What are the advantages and disadvantages of in-house development?

Start-up businesses face unique challenges. From the beginning they must decide how to handle software development. Do they hire developers directly or do they outsource? Many start-up businesses find it difficult to find enough talent locally. They have to consider administrative expenses. They must count costs associated with having in-house employees. The company must pay rent, taxes and equipment expenses for in-house employees. They face a large number of “soft” costs with in-house employees. 

Every business starting software development must ask themselves what will serve them better, in-house or outsourcing? There is not a simple answer to the question. Each start-up has different needs and requirements. Making the choice to develop in-house or to outsource will have long-term consequences.

First, a closer look at in-house development.

In-house development begins when the start-up business builds its new team. They hire for skill sets needed to complete their project. They will have to recruit, interview, hire and onboard new team members. They will also need to train these team members on emerging technologies.

What are the advantages and disadvantages of in-house development?

Advantages of in-house development 

• The team hired in-house only focuses on one software development project. The team does not have other clients to distract them. They also likely work in closer geographical and physical proximity, allowing for faster communication.

• The in-house team also shares a culture and the values of the company, being recruited with this in mind. This enables smoother workflows and synergies.

• In-house teams enjoy immediate feedback and support. In-house teams respond immediately to bugs and roadblocks. External teams will not respond with equal speed. 

Disadvantages of in-house development 

• In-house development costs more. Between overhead costs and salaries, in-house teams need a bigger investment than outsourced teams.

• When the team waits for new projects to begin, they still need to get paid. Unlike an outsourced team, their salaries don’t pause when they are not active on a project.

• Training and upskilling in-house teams falls to the start-up. Your employees will not pay to train themselves. In software development change is constant. They will ask you to pay for tools and training so they perform their jobs at their highest level.

• Turnover rates for in-house teams also cause trouble. Start-ups hire the best talent, but that’s only the beginning of the journey. They must nurture their development teams so that they thrive. Developers are in high demand everywhere. If a developer doesn’t like a job, they will leave.

When does it make sense to choose an in-house development team?

Some start-ups will choose to hire an in-house team. The reasons a start-up makes this choice might include the following:

• A start-up that has a lot of capital and a large budget would choose an in-house team. An in-house team makes sense for a company with vast resources. Most companies outsource to save money. If that’s not a concern, then in-house would prove the most effective way forward.

• The start-up needs full control of the project. With an in-house team, the company can precisely control workflows. They can spot trouble sooner and work to fix bugs faster than an outsourced team. 

Now let’s take a closer look at outsourcing development. 

Outsourcing development means hiring an outside agency to build your project. Typical outsourcing involves a contract where the start-up lists its needs and requirements. Outsourcing allows for great flexibility and scalability.  Start-ups choose to outsource to save on headcount and overhead costs. The demand for IT outsourcing grows every year.

Advantages of outsourcing development 

• Better control of costs and budget. Outsourcing often means you can find talent in a country with lower employment costs. You will pay less for the same level of skill.

• Greater breadth of knowledge. If you outsource, you hire an agency that employs experts in many fields. If you hire in-house, you will have to hire an expert for every specialty you need.

• A larger pool of talent. Outsourcing means you can search the whole world to find the talent you need. You are no longer constrained by who can physically come to your headquarters.

Disadvantages of outsourcing development

•  Not as much control over the project. If you outsource, you cannot control every detail. The team you outsource to will have other clients and projects. Bugs will take longer to fix.

• Outsource teams take longer to communicate. If your team physically resides in India or Ukraine, you will only have certain hours of overlap for meetings. If you discover a problem at 4pm in California, the development team will wake up and learn about it hours after the close of business. Language barriers could also cause trouble when communicating with non-native English speakers.

When does it make sense to choose an outsourced development team?

Most start-ups choose to outsource when they face the following situations:

• Limited budgets. If your budget is small and your ability to commit to permanent monthly salaries, outsourcing makes more sense. Rather than tying up capital in employees, the company can use funds elsewhere.

Read our breakdown on Software development budget estimation to get more insights.

• Tight deadlines. If the project would require a large team initially to meet deadlines, outsourcing makes the most sense. Instead of hiring 100 people that you only need for six months, you can outsource.

• Fresh insight. If a start-up has a great idea an outsourced team lends an important perspective. The outsource team sees issues that internal stakeholders have overlooked.

• Lack of local talent. If a project requires many Java developers, for instance, and they don’t live near your headquarters. A savvy team outsources when local talent proves scarce or expensive. Read more on how much softawe enginner makes based on the location and experience.

Finally, we should examine a hybrid approach. A company might find that it cannot choose between in-house and outsourcing. If they do not see a clear advantage in either approach, they opt for the hybrid approach. The hybrid approach combines some on-site staff with outsourcing to an external agency. This gives companies the best of both worlds. 

Read also: Outsource web development in 2021 and beyond

The start-up chooses essential stakeholders to hire in-house. Then they hire an outsourcing agency to fill gaps in the skills of the in-house team. This gives the company access to a wide talent pool while also keeping fixed costs low. 

Software development at Blocshop

 Here at Blocshop we specialize in partnering with companies looking for talent and expertise. We harness the power of Agile development processes to keep costs down. We help our customers reduce their costs by up to 30%.  Blocshop has a custom software cost calculator to help you plan your budget. We also offer a software development cost guide so you know exactly what to expect. If you would like to learn more about how Blocshop works, check the case study on how we developed a mobile app for our client, Fairphone.