With at least 15k listed software development companies all over the world, you aren’t short of options as an entrepreneur.
More than choosing whether you should outsource your software development project or not you also have to find the best way to choose the best option for your startup. And with so much choice you will come across more bad than good.
Before we look at why outsourcing fails let’s look at why so many entrepreneurs and business leaders choose to outsource software development.
Simply put, it is because Software Development Outsourcing works…
More than 37% of SMEs outsourced a business process in 2019. Moreover, Statista predicts that the IT Outsourcing market will be worth $404,646M globally, by the end of 2020.
Apple, Google, and Facebook have all outsourced aspects of their development at some point. And some still do. In 2018 outsourced workers outnumbered Google’s in-house counterparts for example. Github outsourced their initial software development and have gone on to become one of the largest software development communities in the world.
So why does it fail for so many companies?
There are obvious risks to outsourcing anything that isn’t a commodity. Primarily if you fail to verify the partner correctly, you will most likely, face a business disaster sooner or later. That’s exactly what happened to the big corporations below.
JP Morgan Chase & Co. famously canceled its 7-year, $5B outsourcing contract with IBM. The firm alleged this decision was to manage it’s IT development internally. IBM was never accused of breaking its agreement with – but it cost JP Morgan millions to reassemble its IT department,
This is not the only high profile contract IBM failed to complete. In 2007 the Queensland Health Dept. hired IBM to build a technical payroll solution.
Initially, IBM quoted Queensland $6M and promised delivery in a year. Due to technical issues, the price jumped to $27M.
The platform never functioned properly and years later the costs escalated to $1.2 billion. That’s a staggering 19,900% more than the initial projected cost.
Outsourcing to the wrong partner not only plagues big corporations. Ask any consultant or advisor you know in the startup scene and they will all have a list of horror stories of founders getting swindled by outsourcing agencies.
There are many drawbacks to watch out for when it comes to outsourcing software development services – here are five of the most important ones to steer clear of.
Deloitte’s global outsourcing survey tells us that 59% of companies use outsourcing as a cost-cutting tool. But as we’ve all heard “if you pay peanuts you get monkeys.” It may seem obvious but going with the cheapest option could harm your business.
If you decide to offshore to the cheapest IT service provider you have to consider a high probability of communication issues, culture clash, and low-quality of work (AKA Bad Code).
In the worst-case scenario, this results in an unusable platform. It simply breaks, or no other developer can understand the code that has been written. You may end up starting again – if you can afford to.
So it is advisable to get a technical friend to audit the company. You can also ask the agency for references – if they are happy to provide them it’s a great early trust builder for you.
Also Read: How to Hire the Best Software Developers?
It is important for the companies’ decision-makers to be agile and keep calm while the decision is being made regarding the Tech.
Your technical partner should, obviously, know more about tech than you -but it doesn’t mean you shouldn’t know anything about tech. You need to make sure you don’t lose control of the decisions that are being made.
It’s important to know what’s going into your product in terms of tech. It’s not recommended for you to go and learn how to code – you should focus on the business vision and company roadmap.
However, learning the basics will put you in a much stronger position and allow you to be part of the conversation. Tech decisions directly influence the business and, therefore, should be treated as business decisions.
When talking to the top software development agencies it’s vital to be succinct and specific in terms of your project’s needs.
Important factors such as overall scope, project-specific requirements, and time on delivery should be crystal clear from the get-go. If they are not you risk misaligned product vision.
Several things can happen when this occurs. For example, the software development company may start throwing in features, attempting to understand what you need. This is known as “Scope Creep” and, if left unchecked, your product will begin to grow uncontrollably. There will be a growing gap between the product you are expecting and the product the agency is building.
You’ll end up delaying your launch because you haven’t got the product you want. Of course, this will create additional monetary cost. Moreover, your patience and trust in the agency will diminish.
To avoid this nightmare create clear product requirement documentation to outline your expectations on deliverables.
If you are thinking of outsourcing to a native English speaking country make sure you know your pants from your trousers! Depending on who/where you are talking to, you have to account for differences in colloquial expressions.
One of the hidden costs of outsourcing to an offshore agency is the language barrier. You may have more money in pocket – but can you understand the agency?
All of these factors can create barriers between native & non-native English speakers.
Consider different factors When outsourcing software development to a company that’s not on your doorstep.
Timezone is the first factor. It can hinder response times unless you or one of your team is happy to pull all-nighters to communicate with the agency directly.
Communication Technology is second. Platforms such as Skype, Google Hangouts, Whereby, or Facetime are, sadly, never 100% reliable.
Good, old-fashioned email can work pretty well. But lengthy email threads to solve problems that could be worked out in a two-minute conversation is going to get frustrating quickly!
Importantly how do these factors affect your business?
Communication barriers can result in a misaligned product vision and scope creep – meaning increased time to market. Therefore it’s vital to overcome the challenge of communication barriers if you decide to offshore (or even nearshore).
Handing over your product scope to a quality agency will undoubtedly result in a decent, functional product. But an experienced software development agency will have built hundreds of products for a wide range of industries.
It’s only logical to take advantage of their experience. Ask them their opinion, get them involved in the conversation, and let them challenge your ideas. Their experience will make your product stronger, and you should take advantage of it everywhere you can.
Moreover, it will show the agency that they are part of your team. Reinforcing the idea that your project is their project – your success is their success.
Selecting the right agency for your startup requires care and you have to be meticulous. But it can be a great option when done the right way. Just always lookout for the red flags.
Rui Lourenço is the CMO at Altar.io, a product & Software Development Agency based in Lisbon, London & Milan.