Expert Guide: Hiring & Managing Outsourced Development Teams

Discover the concept of outsourced development team, the benefits and challenges it presents, and the solutions available. Plus learn on how to effectively establish and manage an outsourced team for your business.

Expert Guide on Hiring and Managing Outsourced Development Teams

Imagine you are a small business owner or startup founder needing a software product. Now, you have two options: build an in-house software development team to develop your product or hire someone else to build the software for you.  

We all know building an in-house development team is not much of an option for a small business or an early-stage startup because it would cost them too much.

Suppose you’re uncomfortable giving the entire project to a company or freelancer or want to manage the team yourself. What other options do you have?  The solution lies in on-demand hiring through partnering with an outsourcing provider. 

And in this article, we will discuss one of the most popular engagement models in the outsourcing world: the outsourced development team.

What is Outsourcing Software Development Team? and Why It Matters? 

Simply put, software development team outsourcing refers to the practice of hiring a team of professionals from outside companies to handle your software development projects or tasks.

It will be like your in-house team minus the logistics and human resource management. Just like staff augmentation, the outsourced development team can be located in the same country or in a different country depending on your business needs.

There is a growing trend toward outsourcing, projected to continue growing through 2030. According to a recent study by UpCity, 83% of small business owners are considering outsourcing soon. The reason behind this trend can be better understood by the chart provided below:

Benifits of Outsourcing Teams
Why do people choose to outsource over in-house teams?
Credit: UpCIty

Additionally, by hiring an outsourcing software development team, you can avoid the hassle of hiring, accommodating, and training the new team. Plush, you don’t have to deal with paperwork, human resources, or taxes. All of this will be taken care of by the outsourcing partner. So it will be cost-saving for you. 

If you choose right, Your outsourcing partner will have experience and in-depth knowledge in their respective fields. So, your projects are handled by experts who can deliver high-quality solutions which provide both product quality and reduces risk. 

Moreover, you can easily scale up or down the development team based on project requirements. The outsourced development team can also bring fresh perspectives and innovative ideas to the table to develop unique and cutting-edge software solutions. Simply put, these professionals will handle your project from beginning to end; all you have to do is relax and supervise.

Challenges You May Have to Face and Solutions 

If outsourcing is such a cost-effective and efficient option, then why do big companies still choose to hire in-house? The truth is, outsourcing your development team can bring certain challenges that you may not have considered. 

According to the same report by upcity, 23% of business owners don’t choose it because of high cost and 21% faced a problem in communication. 

Fortunately, you can overcome all those challenges if you take your steps carefully and know what you may encounter. Let’s look at all the problems you encounter when choosing an outsourced development team.

Challenges of Working with Outsourced Teams
Challenges of Working with Outsourced Teams. Credit: UpCIty

Higher Cost

It is often more cost-effective to outsource rather than hire in-house. However, if you decide to outsource within the same country or an area where the cost of hiring is equally high, the cost of outsourcing may actually rise. 

One simple solution is to outsource your development team to a growing market that offers the same level of expertise at a fraction of the cost. 

For example, in Bangladesh, the monthly cost of hiring a React developer ranges from USD 2K to 4K, which is only a quarter of what it would cost in the USA.

Communication Challenges

It is actually a legit problem most people face when working with non-native developers. The solution to this problem is rather simple, just ask your outsourcing partner for a free trial before onboarding. Select the team members you feel comfortable communicating with. 

Don’t follow instructions and fail to meet deadlines 

The survey result shows 12% &14% of the participants experienced the above issues. However, it’s worth noting that problems with following instructions and deadlines may stem from a broader company culture issue.

If you choose your outsourcing partner right, you should not face these issues that much. So, the solution is to contact their previous partners and ask for a review, especially regarding these two issues. 

Lack of confidentiality and data breach

9% of participants experienced a lack of confidentiality and 8% faced a data breach. Both are serious issues, especially for startups. 

Signing a non-disclosure agreement (NDA) can help address such issues, but it may not always provide complete protection if you collaborate with a company that operates outside US regulations. It is advisable to partner-up with companies that are registered in the USA, as this may afford you greater control in such situations.

Low quality of work

Finally, a potential problem with outsourcing is the possibility of receiving poor-quality of work from your partners. However, this can be easily remedied by taking a hard look at their portfolios. It is also wise to review the portfolios of any staff members you are considering hiring.

When to Outsource Development Team

As a startup founder myself, I understand that relaxation may not be your top priority. Like most founders, you’re likely focused on finding solutions to the challenges you’re facing. Perhaps you’re considering outsourcing a development team, but wondering if it’s the right fit for your startup. It’s important to note that outsourcing may not be the best option for everyone.

But if your in-house team lacks the necessary expertise or resources to handle specific software development tasks, you can outsource the project to a specialized team might be an answer for you. 

For short-term or one-time projects where you do not want to hire full-time staff, outsourcing development teams can provide the required skills and resources. 

When cost reduction is your priority, outsourcing development teams can offer significant savings by eliminating the need for in-house recruitment, training, and employee benefits.

Outsource when your deadline is near. By providing more resources and expertise, outsourcing development teams can help you meet tight deadlines. This is especially helpful when you need to get your services or product on the market as soon as possible.

You can also use the extra hands of an outsourced team when additional tasks continue to pile up, and you need to free your hand so that your in-house resources can focus on core business activities.

pro tip

Pro Tip: Do a cost-benefit analysis of both in-house hiring and outsourcing. Analyze the short-term and long-term outcomes of both approaches. If the benefits of outsourcing development teams outweigh in-house hiring, then go for it. 

Hiring and Setting Up Outsourced Development Team

Hopefully, you have a clear idea of if you need to outsource the development team or not. If the answer is yes, your next concern is to hire and set up an outsourced development team.

