Why Software Outsourcing Can Be Good for Start-Ups

8 October 2014 | By INSART Team

By Vasiliy Soloshchuk & Vyacheslav Z. Tibilashvili

Should Fledgling Businesses Consider IT Outsourcing?

INSART - Software Outsourcing Good for Start-Ups, pack a punch for your start-up, offshoring Startup technologists looking for optimal ways of implementing their long-cherished business ideas often shy away whenever an outsourcing option floats up, – the propaganda barrages tirelessly created by many of their compatriots, reportedly out of patriotic sentiment, and presumably out of the desire to mesh more clientele, are amok and work for their creators.

Just look at the Web, - legions of well-seasoned technology boffins tell harrowing stories about projects going bust or just spinning out of control, hidden costs sending well-fixed and funded start uppers straight into the gutter, and child slavery being used for QA purposes (and you’ll dream it by night should you get involved).

The signs of decay are reportedly already there. To illustrate just how faulty the scheme is: a 20% decline in IT outsourcing contracts that originate from the U.S. back in 2013, shrinking qualified outsourcing resources, a projected 5% - 15% slump that is to take place 2016, according to some recent reports. Even the universally recognized benefits of going offshore, such as the development costs that are twice as low as those in the West, are no longer there, and we will definitely see this inviable practice’s horrendous demise in the near future.

Reading that stuff after having been in the business for about 8 years, you inevitably start asking yourself and others two questions:

1) Where is this nightmare taking place, and why you actually fail to see it taking place around you, considering you are based in a well-known offshore location?

2) Why after nearly two decades of this disaster happening, the outraged victims are still working with us, irresponsible hacks, instead of just getting enlightened and heading for some technologically advanced boondocks in their home countries, recommended by those who are dishing dirt on offshore partnerships?

Be far it from us to start touting for outsourcing as a 100% magic wand for start-ups. We don’t claim that business relationships can go haywire only elsewhere, and never around here. However, Western start-up entrepreneurs should be objectively aware of both the possible pitfalls, however exaggerated, by those lamenting the outflow of their potential profits, and the benefits of well-calculated outsourcing partnerships that can help their nascent businesses ramp up faster, more cost-efficiently, and, believe it, or not, with a lot more product value.

In this article, we will look at IT entrepreneurs’ common fears associated with outsourcing an IT project, and the crucially positive role relying on a well-picked outsourcing partner can play for a technology start-up.

The Well-Marketed Pitfalls, and Whether You Should Really Buy Them

As we’ve mentioned above, the pitfalls of outsourcing, picturesquely presented by in-house enthusiasts, sometimes look truly appalling.

Let us briefly analyze their more commonly quoted arguments, and see whether those do-gooders really prevent you from getting into something precarious, or just keep you from implementing your business ideas more affordably.

  • Skyrocketing Salaries Make it the Same Cost-Wise as Developing a Product Locally

Yeah, we are so sure. Can they help us recruit several mature Java software engineers (no semi-literate coders please) somewhere up in Oz, for, say, USD 3K per month? No? Why not? We might be willing to consider.

Interestingly, most of our local industry peers concur with the opinion that Ukraine’s IT industry has been growing at the rate of roughly 12-13% during 2014.

How does that correlate with what the prophets say and surmise?

Maybe, what’s actually meant is we don’t run two-dollar-a-month sweatshops, and IT folks in our parts do make enough for their trade to be considered really prestigious. This leaves less space for turning profits on labor arbitrage, but then we don’t have the problem of employees just going through the motions, and not really caring about what they do.

  • Loss of Managerial Control and Disregard for Corporate Standards

This should definitely sound like the end of the world to some, but what’s really behind this statement? Will you would not be able to pace across your R&D office, scourge in hand, or is there any other leverage you are relinquishing when outsourcing a project to a well-run offshore software firm? There are numerous ways to control how the implementation of your project is being managed, including reporting, video conferencing, and on-site visits.

For technology startups, coming into contact with the culture of a well-tuned offshore software development company can only be beneficial, and it can help them shape their own corporate culture and business processes. It doesn’t matter where this offshore software development firm is based, as long as the overall cultural differences don’t get in the way: Just pick the right provider.

  • Lower Quality of the Development

Certainly, among the most popular artificially instilled notions is the inevitably lower quality of offshore development than that you can achieve domestically.

We beg to differ.

The quality of the development does not depend on where the company is based, but rather on what kind of a company it is. Do you really think that dozens of thousands of various IT projects implemented in Ukraine were outsourced around here (sometimes by world-renowned iconic brands) just to be botched? By the way, what car model do you drive? There’s a good chance it was made using software developed by us.

Conversely, going offshore can often improve the quality of the product due to the ability to employ better qualified resources using the same budget.

Another lame argument put forward by in-house bigots is that once a contract is signed, you will have very little sway over what you will actually receive in the end, but will have to pay for whatever has been done regardless of the result.

Well, firstly, there are different delivery models that should help you control your spending and manage your business relationship with your provider.

However, what’s a lot more important, is any well-established offshore software development company in possession of good client testimonials and sufficient development experience is not absolutely interested in cutting corners and delivering shoddy results. What they are actually interested in, is doing more business with you in future, and a good customer testimonial.

