In-house Development vs Outsourcing: Guideline for Founders
February 5, 2023
22 mins read
What’s the best way to develop your product – in-house or outsourcing, or is there anything in between? All options have merits and demerits, but which is right for you? In this blog post, we’ll deep dive into in-house development vs outsourcing, explore their pros and cons and alternate options so you can make an informed decision for your startup.
In the end, we will tell you how Mailbluster (a SaaS platform used by 20000+ startups and businesses) saved more than 1 million USD in development & maintenance costs. Let’s get started.
At a Glance: In-house Development vs Outsourcing vs Hybrid
Before we start the complete guide, let’s go through a basic overview of the difference between in-house development, outsourcing, and hybrid teams.
In-house Software Development
What is in-house software development?
In-house software development is using your internal engineering team’s skills to develop software. Usually, you create your in-house development team from scratch in your company.
To understand in-house development, you need to know both advantages and disadvantages of an in-house development team.
Advantages of in-house software development
Here are some advantages of in-house development.
Knowledge of corporate culture
Your in-house development team is familiar with your company culture and needs. Therefore they will follow the company style in detailing, which usually results in the best product.
Control over the team
You have complete control over your in-house team, ensuring your deep involvement. Thanks to the in-house team, you can supervise and observe your projects.
The in-house team’s direct communication process reduces complications and provides quick solutions. It also improves the product with new ideas.
If you have an in-house team, it guarantees the availability of your developers. You can focus on development. It will speed up your team’s productivity. You don’t have to worry about backlogs; changes can be quick.
Let’s put some light on the disadvantages of in-house software development.
Disadvantages of in-house software development
The process of setting up an in-house development team takes lots of time. Plus, you need to do all the tedious human resource management jobs yourself, from job posting to interviewing them to selecting candidates. Not only that, you have to use your time and resources to train the team.
The initial office setup required for an in-house development team costs a fortune. The bigger your team is, the more you have to spend. Plus, you have to pay all the maintenance costs of the office premises and other expenses like insurance fees, equipment, holidays etc. That’s not all; developers’ salaries in first-world countries are way higher than in any developing nation. According to indeed.com, the average salary of a mid to senior-level developer is around 100K/year, and it’s way higher in big cities like NY or LA. You also have to pay for the recruitment cost, medical insurance, 401K and many more.
Limited talent pool
One of the most significant issues in in-house development is the skills shortage. There is and always will be competition among tech companies over onboarding a talented developer, especially in US cities. There are no flexibilities and options to experiment.
You can’t even scale fast if you need to.
When you are building an in-house development team, sometimes, you don’t have projects your skilled developers keep sitting ideally. Other times an entire team is working on a single project, with no room to take on new work. Resource management can be challenging for you.
One of the most significant risks is employee turnover. You invested your resources to prepare an employee, but sometimes they leave for a better option.
Employee turnover doesn’t only damage your team spirit but also costs a lot. Research says employee turnover can cost up to 1.5 to 2 times that of employees’ salary. For instance, say you hire a software developer with an annual salary of $100K. He/she leaving your company will cost you 150K to 200K.
When is in-house software development the best choice?
When it comes to software development, there is no one-size-fits-all solution. Sometimes, it makes sense to hire an offshore development team, while other times, it is better to develop the software in-house. So, how do you know when in-house software development is the best choice?
There are a few key factors to consider.
First, think about your specific needs. If you have a unique business model and you can’t trust anyone else to look after the process, then it’s better to develop the product in-house.
Secondly, If you want to keep your idea secret, a good idea is worth millions and letting someone know every ins and outs of that idea may seem risky. In such cases, you may go for in-house development.
Finally, when you have no financial restrictions. In such conditions, it’s better to plan for longer terms. You will also need constant work from developers for your long-term project, and that requires an in-house development team.
How to build an in-house development team?
Building an in-house team is a complex task and needs expert involvement. This is not a job you can do after reading a few blog posts. Yet we discussed the key steps you need to follow to build an in-house team. But we will mainly focus on setting up an in-house development team.
First, identify the key technologies you will use to develop your product. Then you can finalize specific skills and experience you need on your team. Do you need designers, front-end developers, back-end developers, or all of the above? Once you know what roles you need to fill, you can begin drafting the structure of your development team.
