Should a startup outsource their software development?

Technology startups face plenty of challenges. From their inception, going through an uncertain garage phase, founders and funders must deal with a constant stream of critical decisions to achieve much-needed scalability. Even middle-sized companies are still considered startups based on their maturity and the status of their product-market fit.

It is well-known that big companies outsource many of their business processes, sometimes more than 50% of them. But what should startups do about software development outsourcing?

Is it a good idea to let go of the development task and put it in the hands of an external team?

Perhaps it is better to keep the development in-house so the founders can closely watch it?

This article will explore a frequent startup dilemma: outsourcing its software development needs or not. This decision needs to be taken as early as possible in the company's life. 


Top Reasons for a startup to outsource software development

Most founders love their product or service idea, which is usually very good for business. However, that love can quickly turn into micromanagement, and inefficiencies arise.

Perhaps the top reason for a startup to outsource its software development needs can be summarized in one word: focus.

To survive, a startup has to stand out from the competition in some unique way. Usually, this means offering a unique variation or version of an existing product or service, providing a current product or service at a lower price point, or making it easier for customers to come in contact with the product or service.

That is what is called the "core-value proposition" of a startup.

There are several reasons why outsourcing is good for the core-value proposition. The main idea behind getting help from outside the company is to focus on what makes the value proposition unique and get help from experts in the software development field.


Focus on the startup value proposition. Get help from experts.

Founders (and funders) want to have as much control as possible, they want to release the product or service to the market as fast as possible, and they want to save as much money as possible on the way too.

It is a common pitfall for startups attempting to maximize these three points by keeping all software development in-house.

Of course, it is possible to do so, but usually, startups also count on limited resources. It is hard for startups to meet the requirements of a robust development strategy.

Choosing the right software development partner can make the difference for a startup in some of these crucial points, to name a few:


Strategic talent hiring process. If the startup wants to develop software in-house, it will have to design a proper talent detection and hiring process, which is a massive task on its own.

Some companies base their entire value proposition solely on this process. This Quartz article mentions that around 10% of startups fail due to hiring mistakes. If the startup wants to develop software in-house, someone in the founding team will have to conduct technical interviews with applicants.

Sometimes founders are not software developers, or perhaps they are not as up-to-date as they should, given they have shifted their focus to business making. Finding a great outsourcing partner gets rid of all this complexity.

Outsourcing companies have years of experience detecting, hiring, and retaining top-tier professionals in their vast talent pools.


Methodologies and efficient communication channels. Software development is a complex task. Requirements gathering, product backlog management, release planning, QA strategies, cloud infrastructure operations, and the list continues.

While a startup can deal with all of this complexity on its own, more often than not, this means it will take the focus away from the startups' core-value proposition.

Specialized software development companies can take care of all of this with their already-implemented methodologies, processes, and tools.


R&D. Even the most straightforward software requires investigating and solving issues. A core library changing its version in a non-backward-compatible way, a zero-day security vulnerability, or a technology breakthrough that can save much money if implemented in time are just a few examples of situations that require a prompt R&D response.

Usually, a startup cannot take the luxury of investing plenty of resources in this vital area. Suppose the company develops its software 100% in-house.

In this scenario, the product or service faces the risk of being outdated or insecure even before being released to the market, impacting the startups' valuation.


Warm-up costs. It is estimated that each new team member will need between 100 and 140 hours to start becoming productive. Every new startup employee will need time to get used to the company's culture, make relationships with coworkers, and get accustomed to the new tasks.

A successful outsourcing strategy can offload this complexity to a software development partner. Usually, they will offer a dedicated team of developers who have already been working together for a long time.


Delivery Management. Implementing an effective delivery management process for new feature releases is vital. Usually, startups will not have an objective way of gauging their development throughput and quality.

They will have to trust their insight and a few developers' subjective input, quickly leading to inconsistent results.


Typical startup outsourcing pitfalls to avoid

Implementing a successful software outsourcing development strategy requires a certain level of involvement from the startups' core team. While outsourcing can save a lot of costs and trouble for the startup, the chosen outsourcing partner must be carefully selected and managed.

Startups operate on a tight budget and face many financial constraints. Choosing the right outsourcing partner must consider this. While offshoring to the other side of the world might look like the cheapest solution, cultural gaps, time zone differences, and communication efforts can quickly become a development nightmare.

Startups usually benefit from nearshore outsourcing partners, where the time zone difference is minimal, and the cultural and language barriers are low or nonexistent. For startups in the US, this means Latin America, especially Argentina, Uruguay, Colombia, and Mexico.


A startup has to make sure its outsourcing partner will have a comparable level of commitment to the project. If a contractor treats the startup like any other customer, problems may arise.

As a result, the project may suffer delays, resulting in more spending on an already tight budget. Look for outsourcing partners with a proven track record and recommendations.

Legal aspects of outsourcing deserve a very close look. Startups should consider hiring a lawyer to create robust contracts that cover the specific elements of hiring software contractors, such as confidentiality, intellectual property, labor liabilities, and others.

At least a technical team member of the startup should be assigned to interface with the outsourcing partner and conduct quality assessments on their deliverables.

Especially at the beginning, it is common for communication errors to occur, which translates to mistakes in requirements implementation.

To avoid this typical error on most software projects, having a startup member assess and quickly detect this possible issue will help the startup and the outsourcing partner arrive at a successful outcome. 


Years ago, software requirements were relatively inflexible, projects took years to complete, and lots of effort went into extensive upfront analysis.

Nowadays, with the Agile approach widely accepted, software development is more of an iterative process that both the startup and its outsourcing partner will explore together.

The startup should assign team members to define some of these critical aspects of outsourcing: 

• Clarify project requirements, separating must-haves from nice-to-haves. Establish business priorities.

• Decide which software modules will be developed in-house and outsourced, paying close attention to the interface between them. 

• Agree upon necessary quality-assurance practices, standards, and tools. 

• Establish and keep track of timelines, possible delays, and mitigation plans for them.

• Have constant communication with the outsourcing partner. Provide continuous and candid feedback to them.


As a final comment about outsourcing pitfalls, a startup should avoid working with an outsourcing partner that organizes their work in isolated silos. The software industry has evolved to a much more organic way of working, with approaches like Agile, microservices architectures, cloud elasticity, and containers.

Startups should favor outsourcing partners that are well versed in this modern approach. Software development is not about turnkey one-way products anymore.

To summarize

Many startups work on a tight budget with a small team consisting of founders and a few first-hire employees. Software development is a complex task that requires detecting, hiring, and retaining talented top-tier professionals.

Companies that develop software must have robust and mature methodologies and tools in place, make efficient use of time and money, and most of all, establish clear business priorities. 

Startups present an ideal scenario for getting help from outside the organization, from an established software development outsourcing partner, quite possible in a nearshore configuration.

This usually means hiring an outsourcing company based in Argentina, Uruguay, Colombia, or Mexico for startups in the US. These countries are among the best choices when outsourcing software development with no cultural or language gap, minimal time zone difference, and vast top-tier talent pools available.

Are you a startup considering outsourcing some of your software development needs? Drop us a line!