Startups often begin in the bootstrapping stage — where they manage operational costs from their savings or help from friends and family. This means that a startup has to save more while achieving more — which is possible by relying on outsourcing. Especially in the software industry, it is better to outsource than spend more on hiring and managing an in-house team.
When you spend more in the initial stages, there is a high probability of increasing burn rates — which, in turn, will lead to dissolving your startup before it stands up on its feet.
About 45% of companies outsourcing IT functions say that their information technology outsourced projects are meant to save money.
But, saving money is not what outsourcing is all about. There is a lot to outsourcing than just handing over a job to someone experienced. This blog will cover everything that you need to understand about outsourcing before getting ahead with it.
What is Outsourcing?
Outsourcing is handing over a job to someone else who doesn’t otherwise work for you on a project-to-project basis. For a startup, outsourcing the work is a reliable pillar to scale up their operations and make a market entry with bounded seed funding.
According to a Deloitte report, the significant objectives of outsourcing include:
Outsourcing is considered an entrenched business practice that acts as a key to enable digital transformation. Every startup hoping to increase value proposition considers outsourcing as a go-to option.
What are the Different Types of Outsourcing?
Before you choose to outsource, it becomes imperative to understand different types of outsourcing, which include:
Onshore outsourcing is about assigning a task/job to a third party residing in the same country as yours. In this case, you can consider arranging face-to-face meetings weekly or monthly to discuss the requirements, work status, and other project management details.
Offshoring outsourcing is about hiring a company from a distant country to perform a particular business function. In case the outsourced agency is a subsidiary, i.e., a branched-out version of your company — it is popularly known as in-house offshoring.
Nearshoring outsourcing occurs when a company outsources the task of completing a business function to a nearby country’s service provider.
Insourcing is about hiring experts for the job in-house and providing them with all the resources to get the job done. You do not outsource the job to someone else (who manages the resource requirements independently).
Homeshoring is a transfer of a task/job from an office to a home-based setting where telephone and internet settings are available.
Of all the outsourcing types, offshoring and nearshoring are the most popular ones, making it challenging to choose between the two.
To trim the confusion, here’s a comparison chart that draws out differences between offshoring vs nearshoring outsourcing:
|Definition||Outsource to a faraway country||Outsource to a nearby country|
Economies of scale
Can afford frequent personal visits
Time zone difference
Culture and linguistic barriers
Time zone differences
Why Should You Outsource?
Outsourcing lets you focus on the core competencies while the technical team handles the development part for you. Here are some of the attributes of the outsourced team that help you accelerate innovation.
1. Domain Expertise
For a startup looking to introduce a SaaS (Software as a Service) product, having domain expertise is a priority. Building an insourcing team (an in-house team) with adequate talent and expertise can take months and even more while adding to the labor costs.
If you invest and outsource, you already have access to the best talent out there that can understand your requirements, have a stronghold over the process, and showcase flexibility.
It is similar to outsourcing catering for a wedding. All you need is to decide the menu while the best chefs work at the backend to give your guests the best experience ever.
2. Market Knowledge
Your outsourcing partner has experience working for a bunch of clients. They understand the market dynamics and know their capabilities. For instance, a software development company conducts retrospectives frequently.
These retrospectives help them understand what they did right while working on the previous projects, what went wrong and why, and how they can improve and not commit the same mistakes again.
With this knowledge, an Agile team works to improve efficiency and avoids common development mistakes. The better the insights that the outsourcing partner showcases, the better the chances of nailing your product development efforts in one go.
3. Process Discipline
A well-organized development process helps a startup preserve their money while bringing productivity to the table. An experienced outsourced partner will know the process in and out, which goes beyond the basic understanding of the Software Development Life Cycle process.
The practical knowledge around all the processes will help you achieve agility and faster time to market.
Moreover, they understand product backlogs, the importance of backlog grooming, which, in turn, helps in priority-based sprint planning. All this knowledge helps them stay on track and deliver what you ask for.
4. Access to Technology Stack
For building a SaaS product — access to a valuable technology stack is a must. For example:
- App development frameworks — Native, cross-platform, and hybrid
- .Net programming language for — building dynamic web applications
- Public cloud platforms such as — Google Cloud Platform, Amazon Web Services, and Microsoft Azure
- eCommerce platforms such as — Magento and Shopify for eCommerce development
- Design tools such as — Figma, Canvas, Mural, etc.
