it is imperative that you build the product in-house. There are many 

Reason 5. You Think Your Product Will Have Quick Changes

One of the main factors that compel most startups to keep their product in-house is that the product needs quick iterations. There is much greater flexibility with changes and iterations in the project when you have an in-house team. In case, the startup doesn’t have a completely clear idea of the product and would be taking it further with the development and know it might take a lot of changes, that is when they opt for in-house development instead of outsourcing. 

Challenges In Keeping In-House

While there are several reasons why startups don’t want to outsource their very first product and want to keep it in-house, they are certainly faced with some challenges or bumps in the road. Here, we will talk about some of the challenges that keep startups from developing their products in-house. 

Challenge 1. Greater Costs Considering The Limited Funds

Building an in-house team isn’t only about finding the right developers. It also requires a number of additional charges like IT systems, software licenses, technology training, overhead costs, and infrastructure. It is obvious that in-house development is going to cost startups much more than outsourcing. Most startups don’t have that kind of budget where they can set-up office space, hire in-house developers, and manage and maintain the IT infrastructure. This budget constraint keeps most startups from in-house product development. 

Challenge 2. Lack Of Technology Experience 

Every product requires individual tech expertise. You cannot employ the same team for all the products. Some products need a particular technology to add a particular feature. Hiring the tech expert for that particular feature would mean keeping them idle afterward. In many cases, finding such tech experts takes a lot of time and many times, they aren’t even found in the particular region. 

Challenge 3. Distractions From The Bigger Goals

Entrepreneurs have some big goals for their startups. They never want to stop at one thing. But when they decide to focus more of their time, energy, and efforts on building the product, they get distracted from their bigger goals. True, in-house offers more control. But this keeps them from innovating. 

Challenge 4. Consumes A Lot Of Time

Entrepreneurs don’t want to put up with just anyone for their product. They want to hire the best developers, testers, QA engineers, and others. But is it that easy to find the best candidate? Any recruiting process takes at least a month. This consumes a month of product development. 

Apart from that, they need training about the product and the technology which might take up even more days. This delays the product launch. But time is a treasure for any startup and they cannot let even a single day go to waste. The more they take to launch their product, the higher the chances of being outcompeted or become obsolete by another product. 

Challenge 5. Scaling Issues

Scaling up and down is a common thing in startup teams. As the startup scales, they need more members in their product team. Similarly, there will be situations when they do not need that many developers or product experts. Hiring and firing employees in the office is neither possible nor the right example to set. Hence, you are either stuck with overloading the small team or a large team with no work. Outsourcing solves this problem as it offers the flexibility to expand or scale down the team whenever required. 

Challenge 6. IT Guy Leaves

Another common reason for failed in-house product development is when the guy handling the majority of the work walks out. Despite setting-up a complete IT team, there is one person in the team who makes major decisions and leads the way to development. If this guy walks out, your product development would be in all shambles. Outsourcing solves this as there is no main guy. You sign the contract with the outsourcing company and they make sure your product development continues smoothly despite any person walking out of the team. 

Comparison

The two main reasons why most startups plan to outsource their product development are cost and time. They want a good quality product at lower cost while also getting a faster time to market. However, in-house development doesn't promise that. It leads to extended budget and crossed timelines on most occasions.  So, without further ado, let's compare both outsourcing and in-house based on cost and time factors. 

Cost Comparison

One reason why startups outsource is to cut costs. Forming an in-house team adds several costs to the product development. Whereas with outsourcing, you hand over your development to an external company. 

But let’s not get to a conclusion so fast. Let’s compare the costs of outsourcing vs in-house development. 

