An early startup? Choosing between in-house or outsourced IT

6th Dec 2017
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Let’s be honest - as a startup, you have limited resources to grow. You have to optimise all your resources to give the maximum output in the least. So, when it comes to product development, you are in two minds – whether to build an in-house IT team, or outsource the job.

Both options have their pros and cons.

In-house

The biggest advantage of an in-house team is that you have dedicated people working exclusively on your product. They understand the nitty-gritties of the product, are committed to your vision, and put in their 100 percent in accomplishing the set goals.

Also, if you are developing a patented or niche product, and want to keep it under wraps, the in-house team can maintain confidentiality. Since the team is available in the premises, you can get your ideas implemented, and issues resolved with a quick turnaround time.

However, building an internal pool calls for a larger IT budget. Let’s assume you have the seed funding, and money is not a constraint. But, can you ensure you are hiring the right people for the function? You have to spend time on training the new hires. If they leave, you not only lose your investment, but there is also an additional cost to hire new people. You have to run the entire recruitment cycle from scratch.

Outsourcing

It is interesting to note that the success of top tech companies such as WhatsApp, Slack and Skype can be credited to outsourced development. For instance, when Skype launched its operations in 2003 in Luxemborg, its founders hired a development team from Estonia. The risk of outsourcing the initial stage of the development to outsiders didn’t deter them. They communicated their vision, and made available he resources they had to the outsourcing team. In two years, eBay acquired Skype for $2.5 billion!

According to the findings of Deloitte’s 2016 Global Outsourcing Survey, companies currently outsource 72 percent of their IT function and plan to increase it further.

Moreover, it is budget-friendly! Research indicates outsourcing can save up to 60 percent on overhead costs. With the in-house team, you have to incur expenses such as salary, perks and workstations. The outsourced consultant or team manage from their own workplaces. They charge either a lumpsum amount, or are to be paid on a fixed-hour basis with a commitment to deliver as per the timelines agreed.

They also have a wide domain expertise, know-how and specialised skills. If you are working on a tight deadline or a short-term project, outsourcing is definitely a viable option.

Outsourcing also enhances productivity of the team and effectively, of the startup as a whole. A study states that outsourcing can increase productivity and competitiveness 10 to 100 fold. This is because the internal team can focus on core tasks to grow the business.

The major drawback with outsourcing is that it does not go into depth to understand the nature of your product. An outsourcing team works with several clients at a time, as a result of which they may not be able to give their complete focus on your project. Also, the development is likely to get delayed since there is a considerable time spent on to and fro communication. If you are not specific about your requirements, the outsourced team may factor in overhead costs at a later point in time.

The Verdict

There is no thumb rule to outsourcing or in-house development. It all depends on the nature of your business, current requirements, and the possibility of scaling in the future. If your capital permits, or you have a long-term requirement, an in-house team can be a good choice. Else, go for outsourcing, but make sure you sign a contract with all terms and conditions in place.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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