If you choose to outsource, the burden to choose the right technology stack gets eliminated, costs reduce, and you have a team that already has expertise in using these tools.
5. Good Knowledge of DevOps
Development and operations (DevOps) have been a primary bind that ensures faster time to market through automation. Hiring DevOps engineers separately for a startup can be expensive and can also bring risks related to inadequate knowledge and experience.
An outsourcing partner, on the other hand, helps with development as well as maintaining DevOps cadence. They will ensure building adequate automation tests and have a thorough understanding of the technical aspects of the CI/CD process, thus helping in safe live environment releases.
Benefits of Outsourcing
Outsourcing is your best bet in the initial stages of your business. Here are some of the outsourcing advantages:
1. Cost Savings
Every business, small or big, hopes to achieve more while spending less. That is how you maintain a positive cash flow. Moreover, considering the state of the pandemic and its impact on businesses, the desire to increase cost savings is at an all-time high.
With outsourcing — you spend less on resources, less on managing an in-house team, and less on upskilling your workforce to match themselves to the changing market dynamics. So, yes, outsourcing is a good strategy to increase cost savings.
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2. Lower Down Failure Risk
Around 95% of startups fail. One of the major reasons behind it is the inabilities of the insourcing teams to meet the needs of the startup, whether it is — agility, time to market, or meeting with changing requirements.
Another primary reason behind failed startups is that they get outcompeted. To lower the risk of failure, hiring the right talent is imperative, which brings us to outsourcing. Why spend time and money on looking for an insourcing team when an outsourced team is a readymade option for you.
3. Pace up Digital Transformation
With remote work taking the lead, cloud technology is on cloud-9! Every business (old, existing, new) is embracing cloud computing and looking to establish a virtual presence. Artificial Intelligence (AI) and machine learning are also acting as catalysts for growth.
To take advantage of the changing dynamics, outsourcing to an expert who has prior experience and working knowledge of emerging technologies is the best option.
4. Embrace the Agile Mindset
Startups believe in the “just ship it” philosophy nowadays. Why? Because they fear getting outcompeted. If a competitor launches their product that works on solving the same user problem, no one will buy from you.
This is why embracing the agile mindset is imperative. How do you do that? Outsourcing your task to an organization with a better experience and a strong portfolio will help you achieve — faster time to market and quality.
5. Achieve Economies of Scale
The primary focus of a startup is to scale its operations, get into action, and increase the early adoption rates. To make that possible, it is always a wise decision to outsource the business operations, which helps reduce costs as the business grows.
The right outsourcing partner has a stronghold over the process. For instance, you can achieve scalability for your SaaS startup by adopting the Agile software development methodology.
If you choose an outsourcing partner with a stronghold over their Agile process, getting started with the journey can be your best bet.
6. Adopt Cloud-First Technologies
The hype around cloud application development is skyrocketing considering the scaling remote work setups. Going cloud-first is the prime objective for a startup, but most of the budding businesses struggle to implement it successfully.
As of 2019, 68% of industry leaders had employed Cloud as one of their digital enablers. — Deloitte Global Outsourcing Survey, 2020
This is where outsourcing plays a vital role. An experienced outsourced partner can help implement an effective cloud migration and adoption strategy — free of any loopholes. Moreover, experienced outsourced providers help enable cloud data security, eliminating another pain point of a business owner.
What are the Risks of Outsourcing?
Outsourcing can have its share of risks associated with it. Here are some of the most common outsourcing challenges:
1. Inability to Arrange Physical Meetings
According to traditional practice, the client and the outsourced partner arranges a meeting to discuss requirements, deliverable, budget, timelines, etc. This has been easier with an onshore outsourced partner and more challenging to achieve with an offshore or a nearshore partner.
Moreover, considering the changing sentiments and business doing dynamics after the pandemic, physical meetings have been replaced with virtual ones. But, it somewhere kills the value that physical meetings bring to the table.
2. No Control Over Regulation
Regulating an in-house team is always easy. You can hold your team accountable for the delayed deliverables, and it is always easy to identify impediments that cause delays.
With outsourcing, this type of regulation and accountability take a backseat. If there are Agile antipatterns that are causing delays and challenges — you will not have an in-depth view of the situation.
3. The difference in Time Zones
Nearshoring and offshoring bring significant challenges related to differences in time zones. While you might be getting up in the morning, the outsourced team might be wrapping up their work for the day.
