Outsourcing for start-ups?
Dear Colleagus,
I was invited to talk about software development outsourcing and offshoring next weekend. So there are some question I need help with.
When you start new venture do you consider software development outsourcing and\or offshoring as a way of cutting down amount of investment needed?
What are the requirments start-ups demand from software development companies? What destinations do you consider the most?
Maxim S. Khodonin
maxim.khodonin@gmail.com
Answers (16)
Regardless of where you are in the life of your company, outsourcing is always an option, however it's not a answer to every question. In general, if you want to outsource a project you have to make sure you have a few things ready in advance: (1) a very good picture of what you want to do - that means a 80%+ complete product specification, (2) you need to have an idea of the time frame for development and budget you expect to spend, and (3) you need to have a really good idea of how you want to manage the project since it will be handled by people that are most likely a long way away and may not speak your language.
Having outsourced SW to development to Asia (China & Singapore) on a number of occassions, I can tell you that the most important thing is to have a contact that speaks your language and can discuss both business and technical aspects in an understandable way. I always help them along by building time into the schedule for refining the product specification, reviewing (in person!) the progress on the project and adding in budget to handle the inevitable miscommunications.
As far as location goes, China & India are the old stand-bys and you can get good work done there for rates that range from US$25,000 to US$50,000 per man-year or you can explore other options in Vietnam and other SE Asian countries which are usually cheaper, but have higher language barriers and less established quality control process understanding.
Clarification added February 6, 2008:
To clarify: the need for a good product manager who understands both technology and business cannot be under-stated. These projects fail most often in their inability to convey technical requirements and manage schedule, cost and product scope.
Pete "NetDoc" M
Owner and Visionary for www.ScubaBoard.com
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Actually,
I would consider "Off the Shelf" software BEFORE I considered outsourcing Web Development. It's cheaper, probably has MORE features and support is more readily available. www.ScubaBoard.com was started with vBulletin as it's core. We have tweaked how we manage our databases, but for the most part is has been WONDERFUL.
The Dot Com II is known for lots of sweat equity and UNDER capitalization. Utilizing OTS software packages in unique ways keeps costs down. If the site takes off, you can always allocate part of the income to developing your custom software package.
Outsourcing and offshoring is really no different than having any other stakeholder involved in your business. Do you know what "insourcing" is?
Realistically, such words like strategic insourcing contributors, partners and stakeholders now come to mind. Do you know that subcontracting significant additional help dates back to the Middle Ages ??
"In the middle ages, the term freelancer was used to describe mercenary knights. A free lancer was an available soldier (with a lance - of course) who was for hire and would defend a lord for a price." The freelancer had a significant stakeholder and a vested interest in making sure strategies were implemented successfully.
Whether that freelancer does the work in-house, remotely or in a different country - the important thing is... will the work be done to your satisfaction, on time, within budget and be able to keep confidential information confidential !!
Start-ups are tricky things (done many - see LinkedIn profile for details.)
A combination of on-site and offshore technical talent has been successful in software releases, product implementations and ecommerces sites.
The questions you should asking yourself are:
* Is security and who looks at the code important to you?
* Are you searching for "technical talent" or software application engineers?
* What platforms ? - and is the talent supply for that technology/programming languages, etc. - hard to find?
If you're senior management has no problem with travel (because there will be a need for a face-to-face... worked with a start-up video conference/webinar company - STILL need to travel !!) - outsourcing is an option. But review resumes, academic background, etc. - more than just a company "profile." Just because a company claims to have do certain projects in the past - there is a good possiblity that the technical talent employed to do those projects - are no longer with the team.
Happy to chat in more detail - if you'd like.
Danny!
Daniel Parrillo
President - Strategi LLC
Staffing Manager - Replay Solutions, Inc. (www.replaysolutions.com)
LinkedIn Profile: http://www.linkedin.com/in/thehonestrecruiter
Links:
Clarification added February 6, 2008:
Resource:
M. McGovern & D. Russell. "A New Brand of Expertise - How Independent Consultants, Free Agents and Interim Managers Are Transforming The World of Work." Copyright 2001
Dear Maxim,
Let me try to answer your questions.
Q1.When you start new venture do you consider software development outsourcing and\or offshoring as a way of cutting down amount of investment needed?
Ans. Many times it depends upon the type of startup you might want to have. If you are in a normal business, one might not want to spend time developing software etc and concentrate on the core business.
However, one can also look at having a streamlined setup right from day 1. Hence outsource the applications and infrastructure so that one can concentrate on the core business. If one is planning a startup in the software products area or It enabled services which is product or package enabled, it makes sense to outsource to more expereinced hands for a fee.
