Tech startups are particularly dependent on software development. Without a well-built product, there is no chance of success and satisfactory market penetration. There are basically two ways of product development for a tech manager to follow. It is either about building your own in-house team or establishing cooperation with an external software development agency. Which way is better for startups? Let’s try to find a suitable solution.
This is a fairly popular dilemma as both solutions have their supporters. I know tech managers who can't imagine a different way of building products than as part of their own in-house team. In turn, more and more start-ups decide to cooperate with an external software development agency. I am under the impression that this trend is growing. Companies that have just obtained financing and started building their corporate structure believe that finding a software house tailored to their needs and entrusting the product development process to real professionals is a much more effective solution.
Perhaps you have faced a similar challenge or know you will have to make such a choice soon. Based on my experience and discussions with tech managers from the IT industry, I have prepared a set of basic differences between an in-house team and an external software development agency. The table below presents the key aspects of these two approaches.
| Factor | In-house team | External software development agency |
|---|---|---|
| Human resources | You must employ recruiters who will find qualified developers. Remember, however, that the competition for hiring the best specialists on the market is fierce. For this reason, recruitment is a big challenge. | Establishing a team of developers takes much less time. You present your needs to an external software development agency, which is solely responsible for managing the process. You only accept candidates and give a signal from them to start working. |
| Daily cooperation | You have full control over the developers. You can plan their work as you like. Moreover, changing the way they work is theoretically possible at any time | Cooperation is progressing in accordance with previously agreed rules, probably closely tied to Agile. You are in close contact with the development team, but at the same time you must trust their expertise. What is more, you save your time. |
| Cost | You must spend time and money on recruitment. Remember that the developer market is difficult, and the employment of a qualified employee often involves a high salary. In addition, you must invest in equipment and necessary tools. You also cover costs of non-working days and developers’ vacation. You have to involve HR and office departments as well as select development team leaders. | You pay only for each working hour of a developer. You do not incur any additional costs. The rates are quite attractive, too. In Poland, they amount to 30-50 euros per hour. |
| Main benefits | You have full control over everything, so you can closely supervise the development process of your product. | It is a cost-effective and convenient solution. If you find an efficient external software development agency, product development will run very smoothly. |
| Main obstacles | It is not always a cost-effective solution. You lose your precious time and you must probably engage other departments in your company (HR or office). | Risk of inefficient communication, divergent goals, lack of understanding. |
First of all, you need to answer a few important questions. I think the most important thing is to decide whether you have the appropriate competencies within your team to build or develop a product yourself. Also, it is important to consider financial and time issues. If you have no developers at all or there are too few of them to deliver the product in a timely manner, consider working with an external software development agency.
If you still have doubts, try arranging a trial period with the software house. Test this model of cooperation and assess whether it is effective for you. That way, before you invest in an in-house team, you'll know if there is a more effective solution for your product.
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