We have a complete guide on outsourcing costs where we have compared both in-house and outsourcing costs. There, we found out that one can save up to $140,000 in outsourcing. Considering all the factors that involve costs in-house versus outsourcing, there was a stark difference in the costs involved in outsourcing versus the costs involved in in-house development. Here are all the costs involved when you hire an in-house developer for your product:

  • Cost of hiring the developer
  • Salary of the developer
  • Expenses for setting up the IT infrastructure
  • Charges for the software licenses
  • Costs of providing the developer with IT system
  • Cost of providing technology training to the in-house developers
  • Paid benefits like paid leaves, medical benefits, etc.
  • Overhead costs (25% of salary)

All of this comes out to be somewhere around $178,770 if you are getting a simple product developed from a team comprising a project manager, mid-level developer, graphic designer, and a QA. 

To get a complete cost analysis, Checkout Our Outsourcing Cost Guide

 

Whereas when you are outsourcing product development, you pay for the following to the outsourcing company;

  • Exact fee or salary of the developer/s that you want in your team. 
  • The cost included in the hiring 
  • The miscellaneous costs like SSL certificates, on-site visit, knowledge transfer, technical consultation, etc. 

This cost comes out to be somewhere around $37,000 if we consider the salary of the developers from a table shared by Clutch. 

Source: Clutch

Let’s compare the costs of in-house and outsourcing for a simple product developed in a period of 8 weeks.  Here, we will be building a simple MVP in two months time. For building an MVP for a startup, we will need a team of at least 3-4 people. This would include two developers, one graphic designer, and one quality analyst. Apart from that, we will also need a project manager or a SCRUM master from time to time and a business analyst for the initial research part of the project.   

As it is a simple startup, we can take one junior developer and one mid-level developer, the hourly rate for which average out to be around $25 and $30. A graphic designer in offshore countries like India charges around $30 for an hour. We will need a business analyst for the initial few days or around 20 hours. Similarly a project manager would be the point of contact throughout the MVP development and wouldn't work dedicatedly throughout the sprint. Their hourly rate would be around $50.

This means, when outsourcing the initial part of the product or the MVP, the total salary that you would need to pay the development team in outsourcing comes around $37,100. 

Here is a table that calculates the major costs that you may incur in outsourcing as well as the fees that you have to pay when opting for outsourcing product development or hiring remote developers. 

Note: This is just for a simple minimum viable product which can be developed in around eight weeks or two months. For startups that are looking for a more complex or advanced product, the costs of both may increase and so might the difference. 

Variable

Cost of In-House Development In The US (320 hours) 

Cost Of Outsourcing Development To India  (320 hours)

Cost per Hire

$4,200

$1,000

Overall Team Salary

$160,000 

$37,100 

IT Expenses

$20

$0

IT System

Mac: $1,800 

$0

Technology Training

$1,000

$0

Paid Benefits

$6,500

$0

Software License 

$250 per person

$0

Overhead

$5,000

$0

Total Cost

$178,770

$38,100

 

The table is a clear suggestion that in-house development costs far too much compared to outsourcing. Computing the two, we can easily see that outsourcing saves as much as $140,000.

Moreover, startups get the flexibility with outsourcing where they pay for the hours of work done or the monthly salary of the developer or the team for the dedicated hours. 

The Verdict?

Startups that are looking to get great code quality for their product within a tight budget outsourcing comes out as the viable option. 

Time Comparison: Outsourcing Vs In-House

The next major factor determining the success of any new product is the time to market or the time to launch. There is enormous competition in the market and time plays a big role. The faster a startup is able to launch its product, the higher the chances of getting more audiences. Time is an essential factor in the success of a startup. So, let’s compare the time taken in building a product both through in-house and outsourcing. 

Recruitment Time

Recruitment takes most of the time when it comes to building a product. As per several analyses made by experts, in-house development takes up a long time. If we consider that to be true, let’s see some stats and data to find if actually adding a new member to the startup team takes up extra time. 

  • As per data from the Workable Benchmark tool, the global time to hire an expert in the IT/Technology department takes around 30 days. Add to that the notice period that the employee would have to serve, it comes around 2 months. 

  • A Sparks Group report also states that in-house hiring costs around 51 days to fill in a position in IT after taking over 15 interviews. 

