How to Choose a Software Development Company for Your Product

In December 2022, Clutch surveyed 517 small business leaders in the US to find out about their outsourcing plans and future objectives. The survey revealed that 83% of businesses plan to maintain or increase their spending on outsourced business services. Meanwhile, according to a report by Man Power Group (2023), four out of five employers worldwide report difficulty finding suitable staff.

It’s no wonder that today, the popularity and profitability of outsourcing are on the rise, and application development outsourcing is a hot topic.

Business challenges such as a lack of resources or particular expertise and a dozen other factors push founders to choose outsourcing. However, one critical question still needs an in-depth and up-to-date answer:

How can you choose a software outsourcing company?

You’re about to find the answer.

Before you start searching for a software development partner

Starting the search for outsourcing vendors immediately after you decide to work with one may seem logical.

But we suggest shedding light on certain things before diving into the actual search and selection process: the concept of outsourcing itself, your goals and needs, and possible pitfalls on your way to successful outsourcing.

What do you know about software development outsourcing?

Outsourcing is a simple yet efficient way to cooperate with specialists outside your company and to delegate certain tasks that would traditionally be performed by your in-house team.

Outsourcing became a common practice in the 1950s for white-collar jobs; in the late 1980s, the rise of IT made outsourcing popular, profitable, and incredibly common among both huge enterprises (who decided to enhance their businesses with software) and small teams (who leveraged technologies to take leading market positions).

What do entrepreneurs outsource today?

The most frequently outsourced services are application development, application maintenance, IT consulting, and Dedicated development team.

Still, in 2024, if you speak about outsourcing, it is likely you mean software development or maintenance outsourcing.

Reasons to outsource vary widely. Let’s take a look at some possible reasons in detail.

Reasons to outsource IT services

For their Global Outsourcing Survey 2022, Deloitte surveyed more than 500 business and technology leaders, including over 150 C-suite executives. Among surveyed executives, 76% indicated that they outsource IT functions. Based on this survey, we can highlight the following reasons to outsource software development:

• 96% of executives cite software product development service providers as the source for development of data and analytics capabilities.
• 94% of organizations are leveraging IT service providers to develop their AI/ML technology.
• 81% of executives turn to third-party vendors to provide, in full or in part, their cybersecurity capabilities.
• 62% of executives report talent acquisition and retention as a reason to seek talents on the global market.
• 57% of executives consider outsourcing IT services as a way to reduce software development costs, typically via staff augmentation for transactional business and IT activities.
• 49% of organizations need to gain access to new capabilities.

In general, executives see outsourcing as a way to gain access to expertise that is not available in-house, deal with HR-related challenges, and cut costs.

Still, the outsourcing model has its particularities, hidden challenges, and possible headaches. If you want to find out more about them, read our article about the pros and cons of outsourcing software development.

What’s your goal with software development outsourcing?

A successful business starts with thorough preparation.

To outsource effectively, you need to clarify why you would like to outsource, what you would like to outsource, and who you would like to have on your outsourcing team.

Types of software development outsourcing: product development and staff augmentation

Outsourcing exists along a broad spectrum. You can outsource 100% of your project to a third party, or you can choose this form of cooperation when you want to delegate only part of your app development. Based on your needs, you can choose between two types of outsourcing: product development or staff augmentation.

Product development

Product development outsourcing refers to hiring an external company to develop a new product end to end.

There are a number of reasons to choose product development outsourcing:

1. You don’t have the expertise to build the product. In this case, cooperating with a team of professionals who know exactly what to do seems like the best option.
2. You don’t know where to start. If you have an idea, you can start by cooperating with a software development company to get a proof of concept and a detailed estimate of the time and budget required to build your product and other deliverables.
3. You aren’t considering hiring an in-house team. Hiring is challenging and time-consuming. By accessing product development services, you save months on hiring, onboarding, and training, and your outsourced team will get started on development immediately.
4. You don’t have time for project management. When you outsource product development, you get a dedicated project manager who controls and guides the team. Meanwhile, you can focus on your business tasks or other projects, keeping in touch with the project manager to make key decisions and get progress updates.

You can approach a product development company with detailed app requirements (if you have them) or form your general idea into a project brief, outlining your goals, budget, and scope of work.

Dedicated development team

Dedicated development team is an outsourcing model that refers to the practice of hiring external IT staff to augment the existing team.

Here are some reasons to choose Dedicated development team:

1. You don’t have time for hiring. Organizations that provide Dedicated development team take responsibility for CV screening, interviewing, and candidate selection. You just choose from the most suitable specialists with relevant skills. Such organizations also take responsibility for candidates’ professionalism and the quality of work.
2. You need to speed up the development process. In this scenario, Dedicated development team is the fastest way to involve more specialists in the project in a matter of days.
3. You need access to a wider talent pool. There’s no reason to limit yourself to local candidates. With dedicated development team, you can get access to millions of specialists from around the world, hiring remote dedicated developers.
4. You need specific expertise. It may be a true challenge to hire specialists who have deep expertise in, for example, machine learning and artificial intelligence. If you need to complete your software development team structure with professionals who have specific skills, consider Dedicated development team.

When approaching staff augmentation, you need to provide a vendor with information about your project, specify which roles you expect to hire and for what tasks, and describe your requirements to candidates.

If you are interested in this type of outsourcing, you need to cooperate with dedicated software development company.

