Software Outsourcing: Why, When and How It Works Best

It’s 2023, a digital age where remote work attracts the most talented, where location no longer defines a team.

Nowhere is that more true than in the world of software development. Software outsourcing is an increasingly popular strategy that effective companies adopt for product development. Just look at Google, Amazon or Facebook.

What does this approach look like? Companies that adopt software outsourcing establish a symbiotic relationship with their in-house development team. An in-house team works on proprietary components; an outsourced team helps support them. You pay high salaries for the high impact work and then outsource the rest to free up in-house engineers. This approach leverages the strengths of both in-house and outsourcing to create a scalable model.

(For a look at the pros and cons of in-house development, see our analysis here.)

Now, there are other ways to leverage software outsourcing beyond how the Big Dogs do it. So how do companies effectively outsource their software development? In this outline, we’ll break down what outsourcing is and when you should consider it.

What is software outsourcing?

Software outsourcing is the process of contracting software developers to work on your scope of work. These developers are contract hires, not employees. In other words, they are a 1099, not W-2. Software outsourcing is an increasingly common strategy that companies are using to build out their development teams. 

Everyone from early-stage startups to Fortune 500 companies outsource their software development needs in some capacity, whether it be the entire team or supplemental portions.

When should I outsource software development?

Let’s first tackle an elephant in the room: outsourcing is not a black-box solution. Software outsourcing is not for everyone, nor everything. The companies that fail when outsourcing are the ones who approach it as a singular solution to a problem. In reality, software outsourcing is a tool that, when yielded properly, is incredibly effective. However, when misused, the mistakes can have significant consequences.

There are a few common approaches that we’ll outline as to when you should think about software outsourcing. Remember, the most effective companies outsource, but they do so with a strategy in place.

Cost savings

The most common reason a team is going to outsource their software is to save money. When you look at the global economy, you can effectively arbitrage your local dollar by working with developers in a weaker economy. In this manner, paying a handsome wage in one’s local currency still serves as a lower salary than what one would otherwise pay in their home country.

Flexibility

Flexibility is a massive draw to outsourcing given the nature of contracting relationships. When outsourcing, you aren’t hiring in-house, meaning it isn’t a contractually long-term relationship that is hard to let go of. Firing an employee is expensive, firing a contractor isn’t. As a company, you can contract a freelancer or agency to work on a single project or a backlog of tasks. Scale your resources up or down, as you please. You as the Client have the flexibility to make your roadmap yours and frequently adapt it to your company’s needs.

Niche expertise

A more current and recurring draw towards outsourcing is leverage niche expertise. Many companies these days are looking to get into Web-3 or AR/VR technologies. When your company is looking to leverage these emerging technologies to supplement your business rather than as the core business itself, it can be more cost effective to contract individual experts rather than build out an expensive in-house team.

Staff supplementation

This is the secret sauce, the way the Big Dogs approach software outsourcing that we talked about earlier. Supplementing your in-house team is a way to speed up your development cycles. Rather than continuing to hire employees (costly & timely), you can supplement your team. Let your in-house developers work on what they find interesting, and outsource the rest. This allows you as a company to scale incredibly efficiently while keeping your operations fluid and flexible. Missed your sales target? Scale down your supplemental team. Landed a massive contract? Scale up your supplemental team. Don’t worry about the hiring infrastructure that you otherwise would have to be managing throughout this process.

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So, how do I get started?

Well, that entirely depends on where you are at as a company and what strategy best aligns with your business goals. Remember, don’t look at outsourcing as a potential solution, view it as a tool. Does it make sense for you to use this tool? Or would using it just hurt you for now, and leveraging later would be better? You can use a sword to spread butter on a piece of toast, but is it really worth the risk?

When thinking about outsourcing software, you’re going to want to speak to experts to help you think about what the best strategy is. Aloa, for example,  vows to get to know you as a business first to determine whether it makes sense for you to outsource. If it does make sense, Aloa can walk you through the best approach.

Regardless of your path, be sure to put solid time and energy into putting together the best strategy so you can set up your development team for success.