In 2010, Alexey Chalimov joined the Gett (former GetTaxi) technology company as a CEO, being in charge of developing the revolutionary GetTaxi product from ground up. At the time, rapidly developing startups already realized their need to break into technology in a big way through outsourcing.
Unfortunately, there are so many misconceptions around software development outsourcing that many early-stage startups end up squandering time and money they simply can't afford, says Chalimov. Today he runs Eastern Peak Software, a software development company focused on helping startups and mid-size businesses reach their full potential by building strong web platforms and intuitive mobile apps. After years of working with startups and world's top enterprises, observing what works and what doesn't, he's sharing top five rules that startups must follow to do software development outsourcing right.
#1. Think twice before asking for a fixed price
A fixed price model sets a fixed budget for your project, based on the specs you provided in the beginning. You will pay exactly what is specified in the contract, regardless of actual time spent by developers.
When running a startup, to succeed on the fast-pace software market with your innovative idea, you have to watch the trends and be flexible. Your specs could change, and they will. However, once entered into a contract with a defined scope of work, project specification and terms, any change request will lead back to the price negotiation table. This will stall the progress and, if used frequently, may even harm the relationship. That's why a fixed price model is hardly suitable for startups, where change is constant, but rather works for fully defined fixed scope projects of larger enterprises. Startups pivot, change scope, adopt new technologies and improve permanently so should their end product.
Furthermore, fixed price model is usually more expensive than other models. Service providers account for possible risks in their fixed price quotes. They are less familiar with your space and technology, so, to not loose on a fixed price quote, they apply premiums for all knowns and unknowns. It is great to feel confident about tomorrow, but there are better ways to keep calm, so why overpay?
It might be a good idea to request a test drive for a fixed price before going long road with a service provider, but don't consider it as your main pricing model in the long term.
#2. Don't stay aside
For your product's success, it's crucial to get heavily involved with the team you are working with, whether it's your in-house team or offshore engineers.
Do your due diligence, interview each developer you are recruiting by yourself or ask someone from your company to do it for you. Don't rely on the vendor's choice. You are running a startup and each person in your team, whether in-house of offshore, is your asset. Here at Eastern Peak Software we work with different clients and on the basis of different management models. However, when it comes to startups, we've found a proper engagement on both sides and frequent communication lead to better results in the long term. Solutions built together become masterpieces.
#3. Do not ignore bad communication signals
Establishing good communication practices is highly important for the project progress. Make sure you have a Project Manager in your offshore team who know their developers well and an in-house Product Owner with a precise vision of the direction for your product to take. Those are your key people so make sure they have open communication channels and that they use them properly and frequently.
The other crucial point of communication is a detailed and transparent reporting. Don't ignore Project Managers forgetting their daily/weekly reports or upfront notification of missing deadlines. In many cases, thinking you don't have problems means that you are not aware of them, so don't lose contact and leave the development unattended.
Finally, if your account manager/company rep is constantly unavailable and not returning your calls, this is an early signal to be aware of. Consider changing vendors and do not rely on time to make it better - it never does.
#4. Consider legal issues
Intellectual property is a huge concern for many entrepreneurs when outsourcing software development. However, there are three simple rules that you should consider in order to sleep well.
First, make sure a NDA is included as part of the contract with an outsourcing company.
Second, learn more about the best practices used by outsourcing vendor to defend your rights and source code. For example, make sure that all the code is safe and secure in a globally accessible repository (i.e. GitHub) and that it won't be lost due to some local force majeure event.
Third, sign an agreement stating that all the Intellectual Property Rights and the source code will be remained under your sole ownership. Often this agreement is a part of the main contract with a software development vendor.
It's also important to do your due diligence on the contractor, this will save you from a lot of trouble in the future, not only from legal ones.
To help entrepreneurs find the way software development can be safely outsourced - and then put it to work - Eastern Peak team has created the ultimate guide to outsourcing for startups, available for free.
#5. Leave your core expertise in-house
Working with startups, we know that keeping their core expertise in-house is important. We also know, however, that most of routine development tasks requiring lots of efforts have nothing to do with the core expertise and usually have little intrinsic value. When you offload such tasks to an external vendor, you simply save your best in-house talents for the value creating efforts.
However, when it comes to developing core parts of your products or creating innovative features, it may be better to keep such development in-house. As an alternative solution, some of our clients who struggle to recruit rock-star developers locally, ask us to relocate our developers to their local offices. This, of course, requires a proper agreement, some legal efforts and expenses for relocation. Even so, in most cases this is a much faster and cheaper approach than recruiting a team of the same size and quality locally.