Offshoring might be too early. However, offshoring thru an expereinced offshore company reduces the risks.
Q2. What are the requirments start-ups demand from software development companies?
Ans. Predictability in terms of costs, time and quality is very important because your business depends on the vendor delivering.
You want to keep costs low and predictable.
One wants the outputs on time because your business plan is also time dependent.
Quality is the obvious
Q3. What destinations do you consider the most?
Ans. The most favorite destinations for offshoring are India, former soviet republics like Ukraine, Armenia etc, Philipines to list some.
However, the destinations also depend upon comfort of the person dealing and other soft aspects in addition to the normal parameters of competence, capability to execute etc.
e.g. if the volumes are low and the person in charge is from philipines, it makes sense to offshore to philipines sometimes instead of coming to India. Many parameters are used on a case to case basis.
India however is now acknowledged as the most mature destination with capability to deliver, costs and quality.
Hope it helps.
regards,
Santosh Pillai
The lower front end cost is a motivating facotr no doubt. I look at it more from a more bang for the buck perspective. Properly managed an offshored situation can provide the start up with access to a very heavy hammer to get their product to market without the need to build their team, take on the long-term management requirements of on shore until they have a product and are generating revenues. When you offshore you get not just developers, you get the management, system infrastructure for development and an entire arrary of resources that most do not even consider until they go down that road. It is highly valuable from the perspective of getting a product completed for an initial release. With this the building of your at home team, management team, hosting and development infrastructure and the like are much less stressful because you KNOW that the product has value and is functional.
Hope this helps
Dave D
Class Action Private Investigator with 18K direct connections
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No.
When new software is being developed as part of a startup (not a fully up and running company) the most important aspect is getting usable software into the market as fast as possible. Every month you waste, means lost market share (or the potential of lost market share).
The nature of a startup is that a number of people are going to invest their sweat to make the startup a success. They will burn through thousands of hours while working for minimal money in exchange for stock/options and the chance to get a big pay off at the end. That is, initial labor costs are lowered by stock/options.
Outsourced projects have a built in time delay because of communication issues. The further away to go to get your project completed, the bigger the communication issue (probably worse than linear).
I think outsourcing is a great tool and when doing a project cheaply is one of the high order bits, then you must seriously consider using it. But seizing the opportunity as quickly as you can is what is important to startups.
-Dave Dees
DGD .at. CRUZIO .dot. com
>>> Open to ALL invitations to connect <<<
---
Jai D
Owner at DrivenTide
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Ok, take this picture, you open a hamburger franchise, but you just do not open the doors and hire the cheapest people off the street. If you do, you will have the store run a muck and not to mention a huge amount of unhappy customers in no time. What is needed is a someone to manage the employees, create schedules, review costs and make sure the customers are being give the best service, product and in a timely manner.
Quick answer: outsource but hire an in-house expert to manager the relationships, expectations, costs and of course what is the resulting product.
Hi Maxim,
I am going to try and attempt to your question.
I work with CSS (www.csscorp.com) - they are world leaders in the business of outsourcing of software development, testing and IT management.
with the virtue of me having worked with them, I can definitely say that outsourcing software development not only reduces the initial investment but also gives the Company a quicker lead time to close the assignment. Typically software development is outsourced to Companies who have had some reliable and consistent past experience and anyone looking for outsourcing must be smart enough to leverage from this experience.
While I was not very clear on what you meant by - "What are the requirements start-ups demand from software development companies?", I definitely have an answer to your final question - For outsourcing and especially in the field of IT/ITES, i would rank India as the number one choice. The two large benefits with India are:
1) Choice of selecting from some of the top names in the outsourcing business
2) Tapping into their amazing talent pool when it comes to software development
I sincerely hope you got some idea from the answer. Incase I was way-off the mark(!!), please ignore the answer!
Regards
Reshma Budhia
Manager - Business Development
SlashSupport - CoE for CSS Corp
www.csscorp.com
Simon P
Project Manager at The Consultancy Home Counties Ltd
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Maxim,
Short answer - probably not!
Reasons:
1. Cost - star-ups need to maximise their budgets - and ROI
2. Length of time to develop new programmes
3. Reliability - why use something untried and tested when there is probably a package that will fit the bill 99% of the time
4. Actual vs predictions - most start-ups are over ambitious in their business plans. What happens if things do not work out as predicted?
