His concern was the following: “We will need continuous development and working with an external agency will definitely be too expensive. Even though your prices are very competitive, costs don't match those of two developers employed in-house.”
Because this question popped up quite often since then, we decided to expand the idea into an article potentially useful to startup founders who’re trying to decide between hiring an internal development team and working with an external services provider.
Let’s start with the benefits of having the development in-house:
Most of our customers, startups in the inception phase, claim that it only makes financial sense to hire their own team when at least one of the following conditions apply:
The idea of starting with a few programmers and to ultimately take over the world seems to have stemmed from all the media articles that describe it as a mandatory condition for startup success. Nonetheless, our experience with over 150 customers has shown that it’s not necessarily true. As an external team, we’ve done projects for customers where we resolved all of the conditions above.
In fact, we’ve met customers who started with their own development team but, due to all sorts of circumstances, weren't able to manage the project until the end. On one occasion, we even took over development from an in-house team of 4 developers that had been working on the product for almost a year.
Therefore, if you decide to build your own development team it’s important to realise it comes with different challenges. The in-house team is by no means a guarantee of efficiency, productivity or product understanding.
So, what are the benefits of working with the right external team?
As with everything, it’s not black or white. A hybrid model can also work. We have customers who have internal teams but they collaborate with us on certain specific areas of their system. Our team usually undertakes developing one full feature from a more complex piece of software and integrates with the client’s team as often as necessary. We become a sort of an extension for the in-house teams and, so far, collaborations run smoothly.
For Hindawi, one of world’s largest open access publishers of peer reviewed academic research, we’ve put together a dedicated team of 20 people who’ve worked externally for 2 years. In 2019 we helped them build an office here in Iasi and, then, transferred the entire team under their management, in a Build - Operate - Transfer model.
However, for most startups, it simply doesn’t make sense to build an internal team. There is enough challenge with sales & marketing and with keeping the business afloat. With a good in-house CTO in charge, and by maintaining a healthy communication flow between them and the external team, the productivity gains will quickly out-pace the benefits of having your own developers.
Editor's note: this article was first published in 2013 and has been updated on August 27, 2020.