IT Outsourcing After Series A Funding: Pros & Cons

6 minute read
Why outsource product development

You need strong arguments that you can develop a quality product if you want to attract investors for your project.

Outsourcing is growing rapidly. It is no surprise because such a cooperation model is beneficial for both customers and providers. It saves money for the former and creates jobs for the latter. For this reason, outsourcing for startups has become a win-win solution that helps produce a quality product for lower costs.  

Nevertheless, not all novice companies can outsource software development. This is because newcomers do not have sufficient resources to contract with external organizations. These companies are usually launched based on seed capital and rely on their own money to produce the product. 

But when a startup achieves positive results, it can attract investors and increase production volumes. At this stage, investors for Series A often come into play. They understand the growing business opportunities and are ready to invest in young firms for the sake of profit growth.
After receiving the necessary financial injection, startups begin looking for ways to quickly develop a quality product. This is considered the best time to hire an offshore team.

Why do tech startups outsource?

Tech startups focus on developing high-tech products that solve new user problems or offer a more rational solution to an existing problem. Tech startups usually operate in such industries as:

  • eCommerce
  • healthcare
  • automotive
  • real estate
  • delivery services
  • artificial intelligence (AI)
  • educational technology (edtech)
  • financial technology (fintech)
  • shared mobility.

To create a quality product in any of these areas, you need to assemble a team of professionals who will work on the software design, development, testing, and maintenance. As usual, the recruiting process is rather long and expensive. Besides, you will need to equip workplaces, provide a social package to employees, and maintain team spirit with the help of various corporate events for an in-house team.

The above processes may take months or even years. It is clear that most startups cannot, and do not want, to wait that long. Instead, they prefer to outsource software development which allows them to start product implementation immediately. 

In addition to fast product development and contracting with an expert development team, tech startups get many extra bonuses from outsourcing:

High quality at a moderate price. Today, many clients prefer to delegate product development to countries where the developers’ rate is lower than that of their American and Western European colleagues. In particular, the Eastern European region is a popular direction for tech outsourcing. 

Developers from Ukraine, Poland, the Czech Republic, and other countries have proved to be highly skilled professionals with vast experience in different IT fields. They can quickly deliver a top-notch product at an affordable price, thus saving time and money. Learn more about developers rates in Europe here.

Boundless talent pool. When you are not tied to a specific location, you can hire from anywhere. Outsourcing gives a great chance to work with the most talented people from all over the world. This opportunity becomes especially valuable when your project nature requires narrow-focused specialists. These people are much easier to find globally than they would be when limited to a specific location.

Flexible collaboration models. Outsourcing easily adapts to any client’s needs. It is possible to outsource the entire project development or involve third-party experts to implement a separate function. If your product needs ongoing development and maintenance, you can hire a dedicated team. If you have a short-term project, you can opt for a fixed-price model. 

At Erbis, we support various cooperation types and have experience implementing projects of different complexity and duration.

Wise and skillful management. Technology outsourcing allows delegating not only executive functions but also managerial ones. When you hire a remote team, it includes an experienced project manager who knows how to organize workflow in the most efficient way. This is especially valuable for those business owners who are not familiar with the development processes and need the expert help of tech-savvy specialists.

Easy business scalability. As the business grows, the owners face new challenges: they need to expand the team and office, adapt the management system, pay new taxes, etc. Organizing these things takes a lot of time and may prevent fast business growth. However, things are different if you choose to outsource product development. In this case, you are relieved of administrative duties and can focus on developing and scaling up your business. 

Should you tell investors about offshore software development?

Attracting Series A investments is just the beginning of business growth. At this stage, startups usually work on Proof of Concept (PoC) to validate a product idea. Next, they develop the minimal viable product (MVP) to see how users meet the initial version of the product. If this stage is successfully completed, companies tend to seek investors for Series B. A new funding round is needed to increase product potential, fulfill it with extra features, and provide the target audience with the right value proposition.

It is clear that investors conduct a thorough check of startups and monitor how they work before and after giving money for their projects. They watch how the processes are established and what moves are taken to set up a seamless workflow at all stages of product development.

So, if you want to demonstrate a high level of professionalism, it is vital to choose your technology partner with great care. If the chosen outsourcing team has a good reputation, extensive portfolio, and clear contract conditions, there is no need to hide the fact that you are delegating product development.  In addition, such a decision will demonstrate a caring attitude towards the injected investments and a readiness to make bold decisions for rising business opportunities.

Software development outsourcing for startups and SMEs: pros and cons

Before delegating IT functions to an external organization, the startup owner must assess the advantages and disadvantages of outsourcing before making a decision. It is crucial to analyze the current business state and decide whether hiring an offshore team will be the most effective solution. Below, we list the main pros and cons of outsourcing for tech firms, so you can decide what is better for your company. 

Pros

  • attracting competent specialists
  • zero expenses for recruiting and HR
  • savings on money and human resources
  • getting results from business processes without managing them
  • maintaining the legal status of a company (for example, the category of small business with a large number of people actually working in it)
  • no formal labor relations with specialists (officially, all specialists work for a contractor)
  • documented rights and duties of both parties in the contract.

Cons

  • risk of receiving  a poor-quality product at the output 
  • risk of information leakage
  • lack of control over delegated business processes
  • possibility of not understanding the corporate style and philosophy of the company
  • possibility of engaging non-professionals.

Conclusion

Startup investing is a common practice worldwide. Investors who see potential in novice firms are ready to invest in their further development because they believe in getting good returns in the future. 

After attracting investors for Series A and developing MVP, startups want to find investors for Series B to expand their business further. At this stage, companies need to show investors their expertise and ability to make strategically important business decisions. For this reason, many owners prefer to outsource software development to subject matter experts because they can get the job done faster and more efficiently.

Despite there being some disadvantages to outsourcing, the risks can be mitigated and, with the careful selection of a technology partner, can be totally removed.

August 17, 2021