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Software Development For Startups: In-house Development Or Outsourcing?

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5 min read

July 25, 2022

Are you a startup founder? Find out if outsourcing software development services for startups is better than in-house development teams!

Sixty percent of them won’t survive their first five years, and 75% of venture capital-funded startups fail.

Let's cut to the chase: having just a great idea won't walk you straight to the winner's podium. It takes more than that. Besides a great idea, you need to have an excellent product execution strategy to overcome challenges that will undoubtedly occur. You may find it inside your team (or run a recruitment marathon and hire a handful of talents) or decide to look for another company to build your product. But what to choose? Outsourcing or in-house development of startup products? Let's find it out!

What Is a Startup?

A startup is a young company looking for a new business opportunity, working to solve a problem that lacks a well-known solution and has a highly-volatile market. Just because a company is recently founded does not make it a startup. High uncertainty and rapid growth are two key characteristics that distinguish startups from other types of companies.  

Software Development Process

One of the crucial parts of digital product creation is the software development process. It’s usually divided into several steps. Each step brings the startup closer to transforming an initial idea into a working product. The software development process involves various stages, including:

1. Discovery phase – planning the product via market research and finding the right target audience.

2. Concept design and technical architecture – compiled in a SRS document.

3. Minimum Viable Product (MVP) – at this stage, startups create a scaled-back version of their final product to test its potential on the market.

4. Development – after validating the MVP, startups continue development by adding more features to the initial product.

5. Launching to market – when the full product is ready, startups bring it to the market. This is accompanied by the creation of brand identity and reviewing pricing options.

6. Support and maintenance – startups provide users with constant support. Bugs and malfunctions are resolved to ensure high-quality performance.

The product development process can be done either sequentially or iteratively, according to the used methodology, like Agile or waterfall model. Now that we know the custom software development process, let's consider what execution strategy is better for startups?

Why Startups Should Consider Outsourcing Product Development?

Founding a startup means a lot of conceptual work. You need to do your marketing and work with a customer base. It’s a lot on your plate if you’re just starting out. Do you need to burden yourself with yet another responsibility of hiring a development team, especially if  you don't have any development background.

Outsourcing a startup means that you can rely on a professional software agency to successfully deploy your product without worrying about the underlying technical aspects. An experienced partner can save you time and control the costs by working out the most cost-effective way to develop your mobile or web product. With significant experience, vendors can also offer better consulting on the software product.  

If you are a startup, you probably don’t know all the answers to questions about the development of your digital product. However, software development companies can help you with that by offering professional consultancy. Furthermore, software development services for startups can assist you in technology-related decision-making, feature prioritization, and planning the software development process. This way, you can focus on other aspects of your business, leaving product development in good hands.

When Is It Better To Keep Product Development In-house?

Many startups prefer to keep product development in-house by hiring developers directly and forming a product team to work with them. This allows for more control over the product and its development, even though it may be more expensive than outsourcing.

If a startup outsources its software development, it may have to give up some control over the product development process. An in-house development team works exclusively for the startup – often in the same physical space as the startup's employees. This means that the startup has full control over all aspects of product development.

An additional benefit of having an in-house development team is the ability to rapidly implement changes in products through effective communication and complete control over digital product development. But are these reasons enough to invest in your in-house development team? You should always weigh the pros and cons yourself, taking all aspects and scenarios into consideration.

Cost Comparison

When comparing the cost of outsourcing software development for a startup versus in-house development, it’ is clear that outsourcing is only a fraction of the total cost of in-house development.

In-house development costs can be broken down into three categories:

1. salaries and benefits for in-house developers,

2. the cost of office space and equipment for in-house developers,

3. the opportunity cost of not being able to pursue other projects while the in-house team is working on the startup's software development project.

Assuming that the in-house team consists of two developers working full-time on the project, their salaries and benefits would total an average of $120,000 per year. The cost of office space and equipment would be $29,000 per year. The opportunity cost of not being able to pursue other projects would be $48,000 per year. This gives a total cost of $197,000 per year for in-house development.

According to Clutch outsourcing software development in Poland would cost from $5,000 up to $250,000 per year, resulting in an average of $95,000 per project. On the other hand, if you have no constraints on time and budget, your startup would profit from an in-house development team by gaining total control over the product development.  

Conclusion

We know we didn’t give you an ultimate answer whether to outsource your software development or not. Truth is, it’s always the matter of you, your current situation, and the project itself. That’s why you should always consider both options: outsourcing and in-house development, do a careful research and make calculations to see which model will most likely be better for your next business venture.

Need help making a decision or looking for an estimation of your next product’s development? Send us a few words and Score will answer!

Sources:

https://www.forbes.com/sites/jasonnazar/2013/09/09/16-surprising-statistics-about-small-businesses/?sh=37da31af5ec8

https://www.statista.com/statistics/793602/worldwide-developer-survey-average-salaries/

https://priceithere.com/business-tips/how-much-does-it-cost-to-rent-office-space/#:~:text=The%20US%20average%20cost%20for,an%20office%20is%20often%20higher.

https://clutch.co/developers

Created by

D.J. (Daniel) Hekman

CEO

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