Outsourcing

Software
Development
Options, Pros and Cons
Yossi Pinkas, Head of Startup Investments, Transfotech

Software Outsourcing is
the transfer of information systems development,
operation or maintenance to an outside firm that
provides this services, for a fee, on a temporary or
long-term basis.
Can refer to relatively minor programming tasks or
the handling of a company's entire IT function.

(almost) Every one is

outsourcing

Software development outsourcing is a $41 Billion a year market globally

"Apple is said to be planning to quadruple the amount it spends to
outsource software application development and maintenance work to
India.
About $100 million is currently spent at Apple to outsource such work to
Indian companies, with the nation representing about a fifth of Apple's total
outsourcing dollars. " (appleinsider, February 14, 2012)
Who else?

Why?

Where?

Should you outsource?

You need every competitive advantage you can gain.
when weighing outsourcing pros and cons, consider:
1. Can someone do it cheaper than you?
2. Can they do it faster than you?
3. Most importantly, can they do it better than you?

Modes of outsourcing
Staff augmentation
Project Based
Dedicated team
Build, Operate, Transfer (BOT)

Sources for Outsourcing

Freelancers e.g. through Odesk/Elance, Freelancer, Xplace
Overcrowded with cheap labor from third world countries
It takes a lot of time and effort to find the right contractors
There is no reliable way to assess how good the freelancers are at
what they do
Need for remote micro-management
Outsourcing companies - Ness, Matrix, Infosys, Wipro
More expensive but not just a collection of coders

Onshoring or Offshoring
Cost work, travel, management
Language
Mentality, culture, work ethics
Time difference (advantage and disadvantage)
Do the best engineers choose outsourcing as a career?

Outsourcing Pros
Cost
Access to a wide set of skills, technologies and best practices
Flexibility in size of team, short term commitment
Time-to-Market possibly larger teams, less time to recruit
Improved focus

Outsourcing Cons
Communication barriers - distance, language, culture, time difference

Lack of dedication, commitment and aligned interests

Quality
Productivity - lower productivity rates of developers, management overhead, travel
time
IP risk
Company culture", Morale

You must consider outsourcing

when
Software engineering isnt critical to your business model.
You can build a non-critical module internally, but with a small staff you have
other essential business needs to attend to.
One-time software engineering projects that require unique skill sets.
You need a flexible software engineering workforce. Outsourcing is cheaper and
friendlier than hiring and firing staff.
You have no real experience in managing technology and software development
cycle.

Tips
Some of the outsourcing firms are quoting savings of 70-80% but there are many hidden
costs. Gartner concludes that savings are more accurately determined to be closer to 25%.
One experienced $100/hr developer may well produce more value for you than five or even
more junior $20/hr people.
Fixed price model does not necessarily save money as the supplier tries to hedge against all
risks, some that may never happen, while time & material model allow to pay only for work
actually done
Sign a detailed agreement - deliverables , milestones, documentation, maintenance,
upgrades, IP
Benefits of outsourcing grow with time. Dont limit yourself to short term projects (e.g. MVP).

More tips
Even if you chose to outsource the entire software development
cycle, it is important to have a technology manager in-house.
Have an on-site manager and not a headless team
You can't have only star developers
"Nine women can't make a baby in one month."

Take care what and how you

outsource

Outsourcing instead of software development

Will outsourcing make you less

attractive to investors?
R&D is just out of several functions in an organization.
Today, technology and tools make building a software or web
product incredibly easy; so much so that investors are no longer
impressed by the simple fact that a startup has built a product
they want to see which ones have been able to capture users
attention and engagement.

Benefits of development in
exchange for equity
Start development quickly and with sufficient resources
Aligned interests
Interim CTO to ensure right people, right technologies and
methodologies, accurate planning and scheduling

Thank You!