  • A Workable study also breaks down the average time in hiring in the IT industry. (create image, only IT)

Region Time To Fill (Average)
US  50 days
UK & Ireland 55 days
Rest of Europe 57 days
Rest of world 47 days

 

There are several IT outsourcing companies that startups look out for. They look for product development companies in listing sites like Clutch, GoodFirms, etc. They might even perform analysis and research on Google. Next, they ask for quotes or have a discussion with the shortlisted software outsourcing companies that fit their budget and product requirements. It might take a few weeks before the decision is made. 

Comparing it to in-house, startups may take a somewhat less amount of time to search and find the ideal startup solutions partner. The catch is that when you hire in-house, you need to take out time for all the roles in the building of a product. That includes developers, analysts, QA engineers, and even the executive positions like project managers.

Hence, outsourcing comes out as the winner which takes lesser time in recruitment.  

Speed Of Development

The next thing we talk about in time is the speed of development. In this case, as well, it is believed that outsourcing wins as it takes less time to develop. Let’s read how.  

  • Setting up an in-house team takes time. Outsourcing companies start with product development as soon as you contact them. 

  • The number of iterations may increase as you are directly in control and may want to experiment with features, which may turn out redundant. 

  • Outsourcing companies work in sprints and complete the work within the committed time. Whereas in in-house development, you may have other commitments hindering the continuous development. 

The Verdict?

Overall, if we see the analysis, it is certain that when it comes to the time in development, outsourcing comes out as the clear winner. So, if you are looking to develop a product faster, getting an outsourcing product development company is the way to go. 

How Outsourcing Benefits Startups

Now that we know the reasons to outsource vs in-house development along with the pitfalls or challenges in both, one thing can be deduced - outsourcing benefits most startups. There are many ways how outsourcing benefits startups. Let’s find out how. 

  1. Outsourcing reduces the risks involved in product development. 

  2. Outsourcing helps startups get the expertise and experience they usually lack in building a product. 

  3. Outsourcing enables startups to be flexible with their product in terms of scaling the teams, adding features, etc. 

  4. Outsourcing provides an extensive knowledge base for startups when it comes to information about the development. 

  5. Outsourcing helps startups gain a competitive edge by offering faster development, expert assistance, and high-quality codes. 

  6. Outsourcing helps startups cut down their development costs by a large margin. 

  7. Outsourcing takes off the responsibility and stress of coding and building the product from the entrepreneur’s shoulder and lets them innovate. 

 

Factors Every Startup Should Consider

The battle between in-house and outsourcing will continue as long as businesses are launching their products. They will always swing between getting it in-house or outsourcing it to an experienced offshore product development company. No matter what the case, there are some factors that every business should consider before making the decision. 

Factor 1. Cost

Whether it is a funded startup, bootstrapped startup, or any other, budget is the first thing to always come to mind. Price always plays a pivotal role in the type of development. In-house development increases the cost while outsourcing reduces the cost. 

If you have the margin to go beyond a certain cost, in-house is what you should choose. But if you are constrained by a limited fund, outsourcing can save you costs. 

Factor 2. Innovation

For any startup, infusing the product with innovation is important. Most of the time, in-house teams lack the kind of innovative mind that can bring about a change in the product. They just go with the flow and write the codes. But an outside outsourcing company offers insights and expertise on the product. They come with a fresh perspective on the product and an innovative mindset to make the product stand out. It also helps get break any block in creative flow. 

Factor 3. Technology

The next factor to consider when choosing between in-house development and outsourcing is the technology to be used. There are some products that revolve around technology while some can be built using the templates and set services available. You need to analyze the product and its tech requirements before making a decision. If you need technology that is not locally available, it is imperative that you outsource it to an offshore company. 

Factor 4. Time

The next big factor for any startup is the time frame. Time plays a crucial role in any startup’s success or failure. The faster you launch your product in the market, the higher are your chances of success. Keep in mind that in-house product development increases the time frame by several months considering the hiring, training, set-up, and other factors. 

