In-House Development vs Outsourcing: Which One Is Right for You?

“Your project is only starting its journey, and there’s already a fork in the road. Your team is great: they’re skilled and experienced, but they can’t be jacks of all trades. You’re missing a key competence. So you need to make a choice: in-house development or outsourcing?”

As a tech startup founder, you’ve probably already arrived at this fork and are having similar doubts.

Do you want to keep a handle on your project at all times or delegate a part of it to outside talent? Can your company afford to wait in line for available developers, and what suits your budget better?

In this article, we’ll go over the realities of in-house development, compare it to outsourcing, and hopefully help you decide which way to go.

But first, let’s get clear on some terminology.

What is in-house development?

In-house development (sometimes referred to as insourcing) is the practice of relying on a business’s internal resources when working on a project. This doesn’t mean you can’t hire more specialists to fill in the gaps, but you recruit them directly as employees.

This approach has many benefits. Let’s take a look at them.

In-house development: The pros

Having a team of dedicated professionals with skills that cover all of your project’s needs sounds like a dream come true. And in a way, if you manage to pull off in-house development, it is. Just look at the benefits:

• Direct communication and management. Working with an in-house team allows for fast and direct communication and does away with time difference issues if you hire close to office.
• Hand-picked team members. When hiring your new employees locally, you can be more selective, basing your choices on work ethics and values that align with those of your business.
• Deeper project expertise. Your in-house employees will soon become specialists on your project. This can go a long way to up quality and productivity.
• A higher level of engagement. When your team works on one project only and has shared goals, you have a higher chance of loyalty and dedication. People tend to identify with the work they do and be more engaged in it in the long term.
  

Of course, while in-house development has many advantages, there are some downsides, too.

In-house development: The cons

Before setting your mind on assembling an in-house team, it’s important to be aware of some of its disadvantages:

• High costs. If you’re hiring locally on the US market, expect to pay your future software developers up to  $157,500 a year (salary in SF Bay Area, data from Hired’s 2021 report). Add in bonuses and other perks, not to mention the cost of equipment and office space.
• Resources spent on recruitment. Filling vacancies takes time and money. You’ll probably outsource the hiring process to an external recruiter or an agency. What’s more, even when you have your candidate, there’s always a learning curve, which takes additional time.
• ‍Lack of versatility in expertise. What if your objectives evolve, and you need to adjust the tech stack? Will you bring in new talent and lay off people without the necessary expertise every time? Or keep everyone on payroll and provide training? Both are feasible options, but again, there’s a cost.

Given all the challenges of in-house hiring, it’s not surprising that many companies choose to outsource software development. So, is the grass really greener on the outsourcing side of the fence?

Let’s take an objective look to find out.

What is software development outsourcing?

As opposed to in-house development, software development outsourcing involves authorizing an independent party to do the job — or some part of it — for you. Usually, it’s a software development company with a talent pool that has all-around expertise and can quickly adapt to different project requirements.

So what are the main pros and cons of outsourcing?

Let’s start with the good news.

Pros of software development outsourcing

What do you stand to gain when choosing to outsource the software part of your project? Quite a lot, actually.

You get more flexibility when scaling your teams

When an external company handles your recruitment needs, you don’t have to worry about hiring or letting go of talent. You communicate the objectives, and your software partner finds the most suitable personnel solution. As soon as their contracted work is complete, you won’t have to keep paying for their services a minute longer. With an experienced vendor, the process is quick and painless. You’ll appreciate this perk, especially when your project enters the support phase.

You’ll launch your project faster

Outsourcing companies are usually prepared to meet the staffing challenges of the most demanding projects. With less time spent on hiring and onboarding, you’ll be able to get to work much faster.

You can save on expenses without compromising on quality

This gets especially relevant if you outsource abroad, since you can find the perfect balance of reasonable rates and consistently high quality of service. Hint: think Eastern Europe.

Oh, and don’t forget: when outsourcing, you don’t have to deal with finding office space, buying supplies, or taking care of other day-to-day essentials. Other expenses inherent to in-house development — related to recruitment, talent retention, and such — won’t be your concern, either.

You get access to a wider talent pool

Trying to do all of your staffing on your own can seriously limit your options. By delegating it to a trusted software partner, you can rely on their experience and knowledge of their respective job markets. In addition to their readily available in-house development teams, outsourcing companies can quickly recruit local talent with the required skills.

If outsourcing now seems like an attractive option for software development, that’s not far from the truth. Still, to give you the full and impartial picture, let’s run you through the cons. (Spoiler: there aren’t too many.)

Cons of outsourcing software development

It’s actually best to talk about concerns rather than cons when it comes to outsourcing. There are a ton of nightmare stories out there from people who hired an unreliable vendor or maybe had the wrong expectations of their deal. The result is that there’s plenty of misinformation about what the real disadvantages and risks are.

Let’s put your mind at ease by taking an objective look at the main concerns.

Transparency and security: What if they steal your idea?

Granted, delegating the development of your software sounds like a risky business. What if your new partner steals your idea and makes it into a successful startup of their own? What if they share proprietary data with other parties?