When it’s come to defining the team structure, you must consider your stage first. The development team structure for a startup won’t be similar to a big company. Even tech team structure varies based on the stage of a startup. We have a complete guide on defining tech team structure; it would help you define yours.
After defining the tech team structure, you must focus on hiring top-level executives or development team leaders, such as CTO, project manager etc. Their understanding and tech world experience would guide you through upcoming challenges.
Now it’s time to hire other team members such as back-end developers, front-end developers, designers etc. As I said, your CTO or project manager would help you to hire developers and designers and build the perfect team. You can read our “How to hire developers for startup” guide to get a clear idea of the process.
After you are done hiring all the founding members of your team, you can focus on assigning the responsibilities and project management. Thus, you can get your in-house development team up and running.
Remember, if you don’t want to go through all those tedious processes of building an in-house development team, you can always outsource development efforts to an offshore development team.
Outsourcing Software Development
What is Outsourced Software Development?
Outsourced software development is the process of having an external company develop software for you, and it typically helps organizations save time and money. When done correctly, it can also lead to increased efficiency and better-quality products.
We often confuse outsourcing with offshore development. Yes, you technically can outsource your development effort to an offshore development team to save time and money, but it doesn’t have to be. There are several options. You can hire individual freelancers or an agency that provides a dedicated individual developer or an entire team.
Let’s discuss this topic, starting with the advantages and disadvantages.
Advantages of Outsourced Software Development
Saves time and money
The main driving factor behind outsourcing development efforts is to save money and time. You won’t have to break the bank for the initial setup and won’t have to pay for logistics, maintenance, tools and devices. The straightforward process of outsourcing development gives you the flexibility to set up your desired team within a few days’ notice.
On top of that, you can hire from developing nations worldwide, which means you have to pay a lot less for a developer’s salary.
Access to global talent pool
Another bright side of outsourcing your startup development team is talents from all over the world are available for you. Sometimes you can face domestic talent shortages. Outsourcing is the best solution to fill the gap of that specific talent.
Complete projects on time
One of the biggest benefits of outsourcing is completing your projects in time. If you need more developers to complete your project, you can outsource them. You can also hire a full team in case of need. You can also pay on a full-time or part-time basis. If you don’t need them anymore, you are free to terminate the contracts – so no strings attached.
Proven work process
Outsourcing development has become wildly popular in the last ten years. The demand has helped to create a global IT outsourcing market valued at 528 billion dollars in 2021[ref]. As a result, thousands of companies were established focusing on outsourcing. You can easily find a company with proven experience and work process. For example, In the last 10 years, technext has established a near-perfect work process through trial and error, which allows the team to follow the framework and maintain client satisfaction.
Easy recruitment process
The domestic recruitment process is very time-consuming. Outsourcing can help your startup save time in every step of recruitment, from finding candidates to training the candidates, which allows you to use your time and energy on more high-value initiatives for your startup.
Greater competitive advantage
Outsourcing can also help to make your startup more flexible and adapt to changing markets. You and your team can update knowledge and skills along with conditions and challenges.
Disadvantages of Outsourced Software Development
Confidentiality and security challenge
When you entrust developers or agencies with your product development security risk of your confidential and personal data arises. In today’s reality, it’s pervasive to misuse those data and threaten your organization. To avoid this type of situation, you can check the review of the agency or the freelancer from trusted review sites. You can also offer an NDA and make them sign it. It’s always better to be prepared beforehand.
While outsourcing indeed, you can save some costs. But you have to be aware that some agencies or developers can charge you with hidden costs.
Always read the contract before signing to save yourself from hidden costs.
Communication is one of the biggest issues in outsourcing. The insufficient communication level of the developer can affect the process of development. It can also affect teamwork.
You can pay attention during the interview session to avoid mass.
Attention to quality
Agencies and freelancers take multiple clients, which can cause less focus and attention to detail, leading to quality issues for your startup’s product. But reputed agencies overcome this shortcoming by assigning one project at a time and strict quality assurance.
Try to pick carefully and find a reputable agency with a dedicated team or developer for each client they sign.