Again, - just pick the right provider.

  • Confidentiality

Security is pivotal to most IT projects, and a rip-off is among any technology start-up’s worst nightmares.

We have no idea about how confidentiality is ensured in other popular offshore locations by other software development firms, but we do know how it is done here in Ukraine.

There can be up to 3 different agreements associated with confidentiality, signed by an employee of a Ukraine-based software development company: a regular contract with a confidentiality clause, a separate confidentiality agreement, and, wherever required, a confidentiality agreement requested to be signed by the overseas customer.

The one thing we would recommend doing is requesting your service provider to furnish you with a translation of their own confidentiality agreement, composed in accordance with the Law of Ukraine.

The local Law is quite strict, and universally revered by the IT community. An agreement based on this Law could, in case of need, be enforced by your outsourcing provider a lot more easily than any agreement with an overseas jurisdiction.

Not that we’ve ever heard of any domestic or overseas firm being in need of taking such an action.

Los Beneficios: Pack a Punch for Your Start-Up Where Most Others Don’t

Listing once again the regular advantages of outsourcing, and hyping up the opportunity to pay 50% less than you would otherwise have to shell out in your home country, is not the purpose of this article.

As a custom software development firm, that has technologically enabled the success of several dozen overseas technology start-ups, we would like to help you discern the edge that you can gain due to the start-up nature of your business.

From this viewpoint, we can prompt several ways of how your project can benefit from being a start-up.

The Ability to Find a Qualified CTO

Irrespective of its nature, virtually any technology start-up requires the presence of two key people, - a business entrepreneur, and a solidly qualified technical guy who will be responsible for the project’s technical implementation.

If you are a business entrepreneur who wants to implement a start-up idea, finding a sufficiently qualified, technically versed partner may be a tough roe to hoe, not to mention it’ll cost you a fortune. Understandably, this matter also deserves no compromise on quality. The maximum your local service providers are likely to offer you is a PM, and it’s never the same.

With a good offshore software provider, fixing this problem, which may otherwise translate into a significant setback for your project, is a cinch: they will offer you a qualified CTO-for-hire, – just make sure you choose the right provider.

At first blush, the concept sounds just like an extension of a regular outsourcing offering (are they padding the bill??), but it has proven viable over the years. For example, in our particular case, one of our major U.S. accounts has been led by INSART’s CTO for several years now. Currently, we have implemented a total of five full-blown projects for this client.

Diversely Acquired Business Domain Experience Put at Your Disposal

However innovative your product may be, the odds are something at least remotely similar has previously been conceived by someone somewhere, and has already been implemented, successfully, or not.

Regardless of whether your predecessors are still in business, and how unique their product was, or is, the experience of those who have been behind the technical embodiment of this similar idea and its tailoring to the realities of the corresponding market can sometimes account for 50% of new products’ success.

In most instances, at least part of the functionality of any solution overlaps with that of other solutions in the same business domain.

Usually, a well-established offshore service provider has taken part in the development of several solutions in any of the areas they declare to be their target business domains. That is why, ideally, a carefully selected development partner will also help you get your bearings regarding the functionality your solution will provide, aligning it, wherever relevant, with the best industry standards.

Another major aspect is the duration of the development effort and related costs optimization. From our experience, getting a handle on industry expertise in a business domain may take even a very mature development team up to 6 months. Any slip-ups that are, let’s face it, bound to occur, and could otherwise be avoided by a more business domain-savvy team, will extend the development effort and add to the bill.

Are you sure you will be able to recruit a local team of highly experienced business analysts and technical experts who are well-acquainted with your particular business domain?

Budget Optimization

A well-selected outsourcing software provider will be a lot more interested in using your project budget with maximum profitability than your hired senior IT staff. If they aim for long-term customer relationships, they are committed to delivering a marketable product that will gradually grow, and bring in more work and income.

For example, for us, the approach has proven to be mutually beneficial across several customer accounts, - we have even modified our business development and customer acquisition policy accordingly, and stopped spinning our wheels for every minor opportunity in sight.

How does the customer benefit from our technical “budget advisory”? It’s very simple: they have achieved a much higher level of commitment and budget optimization than would be possible with locally deployed technical experts who are often interested only in their own wage.

The Ability to Support Growth

Your local IT market can’t always support the quick growth of your start-up, and that should also be taken into consideration.

For example, with our pool of resources, it normally takes us half the time to find a good software engineer than is required by our U.S. partners.

For a start-up, the time-to-market and ability to expeditiously scale up the development effort can make or break a project.

Teaming up with a reliable and knowledgeable outsourcing software provider can be determining for a technology startup. Not only can it strategically optimize the nascent company’s expenditures cutting those nearly by half, but it can also protect the startup against the significant risks that are posed by the project’s technical implementation, and, statistically, account for some 20-30% of failed IT startups.

The views and opinions expressed in this article do not constitute an endorsement of, or advice to use/purchase, or not to use/purchase any product, or service. These views, opinions, and examples are provided solely for information purposes, and interested readers should also be reliant on other competent opinions, and act on their own discretion.