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Outsourced v/s In-house Software Development: Which one is better for Start-ups?

Vijay Singh Khatri
I am working with Hackr.io as a Community Manager. Learning New things is My Passion. I Love tech writing. I also love to motivate others.
・6 min read

Inhouse vs Outsource
Gone is the time when the in-house team had to do everything for their employer. Often, they were entrusted with work beyond their caliber and knowledge. But things are different in the present age and companies are opting for outsourcing work. It has turned out to be an immense help for companies which are unable to afford the high price involved in hiring an in- house professional, and for those who work with time constraints, etc.

Outsourcing facilitates the concentration of focus on core operations, while there are a few individuals who believe that the company may lose its repute and hamper its growth in cases of companies involved in customer services by outsourcing. Conversely, selecting, enrolling and creating coordination amongst them needs a great deal of time, patience, endeavor, and an apparent long-term plan.

Let us have an in-depth study of the pros, cons, risks, challenges, costs, etc. to know the cases when a start-up company should go for in-house or an outsourcing software developing company. We will also scrutinize the facts that must be emphasized while taking the decision of hiring an outsourcing or an in-house team.

Summary of pros & cons

While finalizing and picking one of the above two approaches for software development, it is suggested to take into account your budget, time limit and project’s scope as both have their share of pros and cons. An in-house team is well versed with the value as well as an understanding of the project of the company, but maybe running short of proficiency required for the work, or maybe incapable of dealing with unanticipated state of affairs. On the other hand, software agency outsourced for the work might not be acquainted with the workflow in the company but will be skilled. Let us have an overview of the benefits and disadvantages involved in the above two options:

Outsourcing to a software agency

Pros:

  1. The company doesn’t get bound with the outsourced agency. It can avail their services and discontinue after the accomplishment of work. Or in case of dissatisfaction, can fire them and look out for another software agency for the same job.
  2. It aids in overcoming major staffing issues.
  3. It is cheaper compared to the in-house hired workforce.
  4. It doesn’t comprise of expenditures that are usually incurred on processes like recruitment, training, and interviews.
  5. Quick and prompt work delivery is expected.

Cons:

  1. It may result in poor communication because of difference in values, culture, business hours and time zones.
  2. One is more prone to the risk of confidentiality and security as you may have to share some important client’s data through online communication channels.
  3. It involves a greater chance of deception as an agency may claim the expertise that they do not possess.
  4. It lacks transparency.
  5. It lacks the element of face-to-face communication.

An in-house development team

Pros:

  1. It facilitates face-to-face communication and immense project engagement within a team.
  2. It entails better check and control.
  3. You can expect prompt team feedback, assistance and dexterity;
  4. The team engaged would be utterly focused on the project and would not have other clientele or work to also look on.
  5. No language hurdle as the squad usually belongs to the same nation with identical culture.
  6. You can get involved in the project and can make changes thereon at any stage of the project.
  7. It flourishes high assignment know-how resulting in competent bug fixing, holds up and autonomous continuance.

Cons:

  1. It will surely be hard to control budget as the employer will abide to pay salaries, insurance, taxes, etc.
  2. You will have to incur recruiting expenses like ads, interviews and training which would augment the cost of hiring.
  3. You may not be able to employ skilled employee due to the drawback of location.
  4. One may have to hire outsource team on facing a situation like the instance of unsupported code.
  5. You may have to deal with the resignation or dismissal of an employee at any time and get compelled to invest in new employees.
  6. One cannot decide merely on the basis of the pros and cons. Let us have a brief insight into the perils and benefits involved along with the approximate cost difference to be able to conclude effectively.

Benefits

Advantage of an in-house team is that after recruiting the complete team, you can conduct the whole process under your direction. It facilitates immediate reviews and changes whenever required. You can prevent the team from getting defocused by encouraging them from time to time.

The major benefit of outsourcing is that you can have easy access to the hardcore professionals employed in the outsourcing company you are opting to hire. They can offer excellent aptitude, business effort, designs, programming and maintenance for your product. The turnover risk of an employee is minimal as a professional outsourcing venture will ensure safety against such issues by confirming on-time delivery. One can focus more on the core matters by outsourcing to procure a proven software development process.

Risks with In-house team

You need to be versed with the yardsticks for hiring a team. One needs to know about the elements to be emphasized while screening and must have someone that can handle the screening and validation procedure efficiently. You will need an expert to answer queries like skills, fund and techniques and size of the team required for an upcoming software project. You cannot ignore the above facts as success or failure would be determined by you and your team. You are always at risk of your employee’s choice to leave your company.