Time-zone and cultural difference
You can not underestimate the time and cultural differences between you and your outsourcing partners. You both are from different time zones and cultures, so there will be difficulties in synchronizing schedules and understanding the culture.
Schedule meetings at standard times. To lessen cultural differences, you can have sessions on cultural interests.
When is Outsourcing Software Development best for you?
There are a few factors to consider when deciding to outsource software development. First, businesses need to assess their internal capabilities. Outsourcing may be the best option if a company does not have the in-house expertise to develop the software they need.
Second, businesses need to consider the cost of outsourcing versus developing the software internally. In most cases, outsourcing the development process may be more cost-effective.
Finally, businesses need to weigh the risks and benefits of outsourcing. While there are many benefits, there are also some risks associated. If the benefit outweighs the risk, you can choose to outsource your software development process.
How to build an outsourcing software development team?
Now that you have decided to have an outsourcing software development team – the building process is different from the in-house development team. Team building steps are explained below.
Step 1: Choose the outsourcing model
The 1st step is to choose the outsourcing model. There are three different models you can choose from –
In this model, you own your project from start to end; everything will be according to your plan. As a result, you have to take responsibility for the project outcome. An outsourcing service provider will look after employee hiring, training and logistics, but that developer will work dedicatedly for you.
In the Managed team model, you and your outsourcing provider share responsibility and ownership.
According to your specifications, your outsourcing provider takes most of the responsibility and owns the projects from start to end.
Step 2: Gather your requirements
Once you have set your engagement model, you need to provide them with the requirements. Gather your requirements from the goal to the technology you want to use. And don’t forget to document them – you can provide the documentation to your outsourcing provider later. In some cases, outsourcing service providers document your requirements but make sure you check them carefully.
Step 3: Search for the perfect candidates
Searching for developers or offshore development partners is more accessible than other tasks related to building an offshore development team. Because the outsourcing agencies are also searching for good partners at the same time you are searching for them.
But it’s not risk-free by any means, and you must keep your eyes open for any flaws and risk factors while searching for one. Because choosing the wrong development partner will not only waste your money but also kill your valuable time and energy by keeping you in a loop.
Here are a few ways you can find your offshore development partner to outsource your product development.
Search in freelance platforms
The easiest way is to use freelance platforms while looking for an outsourcing provider. You can search well-known freelance platforms such as Upwork, Freelancer, Fiverr, PeoplePerHour, etc. But the main problem with these platforms is that they will keep a sizable portion of what you pay. For instance, Fiverr keeps up to 40% of what you pay and provides very little in return.
It increases your budget while providing the same quality of work, if not less.
Look who are active in developer communities & forums
Activities in popular developer communities & forums like GitHub and Stack Overflow indicate the capabilities of a particular developer or company. Say you want to develop a product using node JS and thus want to hire an expert node js developer or team. You may look at who has established git repositories or stack overflow profiles.
The only problem is you have to search them manually, and this process is tedious.
Read blog posts, medium & other publications
One of the key identifying characteristics of a great developer or business leader is that they share their knowledge with others. Writing requires a complete understanding of the topic, so you would know they know the topic.
So, where do they write? On websites like Medium, popular publications like HackerNoon, freeCodeCamp, or their blogs and websites. And in most cases, they want to provide their services too.
For example, Technext offers offshore software development, UI/UX design and marketing services. That’s why they share their knowledge of building products and startups on various platforms – medium, LinkedIn, Instagram, blogs.
Paid Ad campaigns
Thousands of offshore service providers run paid ads on google, Facebook and other platforms. You can contact the ad providers with your query.
But remember, anyone can create an ad and run campaigns, so you must check their capabilities before hiring.
Step 4: Evaluate the quality of developers and agency
There are many factors to consider when choosing an offshore software development team. We can not cover everything in this short portion. Here are a few key considerations:
-The team’s size and structure. Are they a large, multinational organization or a smaller, handy outfit? How is the team organized? Do they have a flat hierarchy or a more traditional top-down structure?
-The team’s experience. What kind of software products have they worked on in the past? Do they have experience with your specific industry or technology?
