Software Development Outsourcing: How to Choose the Right Company and Contract Type
Oleg Lola

Software development outsourcing is one of the primary ways of launching a business within a certain limited budget.

If we compare outsourcing to in-house developers, which require regular salaries, work space, and procurement, outsourcing becomes a cost-effective solution, particularly for startups.

Why do companies outsource?

A survey of global outsourcing conducted by Deloitte in 2016 highlighted the most common benefits companies get due to outsourcing:

59% consider the IT outsourcing model as a more cost-cutting solution than hiring and maintaining an in-house team
57% state that outsourcing allows them to focus more on their main business goals

If you have decided to go with the outsourcing development model for your own startup, the next step is to find the right software company.

The quality of your product and eventual success of your startup depends greatly on who develops it. The good news is that there are thousands of software development companies you could work with. But that's also the bad news: there's an old saying that too many choices is death. So how do you narrow down thousands of choices to just one?

There are three rules to choosing the right software development company.

1. The first rule is pretty basic. Do your research. Start with a Google search and use the right keywords in terms of technology, industry sector, and location of companies you might want to work with. Broaden your search using job marketplaces like Upwork. LinkedIn also offers terrific value if you use it correctly. You can look at employees of the company you're interested in working with and read about their background and skills. At the end of this stage you should be able to narrow down your list to 5-7 companies.

2. The second rule is to look at the company from the point of view of their history, their structure, and their projects. It's kind of like you're interviewing someone for a job. So the first thing is checking out their portfolio: what did their work entail? Who were their client? What technology do they typically utilize? A good software development company would make it very easy for you to navigate their portfolio and find the answers to these questions. Other things to consider are team size, relationships with universities, and participation in professional events. Eventually you should ask for references from three companies that have employed this software development company.

3. The third factor you should consider: does the software development company you're about to pick add value to what you're doing? Have they done their research on your business? Are they familiar with your competition? Do they offer interesting ideas in terms of tech stack implementation and strategy? These are some things to consider to determine if the team you hire will bring that added value to your company.

How to choose the right type of software development contract?

So now you have made a choice and can move forward in a productive way. Yet, there is another important thing to consider that involves choosing the right type of software development contract. It is more than a formality. It defines the basic principles of collaboration between you and your software development partner. There are two major contract types – Fixed Price and Dedicated Team.

These approaches are drastically different, and it’s up to you to see which one works best for the achievement of your business goals. It might be Fixed Price with strict budgets and fixed requirements. Or, it might be Dedicated Team, which aims for regular product delivery, while requirements are under continuous elaboration and changes.

Fixed Price software development contract

Fixed Price presupposes delivery of a turn-key product. This works best for startup MVPs (Minimum Viable Product), which mostly are smaller projects that need to enter the market.

For that purpose, the product itself must be clearly defined. The essential requirements include UI/UX design, which helps fully understand how the product works; specification with detailed requirements; and acceptance criteria, which describe the behavior of the product.

Once you elaborate this documentation with your software development team, your product can be precisely estimated. Then the price and scope will be approved—and the development starts.

Watch this video to learn more about the Fixed Price approach.

Dedicated Team approach for software development

As opposed to Fixed Price, the flexible approach of Dedicated Team is perfect for ongoing software product development. This is the optimal solution for large projects, such as ERP systems, and for established startups that have the need to grow their tech department. This is the optimal solution for large projects, such as ERP systems, and for established startups that have the need to grow their tech department.

You will find every subtle nuance in this comprehensive video. Watch it—and see how these approaches help to deliver your product with minimal time to market.

How to estimate MVP software development?

All inspired startup owners always have many ideas at the earliest stages and they want to know how to estimate the cost of their projects. Watch this video to understand how to estimate a software MVP.

As your business grows, your value focus shifts from a Minimum Viable Product to regular delivery, satisfaction of market expectations, and reduction of time to market. Your software development partner must provide you with advanced technology expertise, effective communication, processes, and flexibility—all in order to help you achieve your business goals with your ever-evolving product.