Understand Your Project Requirements

The first step you need to take is to understand the requirements of your project. If you do not understand the requirements yourself, you will not be able to pass them on to your outsourcing partner. 

You can start with a market research then figure out the objectives and expected results of your project. Understanding the goals will help you determine the specific expertise you need from your development partner.

You also need to know the project’s scope of work, where you can outline what to include and what to avoid. Don’t forget to determine the project’s budget upfront. It will help you narrow down your search for suitable partners. 

Identifying the required technical skills, soft skills, roles, and responsibilities will help you ensure hiring the right team members and later supervising their work.

If you lack technical knowledge, it may be wise to seek out a technical co-founder or consider hiring a CTO as a service.

Research, Evaluate, and Shortlist Potential Outsourcing Partners

After you grasp your project requirement, it’s time to start looking for a suitable outsourcing partner. As you proceed, you will find so many options. So naturally, finding and listing possible partners takes a lot of work. But working smart can help you with the process.

You can start researching potential outsourcing partners through multiple channels, such as Google or other search engines, Review sites (Clutch, Trustpilot, G2Crowd, Goodfirms ), Directories, Professional networks, Industry-specific websites, Outsourcing marketplaces(Upwork Inc.Toptal, Fiverr, 99Designs), etc. 

You can search for an outsourcing partner at clutch
You can search for an outsourcing partner at Clutch.

Considering essential factors like experience, reputation, location, cultural fit, communication capabilities, etc., will make your process more effective. To assess their work, you can review their portfolios and case studies. Research client reviews and testimonials to gain insights into their reputation and customer satisfaction. After have completed your research, you can evaluate all your options and make a short list of potential partners. 

Ask for a Pilot Project or Trial Period

Once you are satisfied with your outsourcing partner’s list, reach out to them for a pilot project or a trial period. This way, you will gain first-hand experience and find out exactly what you are getting from your outsourcing partner. It also allows you to test your idea on a small scale before committing. For your pilot project, you need to outline the deliverables, timeline, and any specific requirements or expectations. 

After the pilot project or trial period is over, conduct a thorough review and evaluation of the outsourcing development team’s performance. Assess whether they met the defined criteria and delivered the expected outcomes. If so,  congratulations, you have found yourself a good outsourcing team.

Figure out Pricing Models and Intellectual Property Protection

It’s time for you and your partner to figure out the pricing model that works for both of you. You have several options. You can pay hourly, which involves paying for the actual hours worked by the team, or monthly, where you pay a fixed fee each month for a predetermined number of hours or dedicated resources. 

You can also choose from other pricing models such as – Fixed price model, Time and materials (T&M) model, Profit-sharing pricing model, Incentive-based pricing model, etc. But before choosing one, make sure to evaluate the pros and cons of each pricing model based on your project requirements.

You also need to discuss Intellectual Property Protection with your partner to ensure that your unique ideas, inventions, and creations are legally recognized and protected.

intellectual property right
Photo by Markus Winkler on Unsplash

There are a few effective strategies to safeguard your IP. First, sign a detailed non-disclosure agreement (NDA) with your outsourcing partner, ensuring they don’t disclose or share your IP. You can also limit server and data access for the team to minimize the risk of infringement. 

Finalize the Paperwork 

After you are happy with your outsourcing partner, it’s time to finalize the paperwork. While finalizing your papers, ensure that the documents accurately reflect the agreed-upon terms, pricing, deliverables, IP ownership, statement of work, non-disclosure agreements, confidentiality provisions, and other specific requirements. 

You can also identify any areas of concern or disagreement and discuss them with your partner to come up with a mutually beneficial solution. 

pro tip

Pro Tip: Consider consulting with a legal professional in outsourcing agreements to ensure that the paperwork is comprehensive, legally binding, and provides protection. 

How to Effectively Manage an Outsourced Development Team

When you sign the contract, you’re starting a new adventure with its own set of difficulties. So you must take action to ensure the success of this collaboration.  

Set up Communication and Collaboration Tools 

One of the biggest challenges of outsourcing is maintaining communication and collaboration. You can solve this issue by setting up some amazing communication and collaboration tools.

Email, Slack, Telegram, Trello, and video conferencing apps like Zoom, Skype, or Google Meet are popular ways to do this. Using these tools, you can ensure that everyone involved in the project is informed and on the same page.

Establish the Milestones and Expectations

Tracking your advancement process is another challenge while outsourcing a development team. By establishing milestones, you can easily track the process of your project. You can also estimate the overall project timeline and allocate resources accordingly. Stating your expectation clearly to your team will help you in the long run. Your team will know what is expected from them. They will work accordingly to achieve the milestone. 

Actively Monitor Development Progress & Provide Feedback

It is also critical to monitor and provide input on your outsourced development project. Monitoring progress and providing input can help you get the most out of your outsourcing investment and get the best project results. 

Keeping track of activities, progress, and milestones ensures that the end result matches your expectations and objectives. Giving timely and constructive feedback improves overall project quality and can lead to better results. Communication with your outsourcing partner that is well-structured and feedback-based is critical to keeping the project on track and going in the right direction.

Provide Review and Talk about Future Collaborations

Lastly, conduct a throughout the review of the outsourcing engagement. You and your partner can find the strengths, weaknesses, and lessons. You both can also discuss potential future collaborations, which enables you to explore opportunities for extending the partnership.

Get a Free Outsourced Development Team Consultation

If you’re considering hiring an outsourced development team and have any doubts or queries, feel free to talk to me. I provide a free consultation where we can address all your concerns. Why not schedule a meeting with me and discuss it further?

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