-The team’s culture. What is the team’s general attitude and approach to work? Are they customer-focused and collaborative, or more focused on meeting deadlines and achieving milestones?
-The team’s communication skills. How well do they communicate with clients? Do they provide clear and timely updates? Are they responsive to questions and concerns?
Ultimately, the best way to evaluate the quality of a software development agency is to work with them on a project. This will give you first-hand experience of their capabilities and their working style. So, choose only those who provide you with an option of a free trial.
“Gaining a victory is more difficult than maintaining it once you have it.”Joyce Meyer
This quote from Joyce Meyer is remarkably functional when it’s come to building and maintaining an outsourcing development team. The project might fail if you fail to maintain your outsourcing development team well, no matter how qualified developers you pick.
How to effectively maintain an offshore development team
Reduce communication gap
To erase the communication gap, you can use tools like slack, Skype, zoom, google meet etc. You can also schedule weekly and monthly team meetings so everyone knows the goal.
Use project management tools
Project management software tools like Trello, Asana, odoo, Wrike, Taiga etc., help you run outsourced projects smoothly by tracking different tasks and module execution, setting deadlines while adjusting to the time zone differences.
Implement agile methodology
To be successful with outsourced projects, an agile mindset is essential, as is open and tuned cooperation, mutual trust among all project contributors, and personal accountability. Consequently, ensuring that your outsourcing software development team in different time zones provides adequate adaptability, cooperation skills, and scalability.
Until now, we discussed the two main software development strategies – in-house and outsourcing, both of which have pros and cons. Anyways the complete implementation of any method is a myth. So don’t be upset if none of this works for you; there is another approach – Hybrid Development Team Approach, you can try. Let’s have a look at it!
Hybrid Development Team Approach: The Sweet Spot
What Is A Hybrid Software Development Team?
A hybrid software development team is a mix of onshore and offshore developers. The onshore developers are usually from the same country as the client, while the offshore developers are based in a different country. The advantages of a hybrid team include enhanced communication, increased flexibility and lower costs. In addition, hybrid teams can draw on the strengths of both onshore and offshore developers. Onshore developers tend to be more familiar with the client’s business, culture and values, while offshore developers often have more experience with the technology being used. As a result, a hybrid team can offer the best of both worlds.
Advantages Of The Hybrid Approach
Get different perspective
When you combine your own team’s solid expertise with the fresh viewpoints of the external team, you can have a wide range of fresh insights and ideas that can be used to improve your business processes.
Budget-friendly is the word that perfectly describes the hybrid approach from a financial perspective. In the hybrid approach, there are tons of options available to choose from. You can choose the best financial decision for your startup in that situation.
Increased technology knowledge
Working with an external team that develops new systems, often across several technologies, allows you to use their expertise. They will inquire about your preferences and specifications, then use the knowledge and expertise of their staff to provide you with the most suitable solution.
Employee replacement security
In the hybrid method, if employees leave the team or become unavailable for work, you will instantly get a replacement. Outsourcing agencies always have backup developers in case of need; they can provide you with developers.
Source code ownership
Using a hybrid software development method gives you the legal right to use, modify, and distribute the code created on your behalf. You can collaborate with outsourcing software developers while keeping full legal control. To ensure that you are covered, just be sure to ask the questions up front in your engagement.
Increase team capacity
Hybrid project teams are good for getting the team members you need to increase your team capacity and finish your project timely. After that, you can disband the outsourcing team when you are done with your project; still, you will have the in-house team to continue.
Great help in maintenance
You might need some maintenance after developing the project. Your hybrid team can stick around for maintenance and assurance while your in-house team can start a new project.
The hybrid approach comparatively has more advantages, but it also has some disadvantages.
Disadvantage Of The Hybrid Approach
The disadvantages of a hybrid software development team include time zone differences, language barriers and cultural differences. In addition, communication may only be smooth sometimes, and tension between onshore and offshore developers may be tension. However, these challenges can be overcome with careful planning and effective communication. A hybrid software development team can be a powerful tool for creating high-quality software when appropriately managed.
When Should You Hybrid Development Team Approach?
The decision of when to use a hybrid development team approach for software development depends on many factors. If cost is the primary concern, then an offshore team may be the best option.