Offshore product development companies offer a time-frame within which you can expect the working version of the product. Even if there is a delay in the development, it won’t exceed a few weeks when outsourcing. 

Factor 5. Product Complexity

The next factor is the complexity of your product. Any product comprises several systems that make it a whole. A product that has a simple system and a complex core technology can be developed in-house. The pre-designed systems can be used by the vendors while the complex core can be built by in-house developers. You can choose to outsource if the product can be explained well in the contract and you know your requirements beforehand. 

Succeeding With Outsourcing

When it comes to startup product development, several startups have gotten their names etched among success stories because they chose to outsource. 

However, when you choose outsourcing over in-house development, you need to be sure of the outsourcing model you choose. Apart from that there are some success tips that startups need to follow. 

Outsourcing Models

There are different models that startups can follow in order to build their products. When outsourcing, they have different ways to get it done. This majorly depends on the scale of your product, complexity, technology requirements, in-house skills, engagement models, and much more. 

Before finding the outsourcing model, you need to identify the gap first. Here’s how to identify the same:

  • When you have a technology gap and you need a new tech expert to take care of that requirement. 

  • When you need a full team of product developers but would like to manage them on your end. 

  • You need a dedicated team along with the project manager to build your product

  • You need a trusted outsourcing company to completely build your product from scratch

  • You have a product but need assistance to build a module, API, or a particular feature of the product. 

Depending on these gaps, you can choose the outsourcing model fit for your startup product. Let’s dig a little deeper and find out the right fit for your startup. 

Outsource Product Development

The most common model of outsourcing that a majority of the startups adopt is to join hands with a company for end-to-end development. Domain-savvy startups know their need to innovate and seek an expertise-holder. 

With an expert company offering end-to-end product development requirements, startups can easily innovate and scale. They join hands with a company that is ready to handle all aspects of the product including development, deployment, scaling, launching, marketing, support, maintenance, etc. 

Outsourcing product development allows the startups to get expert assistance from the beginning. Right from ideation to launch, and even after that, the startup solutions provider takes care of it all. This model reduces friction and ensures clear deliverables. 

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Dedicated Remote Product Team 

The next outsourcing model is when startups hire a team of developers and other product experts to work as an extension of their team. This is very similar to building an in-house product team. The only difference is that you consult a company that handpicks the best talent for you and the team sits in an offshore location. You hire them on a monthly salary (mostly) or on a per hour basis and keep a track of their work as you please. 

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Individual Tech Talent

This is when startups have their own team of product developers but they need a technology expert to build the UI or add functionality or create the product in another OS. This is when they hire a dedicated tech expert to work as an extension of your in-house team. Here, you make the remote team members an asset to your startup and ensure your product is developed by experts. 

Succeeding With Product Development Outsourcing

When it comes to succeeding with product development, there are several hacks summed up by different startups. However, the majority of startups have succeeded in outsourcing their product development. This helps in getting the product out faster. The product is built by experts. And startup owners have the time to innovate and analyze their business monetization models or brand image. 

Tip 1. Outsource The Early Version

When planning to outsource, a smart move is to outsource the early version. Most startups have succeeded by outsourcing their MVP or the early version of the product. Outsourcing to an expert company means getting the MVP within a few months and let you test it with the early adopters. It is not uncommon for startups to have a promising idea but not the team to execute it. Outsourcing the early version of a startup product helps build it in a smaller budget and within a short time by experts. 

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Tip 2. Define Your Product & Share Ideas

Having an excellent idea is common but the ability to share the same idea to an external team is not as easy. You might have a vision but you also need to share the same with the outsourcing company. Only then would they be able to provide you with a product that is a true reflection of your product idea. 

Tip 3. Cultivate Product Excitement

This is an important tip for startup outsourcing success. Convey your idea to the remote team or outsourcing company and cultivate a sense of excitement in them. Before your early adopters, it should be the product development team that should buy the idea of your product. They should feel connected and be excited about creating something innovative that will solve real-world problems. 

