Before choosing a Software Outsourcing Partner: explore real data

published in Business, Project Management
by Małgorzata Litwin

Finding a programmer experienced with startups or small and medium-sized businesses (SMBs) may be challenging, let alone somebody you can afford as being a not earning yet or not financed startup. But there is a light at the end of this tunnel – an outsourcing IT partner, this solution is much faster and cheaper.

On some level of functioning, burgeoning startups and SMBs are facing three, closely connected with each other problems:

  1. Such companies don’t work according to strictly defined procedures and processes in contrast to big corporations. An insufficient number of employees makes them focus on solving on-going problems.
  2. Due to constant dealing with everyday things, a tech team isn’t flexible enough to take care of few projects at a time or change technology over and over again.
  3. Lack of in-house specialists forces companies to look for employees with startup experience what is really challenging. For instance, there are about 48% of employees with startup experience in Silicon Valley, and still, they have a deficit of workers mainly in IT field (Joint Venture).

Software outsourcing – a perfect solution for startups and SMBs

According to studies conducted on startups from Silicon Valley (Joint Venture) finding an in-house programmer with startup experience takes about up to 20% of all the time dedicated to a particular project. The biggest difficulty is a financial issue since the average rate of a mobile programmer in U.S. is 118000$ per year – it is insuperable for a startup that isn’t making money or being financed.

It happens very often that software outsourcing is the only solution for startups that need a prototype of an app which is affordable.

Rates of developers from Wroclaw are much cheaper: exemplary, at Zaven you can outsource an MVP for Android and iOS for 25000-35000$.

MVP for Startups

Source: data of ANTAL International

Motivations for software outsourcing

Conducted analyses (ABSL) show that since 2012 Western European tech companies have been using multi-outsourcing eagerly. Almost 54% of them have entrusted their projects to more than one IT services providers. What’s more, about 57% of companies have been outsourcing to a vendor for 2-3 years.

Reasons for – Why do startups and SMBs decide to Outsource Software?

  • Reduction of software development costs (Germany, Sweden, Denmark, UK)
  • Availability of human resources in in-house IT and other business projects (Germany)
  • No inland IT talents (Norway, UK)
  • Need to focus on retaining and developing the company (Sweden, Denmark)
  • Need to increase the quality of in-house development (UK)
  • Need to hand in the projects on time (Sweden, Norway, Denmark, UK)
  • High costs of in-house programmers’ employment (all of the researched countries)
  • Human resources needed to retain and develop projects or fix errors (all of the researched countries)

Reasons against – Why do companies are afraid of or don’t want to choose the IT Outsourcing?

  • Need to have the project under control in 100 %
  • Fear of unforeseen expenses
  • Fear of eventual risk of working with a foreign developer
  • No need for outsourcing, good in-house team
  • Negative experience with outsourcing
  • Feeling that one’s company isn’t big or experienced enough to outsource

How to find the best IT Partner?

When one’s got to a conclusion that IT outsourcing is what he/she needs, the next step is to choose the right software vendor.

What are the most important factors that should be considered when choosing the appropriate region for Outsourcing?

  • Cultural proximity (Germany, Sweden)
  • Accessibility of desired IT resources (technology) (Sweden, Germany, Norway, Denmark)
  • Geographic proximity – nearshore development (Germany, Sweden, Norway)
  • No language barrier (Sweden, Norway, Denmark)
  • Competitive rates – offshore development (Denmark)
  • Political and economic stability of a selected country (Germany, Norway)
  • Transparent and not requiring any participation of third parties legal system.
  • Possibility of R&D (Sweden)

What are the most important factors deciding about choosing an outsourcing partner?

  • Experience with similar projects
  • Positive references from akin companies
  • Attractive development rates – offshore development
  • Success in prototype/pilot/MVP project
  • Flexible contract agreements (Sweden)
  • Representative in a homeland of the company
  • Innovative and flexible business model (Norway)

How do startups look for an IT partner?

  • Looking on the Internet, through the search engine (Germany)
  • Asking friendly companies about legit IT provider (Norway)
  • IT partners found them (Denmark)
  • Through an ITO consultant (Sweden)
  • On their own, through researching the market (others)

Let’s talk money!

Recent research of ITO market (ABSL) show that companies were working together on such technologies like: ASP.NET., mobile development, enterprise, SaaS. What’s more, most of them (about 36% of German companies) have hired teams of 3-5 people.

What was the average expense of outsourced projects?

Value of outsourced projects

Source: ABSL

How much can be saved on an IT project? Vendor vs. in-house development.

Savings on IT Outsourcing

Source: ABSL

IT Outsourcing consequences

It turns out that almost 78% of companies using Software Outsourcing also plan to carry on such a cooperation in the next 1-2 years (ABSL).

Are you satisfied with IT outsourcing?

IT Outsourcing satisfaction

Source: ABSL

Finding the right IT outsourcing company to work with on a project happens to be the biggest challenge for startups and SMBs. Quite often, inexperienced entrepreneurs choose a vendor that they have little in common with and consequently bringing a project to the end is impossible.

What is it that makes it hard to succeed?

  • Communication problems with project management and programming work
  • Lack of competent project managers on a vendor side
  • Cultural and language barriers impede passing down ideas or requirements of an outsourced app

Nearshore development or offshore development

Because of low costs of services and a big number of programmists, India is the number one when it comes to IT outsourcing. But, what’s interesting, India is said to be the worst place to outsource a software to for startups and SMBs. Bad quality of services and huge cultural and language differences make it practically insuperable to bring a project to an end and consequently companies are made to engage a project manager. Due to that, the costs of such an outsourced project increase drastically and then it turns out that most startups (that are in the initial phase of development) cannot afford it.

Instead of choosing offshore development – it’s IT outsourcing to a global client (the whole world), for example to India from American or Australian company – you can choose nearshore development. It’s IT outsourcing to nearby countries, often the ones sharing a border together, having the same time zone, similar cultural habits or economic links (Wikipedia). For instance: to Poland from any other European country. Thanks to that you can avoid unnecessary communication problems that can be costly.

In the next article from “Before choosing a Software Outsourcing Partner” series, I’ll tell about why Poland is a good outsourcing destination.

Małgorzata Litwin Project Manager

Gosia is a Project Manager who mainly takes care of sales & marketing department at Zaven. She is a huge fan of mobile games and that’s what she does after work. She plays and checks its functionality at the same time!

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