When should you consider hiring external software development help as a startup? How do you approach the process, pick the right service provider, and the pricing model? What are common fears of startups, and how can you maximize the odds of successful collaboration?
Over the past two years, Helmes has collaborated with more than 20 startups who have decided on outsourcing most or all software development to an external provider.
Why do startups hire external service providers?
Based on our experience, the most common reasons why startups opt for external help are:
- No in-house software development team ‒ Many visionary non-techie founders optimize their resources by strategically outsourcing the technical aspect of their business. By partnering with external providers, these startups empower their core team to focus on product management, sales, marketing, and overall business operations, ensuring a streamlined and efficient path to success.
- Accelerating the launch of the product ‒ Launching the product’s first version is a critical phase in a startup’s life; this often means working on an extremely tight schedule and a limited budget. By leveraging the expertise of trusted partners, you can meet your launch deadline while optimizing resources. This approach allows you the flexibility to build your internal team at a later stage, ensuring an agile and cost-effective path to market success.
- Scaling challenges ‒ Sometimes additional financing pours in and new opportunities rise rapidly. By integrating external help alongside your internal hiring efforts, you can accelerate your scaling journey, ensuring optimal resource allocation
- Maintaining focus ‒ As your company grows, your product will develop many sub-modules around the core offering. When buying other startups, you start creating legacy. One effective approach is to leverage external support for the maintenance and development of everything that falls outside the scope of your core offering.
- A temporary need ‒ Sometimes, a key client demands a custom module delivered within a tight three-month timeframe. In such cases, the traditional route of hiring additional team members may not be the most cost-effective or efficient approach. Instead, leveraging external help emerges as the optimal solution.
How to choose the software development partner?
When overseeing the growth of your startup, you face the critical decision of choosing between freelancers and software service companies to meet your development needs.
Freelancers offer ease of hiring, and their services are generally cheaper when looking at hourly rate. However, managing them can be challenging, and scaling becomes arduous. In addition, with every freelancer you need a new contractual agreement.
Software service companies address the shortcomings mentioned above but are more expensive. They provide streamlined contracting, scalability, and quality management, offering the option of individual specialists or a cohesive team.
To aid your decision-making process, consider the analogy of a machine. Opting for individual specialists is like acquiring individual parts, requiring your team to assemble and integrate them. In contrast, hiring a team provides a pre-assembled, fully functional machine, albeit at a premium. If you lack an in-house tech team, a comprehensive team may be the preferred choice. However, if you seek specific skill sets or possess confidence in your team-building abilities, hiring individual specialists may be the way to go.
When evaluating service companies, prioritize two crucial aspects. First, assess the team itself, focusing on sector expertise and experience in the fast-paced startup environment. Ideally, seek a combination of both competencies. Second, examine the company’s ability to scale alongside your growth trajectory and their capacity to swiftly address personnel changes should the need arise.
Common fears for outsourcing
Sometimes, founders have fears hiring an external development partner. Here are some of the most popular ones we’ve encountered:
- Preserving company value ‒ Some founders worry that engaging an external team could diminish their company’s value in the eyes of investors.
- Commitment and Productivity ‒ Concerns about reduced commitment from an external partner are common. However, a well-aligned and experienced team can achieve remarkable results.
- Loss of quality ‒ Rather than compromising quality, partnering with a service provider like Helmes elevates your project’s quality. With a wealth of experience collaborating with diverse companies, our team members bring valuable expertise to the table. Furthermore, performance issues are promptly addressed, as maintaining top-notch quality is an integral part of our offering.
- High costs ‒ While hiring a service provider may initially seem expensive, it’s crucial to consider the hidden costs associated with building an in-house team. Expenses such as management overhead, office infrastructure, training, and hiring and replacement costs quickly add up. Downscaling is often quicker and cheaper with external service provider.
- Employees leaving ‒ Concerns about team members leaving can apply to both internal and external teams. However, service providers excel in swiftly finding replacements internally or recruiting and training new talent. Startups can save valuable time and resources by relying on their expertise in talent acquisition.
- Vendor lock-in ‒ The fear of vendor lock-in, where a service provider may exploit their position by increasing prices, is unfounded in most cases. Reputable service companies prioritize long-term, mutually beneficial collaborations. They value fostering a constructive partnership, rather than pushing clients towards their competitors.
- Intellectual Property concerns ‒ Founders often hesitate to share product ideas with external parties, especially in the early stages. However, reliable service partners address these concerns through Non-Disclosure Agreements (NDAs) and comprehensive development agreements. It’s important to note that service providers focus on their core competence and do not engage in commercializing product ideas.
Navigating the Pricing Models
Two pricing models are commonly used in software development: fixed and hourly pricing.
The fixed pricing model means the client and service provider agree on a specific set of features that will be delivered at a predetermined cost. For startups seeking strict budget control, this model is particularly appealing. However, it’s important to note that the service provider factors in potential risks when estimating the price, which can impact the overall cost. Additionally, changing course during the project is more challenging. Any alterations require a reassessment of the estimate and scope, potentially leading to increased time and cost.
The hourly pricing model is the second-most typical example. With this model, you may experience some loss of control over either the budget or scope, similar to working with an in-house team where each hour of work incurs a cost. However, this model eliminates risk buffers in the pricing, allowing for quicker course corrections and reduced time spent on estimations and analysis. While you may not achieve all desired features, you can focus on the crucial ones, ensuring the most impactful functionality is delivered.
Work with Helmes
At Helmes, we pride ourselves on our commitment to assembling, training, and nurturing high-performing tech teams specifically tailored to fuel your startup’s success.
Helmes has been developing custom software for customers all over Europe for more than 30 years. Our clients include fast-growing startups and multinational companies in telecom, fintech, logistics, healthcare, and other sectors and public institutions.
We’d love to hear from you if you want a custom software development partner.