The quantum of risk involved in the event of outsourcing is comparatively more. Things can really get into soup if the hired outsourced company could not produce up to the mark results or its cost turns out to be more than you anticipated in the initial stage. Things can even get worse as the rate of credibility is fairly low in the case of hiring outsourcing company, they may run away with your money. It is hard to rest with ease with so many risks.

Important tip- One needs to be a bit careful while hiring an outsourcing company to avoid set back in business. Do confirm their honesty, commitment, and transparency before signing the

In the next section, let us peep into the cost involved in both the two approaches as money matters cannot be ignored.

Costs

Both outsourcing, as well as in-house approaches, comprise of expenses like salaries/hourly rates, office space, taxes, communication, recruitment activities, communication, traveling, management, oversight, etc. In the case of the in-house team, salary is the center point and you may need 2 or more employees. The standard annual salaries of IT experts for the year 2018 were as follows:

  • Data Scientist – $120,000
  • Web developer – $88,000
  • iOS developer – $108,000
  • Back-end developer – $70,000
  • Android developer – $98,000
  • Web designer – $56,000
  • Project Manager – $80,000

You will really have to pay a handsome amount to the in-house team and this would hurt more if despite of paying heavily, you do not get the desired results. And do not forget about the other expenditures like paid sick leaves, bonuses, staff training, taxes etc. Hiring an in-house development team is a costly affair.

The event of outsourcing will be economical when compared to in-house developers. But it may not turn out to be so in all cases as a typical or professional software developer may charge every hour. Hourly rate may vary from $50 to $ 200 per hour.

Conclusion

Entrusting the job of outsourcing could turn out to be reasonable but don’t skip the fact that in-house experts can be more lucrative for the long term. Both outsourcing and in-house team needs patience, care, and understanding of skills.

In the present scenario, most businesses are opting for both approaches. Small scale companies focus more on sales, marketing, and customer support; and at the same time, outsource the work like bug fixing, web/mobile design development, etc.

You can always have control over the team and can monitor the effectiveness of being a business owner. A committed development company will always stick to the guidelines and instructions. If you have to go with any one of the two approaches, then take into account your budget, project scope, and duration to decide the best pick for you. Even a little bit of carelessness or abrupt decision making is not acceptable as you are working to build your business, not just a mobile app.

Originally Posted Here.

Discussion (11)

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juliabekesh profile image
Julia

Thank you for sharing this insightful article. To my mind, with outsourcing, you create an infrastructure of efficiencies and greater understanding of the general corporate structure n-ix.com/outsourcing-vs-insourcing....

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rashmivanwani profile image
Rashmi

Being part of the startup, It's very difficult for us to decide and differentiate whether we should go for outsourcing or inhouse development as both have there own pros and cons. Both are costly, time-consuming but the main question comes which will be the most cost-efficient. Your post helped me in making my view a Lil clear about outsourcing and in-house development.

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miloszstx profile image
Miłosz Gałganek

Thanks for your article, I really liked it for the clarity of structure and conciseness. I agree that deciding between developing your software in-house and outsourcing it is a genuine challenge—especially for startups and small companies. It was very helpful that you focused on this particular instance, though I'd argue that the conclusions to be reached here are pretty much the same regardless of the company size. It always comes down to the individual circumstances of one's project, which is a sentiment we also express in our own article on in-house development vs. software development outsourcing. Feel free to have a look at our take on the subject if you like: stxnext.com/blog/2019/10/23/in-hou...

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olgagalikua profile image
Olga Galik

I'd like to say that very important to understand the startups' goals and needs. You can't say that use only in-house or outsource development. It's very important to count on all aspects of business.

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anastasiiamikula profile image
Anastasiia Mikula • Edited

In my opinion, outsourcing would be a better suit for startups as this type of software development team requires payments only for hours spent developing your product. Additionally, you can find the software development company with much lower rates and high-quality services in comparison to your local specialists.
You can read more about the profits of the outsourcing team here gbksoft.com/blog/outsource-vs-in-h...

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outsourcedev profile image
outsource.dev

Great article, couple of extra items in my article that people may be keen to read on a similar thread.

outsource.dev/how-to-successfully-...

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birchy_io profile image
Birchy

Thanks for the useful article!

By the way, Russia - is one of the best options for IT outsourcing. Will be glad to share its main benefits: i-neti.com/stories/outsourcing-to-...