Another factor to consider is the level of expertise required for the project. If the project requires highly specialized skills (for example, back-end development or algorithm design), it may be best to use an onshore team. However, an offshore team may be more cost-effective if the project can be completed with more generalist skills or if you can segment the project into several parts.
One key thing to consider before going for the hybrid development team model is the skill of your in-house developers. If your in-house developers are not ready to collaborate with co-workers from a different country, if not a continent, then you can not choose this approach.
How To Build A Hybrid Development Team?
Building a hybrid development team is complex, given that it combines an in-house establishment and an offshore team. Here we will discuss a few key things that will give you a brief overview. To get a complete overview of the process, you can talk to an expert or schedule a free meeting with our co-founder, who is an expert in this matter.
As hybrid development teams combine both in-house and offshore teams, you have to build both separately. But first, you must focus on creating an in-house team that will handle your core developments. Make sure you hire a CTO or at least a senior developer who will be the bridge between the two teams.
The second step is to fragment your project into several parts. Assign tasks that require specialized skills to your in-house teams. Then make a segment of tasks that can be completed with more generalist skills. Assign these tasks to your outsourcing partners.
You can also assign specialized tasks to offshore teams if you have someone who can ensure the quality or if you have found a reliable development partner.
Now all you need to do is manage the project effectively. Follow project management best practices to ensure the best quality output.
Tips for Buiding a Development Team
Here to help your dream team –
- Give yourself enough time to research to know exactly what you want for your team.
- You can split the tasks in various ways – long term vs short term; time consuming vs easy going, require trust vs anybody can handle.
- A few examples will be you can keep the core backend to your in-house team and outsource the front-end and UI/UX design, digital marketing and SEO jobs.
- Always ensure your expert team leaders and advisers accompany you during all the stages of recruitment.
- If needed, interview or assist multiple times to find the right people.
- Make sure there is no us and them between your in-house development team and outsourced development team
- Prioritize trust, flexibility and equability in the team.
Real Case Study of Mailbluster
How MailBluster saves a whopping $1 Million+ development & maintenance cost by outsourcing to an offshore software development team!
MailBluster recently reached the milestone of sending 1 Billion + emails by 20,000+ users globally.
It’s the world’s #1 email marketing solution from a cost-effectiveness perspective. Customers love it.
Since 2018, MailBluster has been utilizing the offshore software development team Technext in Bangladesh. They have hired backend developers, front-end developers, UI/UX designers and DevOps from Technext. Lately, they have onboarded the digital marketing team consisting of content marketers, SEO specialists, and paid ads experts from Technext.
MailBluster has a very complex architecture to handle large amounts of data. It sends 2M~3M emails daily and tracks & stores the analytics – who opened, clicked, not opened, purchased and a few more important analytics. To do so, it is designed in a microservices architecture. It uses AWS Lambda for scaling. So you understand the requirements of the skilled and experienced workforce, right?
Their investors choose the offshore development team carefully. The following breakdown will give you a clear picture.
|Resources||Cost in USA (Per Year)||Cost of Offshore Team (Per Year)|
|4 Backend Developers||4 X $100K = $400K||4 X $36K = $138K|
|2 Front-end Developers||2 X $80K = $160K||2 X $24K = $48K|
|2 UI/UX Designers||2 X $80K = $160K||2 X $24K = $48K|
|4 Front-end Developers||2 X $80K = $160K||2 X $24K = $48K|
|1 QA||1 X $60K = $60K||1 X $20K = $20K|
|Resources||Cost in USA (Per Year)||Cost of Offshore Team (Per Year)|
So if you continue for 3 years of development, marketing and maintenance you are spending –
940 X 3 = 2820K
180 X 3 = 540K
Total 3,360K of solid money without unforeseeable cost that may occur during this tenure.
If you can learn how to manage and get things done using a remote offshore software development team, you can do it within –
302 X 3 = 906 K
36 X 3 = 108 K
Total 1,014 K using a great and experienced offshore remote software development team.
You just saved 2 Million USD within 3 year of time span.
That’s almost 70% savings of your money.
What are you gonna do with it? Let us know in the comment. And if you have any questions then don’t hesitate to say hello.