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Why You Should Outsource Software Development

Why should I outsource software development?

This is a question that I’ve been asked lately by one of our potential clients. The first quick thought of mine was, you should outsource a project anytime you don’t feel to be an expert at something and/or you don’t have enough time to solve the related problem.

Outsourcing is like delegating tasks – if you will not learn it, you will not find enough time to grow your business. Learn to let go and find experts either in-house or offshore/nearshore to build the best possible software for you.

Working with software development company will help you to solve three things:

  • How to reduce fixed costs
  • How to speed up/scale your development team
  • How to find skilled developers fast

You can say that today software development outsourcing is a kind of external SaaS tool to grow a technology behind your business.

TL;DR

Why should you outsource software development?

# Reduce a software development cost

True cost of an in-house developer could be 2.7x times the base salary ($100k x 2.7 = $270k)

# Reduce hiring mistakes

It takes around 43 days to find a new developer (often they have a 3 months period before leaving a company) and this will cost you between $22k-$32k (depending on if you are doing it in-house or using an agency to do it for you).

# Increase your team skills at any time and scale the team

Outsourcing to a software development company gives you a feeling of on-demand service, where you can adjust your external skills/cost by ‘dragging’ a scale.

# Focus on your core business

If your core business is not software development or technology – outsource it.

# Working Remotely is becoming a world-wide standard

You don’t have to bother about the difficulty of finding a software developer in your city, you can now search for them globally.

# Corporates outsource to get applications done faster

Become an Intrapreneur by outsourcing app development to speed up delivery time like National Geographic or Eurocash did with us.

Reduce software development cost

Have you ever wondered, what is your true employee cost? Based on research from Joe Hadzima, a senior lecturer from MIT, the true cost of your new in-house developer could be 2.7x the base salary. If you cover all employment taxes, benefits, rent, equipment, and all non-billable hours (organization, meetings, trainings, business trips, team integration events etc.), you could pay, for a full-time developer, not only $100k, but it could add up to $270k!

Toptal, which is a platform for freelancers, made a tool to calculate the true cost of an employee and consultant. Based on their research, the base rate for an internal employee of $50 per hour will double to up to $100 per hour if you add all the costs. For a consultant, the cost of the same hour for $50 will in the end cost no more than $60.

It’s a huge saving per one in-house developer.

True cost of employee vs consultant

Reduce your hiring mistakes

Hiring the right people is extremely hard, even for experienced recruiters or leaders.

Welch also maintains that if you get the hiring right over 50% of the time, consider yourself talented at executive search consulting and recruitment services.

Jack Welch, ex-CEO of GE

As a leader of a company (even though you’re probably not finding the candidates yourself), you will need to spend time interviewing them – and you have to pay somebody to find the right candidate. In the end while hiring, you’ll need someone to handle the on-boarding, get the paperwork done, somebody to buy/configure a new computer and much more….

Based on a report from DevKillers, it takes around 43 days to find a new developer (often they have a 3 month period before leaving a company) and this will cost you between $22k-$32k (depending on whether you are doing it in-house or using an agency to do it for you).

It’s a lot of money before you will get a Return-On-Investment. Remember, that this could cost you around 50% of all costs mentioned above.

Answer yourself, is it worth it to always hire in-house developers?

Increase your team skills at any time and scale the team

scale software development team

Outsourcing (it doesn’t matter if we talk about custom software development outsourcing, content marketing, or sales) is almost like an on-demand service. You know clearly your costs per hour or man-day for each outsourced consultant or developer.

It’s like using one of Amazon’s Web Services to scale the capacity – just drag-and-drop a trigger to scale your external team and their skills you need at the moment.

Of course, it takes time (more or less 1 month), but it’s still a faster and cheaper solution than hiring new resources to help you.

Today, you can add/switch developers on a project. If you need more front-end or backend or UI skills you can do it easily with an external development partner.

So, next time before you decide to hire an in-house developer be sure that you really need one in-house.

Working remotely is becoming a worldwide standard

Last week, I read about another company, Automattic (WordPress creators worth over $1 billion), who closed an amazing 14k square foot office in San Francisco, because most of the time the team of 550 people was working remotely… 

GitLab from day one is a fully remote company. Almost 160 people are working together on a platform for developers and none of them are sitting in the same office (watch the interview with Sid Sijbrandij GitLab’s CEO – https://blog.ycombinator.com/gitlab-distributed-startup)

Why am I telling you this?

Because the location of your software development team is becoming more and more irrelevant for your business. If such huge and successful companies are able to run their businesses without an office or in-house team delivering high-quality products – there’s no reason why you can’t do the same.

You don’t have to bother about the difficulty of finding a software developer in your city, you can now search for them globally.

Focus on your core business

I’m not saying that you have to outsource the whole IT department or all of your software development activities like Fab did by working with a fully outsourced software product development team of 300 people. They did it to focus only on their core business and those things that they are best at – you should do the same.

  • If you are great at marketing automation –  you don’t have to develop the product on your own,
  • If you are great at selling real estate – you don’t have to develop a system to gather leads online,
  • If you are an amazing musician and you have a huge network in the music industry – you don’t have to build and develop the next Spotify on your own.

Focus on your strengths and outsource all other things. Building a software development department/team in your company is like building a company inside your company.

Think about this this way – Do I want to build a software development company or build a business that I am currently running?

Corporates outsource to get things done faster

If you worked in a corporation before or even a bigger organization of >250 people then you probably know that getting new things done takes a lot of time. You have great ideas to optimize business costs, implement a new CRM system, or build a mobile app that customers of your company will love.

However, in many cases it could take months before making a decision about it, because in most cases, using an in-house software development team might be quite expensive for your company.

We worked with two great corporations, National Geographic and Eurocash, to help their ideas become real. In both cases, we were responsible for building a whole product from the conception phase to implementation and maintenance.

In the case of National Geographic, thanks to lean startup processes, we decreased the software delivery time by 80% compared to internal National Geographic IT resources.

Even if you are working at a corporation, you can always act as an Entrepreneur, by becoming an Intrapreneur.

national-geographic-brainhub-interface-1

Resources:

  • http://www.business2community.com/books/jack-welch-on-recruitment-and-staffing-0313373#lBGm4bKycV5AIRuH.99 (Jack Welch quotation)
  • https://www.toptal.com/freelance/don-t-be-fooled-the-real-cost-of-employees-and-consultants (image)
  • https://codepen.io/dubrod/pen/osDmg (image)
  • http://www.businessinsider.com/automattic-closes-san-francisco-office-to-let-everyone-work-remotely-2017-6?IR=T (image)

Matt Warcholinski

Matt Warcholinski is the COO of Brainhub (a software house building awesome node.js web and mobile apps) who loves to build startups and play guitar.

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