Outsource, Insource, or Hybrid?
Jun-Dec 2022
Anonymous Custom Software Dev Co.
Company has more development work that it has resources, but was hesitant to hire, as the sales pipeline was still in doubt. Initially (in early summer), the committed sales pipeline only had 6 months of work. Later (in Q3), due to an additional two logos signing contracts, the Company had committed work at least into the second half of the following year.
The CEO was hesitant to hire employees with a short ramp of committed work. The Company had been through a very rough patch, due to the pandemic, and he had been forced to layoff most of his staff — including some that had been with him for many years.
Committed Sales Ramp (months)
Burst Development Capacity (hours/month)
We had a very successful outcome (not even counting that we continue to generate new business / new logos!) After some experimentation, we have settled on one 3rd party development vendor for any outsourcing. Plus, we are only using them for work that is easily segmented, and fairly standalone — specifically mid-sized, fixed scope, statement of works. In addition, we have now brought on 4 new developers, as employees! The continued success on the sales side is allowing for growth, but we continue to utilize the (low cost) development resource to both supplement our available resources, but also to allow us to focus our internal resources on business critical work.
Built relationships with three software development shop, all with in-depth experience working with the Company’s technology stack.
Assigned each of the three specific deliverables within ongoing projects, based upon their perceived strengths.
In parallel, started recruiting for critical internal resources.
Due to the very specialized nature of the technology, the Company utilized a recruiting firm.
Challenges
- As capable as all three of the development shops were in our technology stack, there were significant efficiency problems.
- All of the teams were based overseas. So, it was not possible to have much real-time interaction, due to time zone differences.
- One of the shops in India demonstrated lots of problems with autonomy: Tasks were assigned in a daily stand-up, but if the developer got stuck on a problem during their day, they did not have the competency or confidence to proceed, until the next daily standup. This led to much longer than necessary timelines.
- One of the teams was way more capable, with better autonomy, but was very expensive. Our gross margin on hours was insufficient to cover operational costs. Not a long-term solution.
- Hiring meanwhile was taking a while. We were constrained on what we could afford, and it a tight market, this presented a real challenge. Initially, the CEO had an unreasonably low idea of what he could offer for salary for the positions. (He had not hired for over a year, and the market in tech had radically changed.)
Lessons Learned
- It takes time and effort to ramp up a 3rd party development shop. This was true for us even thought the development groups we engaged were all very experienced in our particular technology stack. It is important to account for this additional ramp-up time and overhead, when making comparisons between hourly rates.
- Bringing on vendors with deep experience in our technology satisfied tight schedules, but at additional costs. Ultimately, once the business outlook justifies, we arrived at a primary focus on internal employees, while settling on one development partner for burst capabilities.