Probably not the answer you're looking for but I hope it helps
Jim R
CEO, MCSD ~ KKT INTERACTIVE & FlamboroCanadaSystems
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My own opinions are somewhat similar - and diff - from what's already posted here...but on one point I'd say I'm pretty sure that you should NOT outsource the IT component/code generation to anyone. That is, ensure that you have a partner who is in charge of that area and that you write your own code inhouse. Been there, done that and also outsourced that function and despised the tendered product. Outsource the items you can't do say, financials/accounting/payroll or rental/leasing of eqt etc...but create your own code!!!!
:-)
Jim
Peter N
Wealth Creation Innovator (omnidigitalbrain@yahoo.com)
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Outsourcing means "partnering with a highly reliable and fairly excellent company that will do an activity you need to get done, although that activity is not central to your core strategy or business value proposition."
Quite a mouthful, I know. :-)
I teach strategic business design to entrepreneurs, and one thing I stress is to be clear on what your business model is. Unless your startup does software development, it's a good idea to outsource. However, keep in mind that IT is such a central part of any business organization that, as I mentioned before, it's important to outsource to the best IT companies, regardless of where on the planet they come from.
Surely, outsourcing some of the IT functions will reduce startup capital requirements, but you should make sure the outsourcing partner adds value (and doesn't just become a cost center) and can be replaced fairly easily -- otherwise, you'd lose control of the firm.
Maxim,
So far you seem to be getting more no’s than yeses. Here is another no.
There are some key success factors that are consistent for all outsourcing or off-shoring engagements. One of them is whether or not what you want to off-shore is already a stable, defined and repeatable process. It is rare that a start-up had stable business processes. For example, the start-up that you mention would require an internal SDLC with clear roles and responsibilities throughout the organization so that scope, business requirements, etc. can be determined effectively. Without this internal process, the start-up would not be able to communicate their requirements, have them translated into technical requirements, and/or be able to communicate and manage the outsourcing partner's performance against the SOW or SLAs.
As other's have suggested, your start-up would most likely be better off with off the shelf software at first and then grow and develop into a more sophisticated solutions. This would save time, money and most likely relationships.
Cheers.
As the CIO of a start-up for the first three years for the venture, I’ve had firsthand experience with offshore software development before the “smart money”.
While it is less expensive, it came with the challenges that everyone has experienced adapting to offshore software development so I will not delve into those.
Specifically to my experiences however, one should understand that if the start-up has intellectual property that is in the early stages of a patent process or has a strategic competitive advantage embedded in the software design, when going offshore you run the risk of not having the American rule of law to govern, protect and facilitate your intellectual property.
Who can prevent an offshore developer from stealing your IP?
Regards,
-R
Prakash G
Social Media, Technology and eBusiness Evangelist, Entrepreneur and Loves Life.
Having offshored and worked with over 15 different countries, i think let me define outsourcing is not the same as offshoring.
Outsourcing is merely hiring a third party company or an independent contractor to do the software/web development; which can be very effective under the given terms. They understand and are in alignment with your corporate, technical and overall goals from this project. I am not denying the fact that a new hire is immune to all these challenges, its magnified if its outsourced.
Being in software development, for over a decade in various countries, the only successful projects in software/web/marketing or any other aspect of business you are outsourcing is based on how you treat your vendor. If you treat your vendor as a third party there is a bigger risk of failure , on the contrary, If you treat your vendor as a an extension of your organization and as a part of your team NOT an outside entity the project will surely succeed.
Only way you can achieve this is Communication, Infrastructure, Technology tools, well qualified manager both in terms of technology and local culture.
Personally, I outsource a lot of projects not offshore, I meet with these contractors on a convenient time for them. They feel like they one of my staff, they have constant supply of work, and they are treated with respect, they go to sales calls and they feel they are part of my company and they are.
If you can achieve the same thing with global barriers, distance and other challenges, yes offshoring is no different than outsourcing.
But for a startup when there is time crunch for next level of funding, I would think twice.
Good Luck & Hope it helps.
Prakash
Maurice W
Currently Looking for a new position
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NO!
Not for a start up if its a tech/internet start-up you want to write your own code if its not tech just buy in packages.
Startups put a premium on speed and fit and the BEST way of doing this is RAD/DSDM with co-located customer and development teams.
One example in BT a RAD team delivered in one month what a traditional part of the company had quoted 2 years
Akella R
Entrepreneur,Founder,Saha Software Solutions
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Yes, you might consider outsourcing provided, it is not your core business
Outsourcing well has great advantages like you need not have any setup or Establishment.Only thing you need to be careful is to find out a trusted third party who delivers in time a good quality software.
Regarding the destinations,
Start ups or the young enterprenuers are the best possible destinations.
They have the hunger to succeed, they can give you good quality work.