Tip 4. Link Payment Checkpoints With Product Milestones

A crucial tip for succeeding with outsourcing product development for startups is to link their payment cycle with product milestones. For example, you have sprints when working with an agile outsourcing company. Keep these sprints as your checkpoint. You can even have checkpoints like an MVP, early version, etc. to keep track of the progress and get deliverable on time. 

Tip 5. Elucidate Terms Of Ownership 

As discussed, startups may feel like losing control of the product when getting an outsourcing company. To avoid such feelings, clearly define and elucidate the terms of ownership. Have a fool-proof outsourcing contract that mentions the ownership rights to be reserved by the startup owner. 

Tip 6. Treat Them As Tech Partners Not Agency

The most important part of being successful as a startup that outsources its product development is to treat the company as a tech partner. They have the experience and expertise your startup needs and can help your startup succeed. Make sure you welcome their comments and views on the product and be open to letting them work independently on your product to create magic. 

Startup Success Stories

Success in product development depends on various factors. Whatsapp, Slack, Klout, Google, Squawker, along many other firms have succeeded with software development outsourcing. These startups have now turned into global corporations. But many still outsource major parts of their development to offshore companies for the seamless working of their systems. 

Here are some companies that will surely inspire you to choose to outsource over in-house development. 

#1 Success Story: Slack

The popular messaging software outsourced the designing of their beta version. They hired a Canadian firm MetaLab to design their software, which is now a multi-billion dollar success. The outsourcing company worked on Slack’s website design, app design, and logo, which helped the company convince its investors and bag an investment of a whopping $250 million. Not just the investment, the sleek design also helped Slack attract over 15,000 within 2 weeks of the app’s launch. 

#2 Success Story: GitHub

The backend codes of GitHub are written by none other than an outsourced resource, which later became the company’s CIO. Chris Wanstrath, the co-founder and CEO of GitHub, realized that Scott Chacon, a man from San Francisco, had an unmatched understanding of Gits. Initially, the founders of GitHub didn’t have the required funds to hire Scott. So, they decided to outsource the MVP development. 

#3Success Story: Whatsapp

The cross-platform messaging app is one of the most popular chatting apps present on almost everyone’s phones. However, this product with 1.5 billion active users today was a small startup with not a lot of funding. The founders of Whatsapp, Jan Koum and Brian Acton were low on funds but did not want to compromise on the quality of their app. They decided to outsource their development to a company in Russia. This helped them minimize the costs while also get highly skilled developers. 

#4 Success Story: WidgetBrain

A Netherland-based startup outsourced its development to a Ukraine-based company. The company offers products for scheduling, reporting, integration, engagement, time & attendance, and much more. This startup realized its technology gap in its location and hired a team of five developers from an offshore company to keep its products running seamlessly. 

#5 Success Story: Alibaba

The big conglomerate Alibaba is one of the top examples of companies that have succeeded with outsourcing. The company accounts for over half of the world's total eCommerce sales. The company outsourced software development as early as 1999. Jack Ma’s autobiography reveals that the company hired remote developers from the United States to get their development. He wanted to find people with better skills as they were unavailable in their local region.  

#6 Success Story: Groove

The next success story of outsourcing is from Groove. The founder of GrooveAlex Turnbull had the technology background but not the required expertise to handle the development of the product. This software-as-a-service company outsourced the development part. The reason being he was able to retain full ownership of the product while also saving the money he would have to spend on full-time workers. 

#7 Success Story: SeatGeek

The founder of this company believes that outsourcing development in the early stages is something too beneficial for budding startups. Jack Groetzinger, the founder of SeatGeek, outsourced software development to developing countries to save costs. He said that he could get skilled developers working on his product for as little as $1 per hour.

Choosing Partner

While outsourcing is considered the right solution for your business needs, success largely depends on the startup solutions partner that you choose. 