This might be an issue if you want to assess the work done or discuss requirements over a call or through video conferencing. In this case, either of you will have to adjust their working shift to bridge the time zone gap.
4. Data Security
Sharing sensitive data with an outsourced agency can be a risky business. Cybersecurity is essential to avoid any digital attacks on your data.
But, sometimes, no matter how strong the encryptions — the risk of losing it to an attack stays in the backhead. This is why businesses often hesitate to outsource. Many IT-enabled companies could not afford remote work during the pandemic due to the same data security reasons.
5. Language Barriers
Software development companies located offshore or even nearshore may speak a different language than yours or speak your language in a foreign accent. This challenge is not that great, though, as most countries can speak English.
You will mostly be in touch with the sales team, business analysts, product managers, and product owners — who understand your language and can help you clearly convey your requirements.
The Ultimate Outsourcing Checklist
Here’s a complete list of to-do’s to consider to root out maximum benefits from your outsourced company:
1. Develop Deep Understanding About the Idea
- What do you want to build?
- What user problem will it solve?
- What are your KPIs for success?
- Is it a new product development idea?
- Does it have a PoC?
2. Know What to Outsource
- Do you want an MVP?
- Do you want a fully-fledged product?
- Do you want to improve on a feature?
- Do you want to introduce new features?
3. Prepare Well-Researched Questionnaire for Conducting Interviews
- What are your best projects so far?
- What is your software development process?
- Do you work hourly rates or fixed rates?
- Will you involve us at every stage of the development?
- What is the average turnaround time?
- How do you manage communications?
4. Be Clear About Expectations
- How frequently do you want the progress status?
- What communication channel are you comfortable with?
- What time will suit you for virtual meetups?
- How do you want to be communicated about the issues?
5. Offer a Perfect Onboarding Experience
- Build a requirements document to ensure everyone’s on the same page
- Discuss the must-have, should haves, and nice to have features beforehand
- Conduct virtual meetings where you can share screen to showcase your idea of things
- Ask questions, seek suggestions and feedback from time to time
6. Break the Silos
- Introduce your outsourcing partner to your in-house team
- Make them feel a part of the organization
- Conduct virtual coffee meetings and know each other better
7. Be a Good Listener
- Listen to the outsourced agency’s ideas
- Ask what do they think about your ideas
- Seek suggestion on how to make the product better
- Prioritize/reprioritize features based on the team’s suggestions
When to Outsource?
Consider outsourcing when:
- You are a Product-Based Company — that requires a one-time product development team that can help accelerate launch times
- The startup has tight budgets — and are looking forward to reducing the overall development expenditure
- When experimenting with the latest digital transformation trends — such as AI and machine learning
The KPIs of Effective Outsourcing
1. Clean code
You should ensure that a clean and an organized code is maintained that showcases a well-thought-off software architecture. A clean code will ensure that introducing changes to the code in subsequent releases can be introduced seamlessly, thus helping in gaining a competitive advantage.
2. Minimum Technical Debt
Technical debt is the cost of reworks that come later if the initial development goes off-track. To maintain minimum technical debt — ensure that there are no piled-up bugs that the development team ignores. Also, as stated in the first point — there should be messy code.
3. Quality Delivery
The MVP (Minimum Viable Product) should solve the user problems and reflect your idea in the form of a workable product. The software should not fall short on essential aspects when it comes to your satisfaction in terms of — experience design and functionality.
4. Frequent Catch Ups
Make sure that the outsourced partner communicates with you frequently. They should arrange weekly or monthly meetups to convey the work status and the challenges if any. This activity ensures that you are a part of the process and involved in every development stage.
5. Ability to Manage Change
Requirements can pop up at any stage of development. Ensure that your outsourced partner acknowledges the new changes and conducts backlog grooming sessions to reprioritize the product backlogs.
Outsourcing has existing and will be the mainstay for most businesses — small or big, new or old. For a startup, venturing into a search for an outsourcing partner is the wisest decision you make as an entrepreneur.
This write-up tried to cover everything about outsourcing, such as:
- Types of outsourcing
- Why Outsource?
- Benefits of Outsourcing
- Challenges of Outsourcing
- When to Outsource?
- The Ultimate Outsourcing Checklist
- The KPIs of Outsourcing
You know what path to take, but this know-to guide will help you make the right decisions on your way to achieving product-market fit.
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