Don’t worry — there’s a heap of legal papers you both get to sign before doing any actual work. Documents like an NDA (Non-Disclosure Agreement), DPA (Data Processing Agreement), and others will protect your interests.

Trust and reliability: What if they don’t deliver?

So what if you find your perfect partner, shake hands on the deal, they write the code — and then disappear into thin air?

The only way to prevent this is by working with reputable vendors that utilize relevant technology. Look for companies with great client reviews, and clarify every detail when negotiating and signing the contract.

Communication and culture: What if we can’t work together?

Communication is one more aspect of outsourcing software development that many business owners worry over.  If you’re outsourcing abroad, will diverse cultural backgrounds be a factor? What about the time difference? Will the team be available for meetings and discussions? How good will their English be?

We recommend reading up on the cultural aspects of a particular country, but rest assured — most Eastern Europeans live by rules of social conduct and work ethics very similar to those of the US.

As for language, it’s usually not a problem at all. For example, 85% of Ukraine’s IT professionals have at least an intermediate level of English proficiency. This is natural for a country with over 150 higher academic institutions that have prepared over 200,000 IT pros currently available on the country’s market (data from a 2020 government report on Ukraine’s IT sector).

And that time difference? When it comes to outsourced software development between the US and Europe, there’s at least a 4-hour overlap in working hours, and most teams are willing to adjust their schedules to extend this a bit further.  

Now you’ve seen an overview of software outsourcing pros and cons, you just need to think of where you are in order to make the best decision.

When to outsource development

There are a few scenarios when outsourcing proves to be the best strategy for your software project. Here are our top three:

• You’re on a tight budget. This can be a limitation, but you can turn it around and make the most out of the resources you have with outsourcing.
• Your talent pool is small. If you’re working on new technology or need very specific expertise that isn’t widely available, you’ll likely find it hard to source locally. Don’t let your project stall: dive into a larger pool of talent and keep the work going.
• You have tight deadlines. Your product needs to be out now, beating the competition. This is why most tech startups go for outsourcing app development in today’s competitive market.
  

If you find yourself in any of these situations, you’ll probably find that outsourcing makes good sense. And if that’s the case, all you need to do is follow a few simple rules to get the best out of it.

Best practices for outsourcing software development

Once you’ve decided to outsource, the process should be fairly straightforward.

Be clear about the form of outsourcing you need

One strange concept that’s connected with outsourcing is shores. Three shores differentiate the three types of outsourcing software development. Here’s a quick explanation of what they mean:

• Onshoring is working with a company within the boundaries of one country.
• Offshoring means finding a software partner abroad, usually from a remote location, based on the significant benefits it can bring to the project.
• Nearshoring is outsourcing your software work to a company within a similar time zone (and often with a similar culture).
  

When choosing your shore, consider the time difference, the cultural background, and the salary range. But remember: in the end, you’re choosing a particular company and the values it brings to the table.

Find the right outsourcing partner

You should definitely check out a prospective partner’s rating and reviews, as well as ask for client testimonials. Carefully look through the company’s portfolio and see if the tech stack they’ve mastered suits your needs. Don’t hesitate to set up a meeting and talk about the details. You’ll have a much better idea of who’s behind the fancy website after an hour-long chat.

Make good use of project management tools

Many outsourcing vendors use an Agile approach to development and project management since Agile provides the exact level of flexibility and control that outsourcing requires. As a result, they’re well placed to bring the time and productivity benefits of Agile to your project.

What’s more, a good vendor will have experience in a wide range of project management tools, so they should be able to fit seamlessly in with your chosen communication channels.

Make your expectations clear and always, always communicate

Yes: communication is key, and great communication is the key to success. With the availability of tools like Skype, Zoom, and Microsoft Teams, you and your software partner should have no problems discussing every detail and nuance.

However, no project (especially one that’s managed remotely) is immune to misunderstandings and issues. It’s a work in progress, and you should treat it as such. It’s not about how dire or unfair the situation is, but how efficiently you can resolve it through communication.

And there you have it! This finishes up our take on the famous insourcing vs outsourcing dilemma. Still, before you leave us to get back to your decision process, let’s quickly sum up what we’ve covered.

Wrap-up

Choosing between in-house development and outsourcing can be a daunting task, as it will have many consequences for your business. There are numerous factors you have to take into account, such as the scope of your project, the technologies involved, and your budget and deadlines. Hopefully, after reading this article, you now have a clearer idea of where each fork will take you.

To help you arrive at a rational decision, we’ve provided a comprehensive overview of the pros and cons of each approach. Supported by numbers and followed by a list of possible use cases and best practices, it should be a good starting point on the way to your project’s success.

The truth is that you don’t always need to take the journey alone. A trusted partner can help you reach your business goals faster by sharing the load and providing help where you need it most. And that’s just what the outsourcing model can offer.

At Altigee, we’re ready to assist you with hiring software engineers or building a bespoke engineering team starting today. Extend your team with top-level IT professionals and enjoy seamless communication and work of the highest quality.

We’re closer than you think. Let’s talk!