Experience

As a startup, you do not have the experience required to launch your product. So, you should always go for an experienced startup solution provider to plug that gap. There is a reason why most startups choose an outsourcing partner. It adds to the experience. 

Tech Stack

You need a technology partner who holds expertise in technologies that you lack. Your product would need several technologies that you can go through in the solution partner’s tech stack. Look for the front-end technologies, back-end technologies, mobile app tech, platforms they work on, and much more to come to a conclusion. Go for a team that has mastered the technology instead of going for someone offering generic services.  

Cost

Finding a solution partner with a compatible pricing structure is more important for startups to find someone who fits their budget. Startups usually have a limited budget and the reason they choose to outsource product development is to cut costs. So, you need to be very careful. Make sure that you have not joined hands with a big organization going beyond your budget. Don’t go cheapskate as well as you do not want to compromise on the quality of your product. 

Team Size & Flexibility To Scale

Depending on your project and the in-house talent, you might want to consider the number of developers the outsourcing company has. You also want to analyze their team of professionals to know who all they have. 

Do they have just developers? 

Do they also provide quality analysts? 

Do you need your own project manager?

You may want someone who offers a complete team as well as the independence to scale up and down. 

Engagement Models

There are different engagement models and processes that companies follow with their outsourcing partners. Some just hire single developers or technology experts to fill in a technology gap. Some build complete extensions of their in-house team. There are others that get full projects managed by outsourcing companies. 

Working Methodology

Many startups get caught in the outdated waterfall method of product development, which happens to be too rigid to keep up with. The agile development methodology works best in product development as it involves different sprints for smaller deliverables. You can be sure that the progress is going right by checking the sprints. Ensure that you have checked their working methodology, whether they follow waterfall, agile, Kanban, or any other. 

Communication

As discussed above, most outsourcing contracts fail due to miscommunication. As you are hiring an offshore web development company, there may be a communication gap or language barrier. 

Freedom To Choose

The next important thing to consider when choosing a company offering software development for startups is the independence to choose developers. A reliable outsourcing company would always offer your resume of developers as per your project and let you select, interview, and hire developers of your choice. 

Collaboration

The company you choose for your startup product should be flawless when it comes to collaboration. Otherwise, all efforts would go in vain and you may end up feeling like losing control of your product. They should use the best collaboration and project management tools like Basecamp, Jira, etc., to make things easier. 

It is certain that the outsourcing company you choose determines your success or failure with product development. Make sure you have analyzed all these factors before making a decision. Make sure you have analyzed the company on all parameters. 

So, Should Startups Outsource Product Development OR Keep in House?

Almost every startup faces this dilemma. Should they outsource or should they hire in-house developers to build their product? 

If by outsourcing you mean to dump all your work onto an external team, any sane business consultant would advise against it. However, if you are strategic and join hands with an experienced firm to collaborate on your product, then it could be the recipe for your success. 

The decision between in-house and outsourcing software development should be based on several business factors. Be it cost, time, the complexity of the product, technology requirement, experience, or flexibility, there are several factors that should be considered to make this decision. 

Remember, the choice is always yours. You need to weigh in the pros and cons of both approaches to product development. And if you choose to outsource, make sure you find the right outsourcing company. 

Looking For A Startup Solutions Partner?

And if you have chosen to outsource, Classic Informatics is a trusted startup solutions partner. We come with an experience of over 18 years and have helped many budding startups get a product that is loved by their target audience. We have extensive experience in product development, mobile app development, software development, and all things tech. 

Our project managers analyze your idea, business requirements, time in hand, and the funds available to come up with the best strategy. They help you build your own team of product developers from our internal team. 

So, if you also have an awesome idea, drop it by us and we can have a discussion around the same. We are sure, our services, expertise, and experience will help your startup grow and launch a product that your audiences will love. 

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Written by Swati Sharma

Swati Sharma, a writer by day and an avid reader by night, works with Classic Informatics, a leading web development company in India. Owing to her passion for her profession, she loves to stay updated about the current & emerging trends in the IT industry.