Summing up, product development outsourcing is ideal for those looking to delegate the entire development process or specific project components to external experts, while Dedicated development team provides a flexible and efficient way to supplement in-house teams with specialized skills.

What are possible limitations when working with a software outsourcing company?

Now, let’s take a look at things that may get in the way of software outsourcing.

Legislation

Are you familiar with local laws and regulations related to outsourcing, financial operations, and related topics? Before you start looking for a software development partner, make sure you can outsource without challenges.

For example, in the US, rules related to outsourcing are governed by a mix of state and federal laws focused on negotiating liability limits, including financial liability limits, and protection of intellectual property rights.

If you operate within the healthcare, finance, or insurance industries, particular laws and regulations may apply. Consult with your lawyer for up-to-date information.

Budget

The Founder’s Dilemmas by Noam Wasserman has an entire section devoted to the founding team.

Wasserman describes the Three Rs framework:

• Relationship — whom to hire

• Roles — what positions to create

• Rewards — what the founder is ready to pay new hires

This framework applies to hiring a custom software development firm too.

As we’ve defined whom to hire and what roles to fill in a previous section, we’ll now shed light on rewards.

What is your budget for software development services?

• US-based outsourcing companies, or in-shoring companies, may charge around $250 per hour for development services.
• A near-shore team based in Argentina or other Latin American countries may charge $30 to $70 per hour.
• Hourly rates for offshore development service providers in Eastern Europe, including Poland, Ukraine, and Romania, range between $40 and $100.

Once you define your budget, it’s easier to focus on the next point.

Location

Where would you like to outsource software development?

Would you like to hire Ukrainian developers or have your app built within your country? It may be convenient to work in the same time zone as your development team; however, the price may be high. At the same time, if you’ve already noticed talent shortages in the local market, then your local outsourcing partner may also find it challenging to fill your team with expert developers.

Eastern European countries have proven experience in offshore software development outsourcing.

For example, you may consider outsourcing to Ukraine or Poland. As of 2023, the number of software developers in Poland and Ukraine exceeded half a million. This is a nearly bottomless pool of talents.

At the same time, you may want to consider outsourcing to Asia, which allows you to minimize development expenses but has drawbacks related to time zone differences and possible communication issues.

How to choose the right software development partner to entrust your project to

You’ve finished the preparation stage. You have a vision of your app requirements, and your project brief is ready. You know whom you’d like to hire and what services to look for. You’re aware of possible limitations, have a well-defined budget, and are focusing on a particular region as a preferable outsourcing destination.

Now it’s time to make initial contact with potential outsourcing partners.

Meet potential outsourcing partners offline

Are there any opportunities to meet potential outsourcing partners in person? Here are two ways to do so.

Personal recommendations

This is one of the simplest and fastest ways to meet an outsourcing partner: just ask for a personal recommendation.

Entrepreneurs, founders, and managers from your social circle may be eager to share their positive experiences with you. They may have walked in your shoes and are aware of how challenging it is to select the right outsourcing vendor. Thus, they will likely recommend a reliable vendor they already have had a positive experience with or give you recommendations on how to find and cooperate with a software development vendor in your country, region, or city.

Events and conferences

Offline events extend your borders and allow you to meet software development professionals from any country, build reliable international cooperation, and learn something new.

At events and conferences, you can make useful contacts, speak to interesting people who work in your industry, receive valuable recommendations, and even attract investors’ attention to your product.

Web Summit brings together around 150 speakers, 70,000 attendees, and 900 investors every November in Lisbon. You may also want to pay attention to The Next Web — a tech event with more than 10,000 attendees and 480 international investors that takes place in June in Amsterdam.

Also, check for IT events in your city or region. Local conferences and meetups attract fewer visitors but can help you secure quality connections with the best local software developers.

Visiting an event is one of the best ways to find reliable, trustworthy development partners who offer affordable rates.

Meet your outsourcing partner online

Multiple online resources may help you meet your future partner. But again, start by asking for personal recommendations from your online audience. Then proceed with the suggestions on our list.

LinkedIn

On LinkedIn, you can get access to thousands of software outsourcing companies working worldwide. Search for particular specialists and related content. Subscribe to groups you find interesting, follow outsourcing companies, and connect with tech influencers. If you already have a LinkedIn profile, try to post an ad about your search, use hashtags, and wait for results. Representatives of outsourcing companies will likely find you and reach out.

Clutch

Clutch is a B2B platform that contains honest ratings and reviews about companies. It helps over a million users connect with business partners monthly. Filters on Clutch are much more convenient compared to LinkedIn. Choose a directory, filter your criteria, and review descriptions, reviews, and ratings of dozens of outsourcing companies that may potentially meet your requirements.

Upwork

You may associate Upwork with independent freelancers. However, you can also find a reliable outsourcing agency on this platform. To do so, choose Development and IT, and scroll through the offerings. One of Upwork’s advantages is that you can select a service tier according to your budget and needs. No need to ask for a quote — you’ll be able to see an approximate hourly or project rate posted right on a company’s profile. You also can seamlessly manage your projects directly through Upwork. You can use the platform to effortlessly track hours and handle payments.

How to choose a custom software development company

If you’ve tried to look for outsourcing agencies on LinkedIn, Clutch, and Upwork, you may have something like 117 tabs opened in your browser and be wondering what to do with them.

First of all, take a quick look at each profile on a particular platform.

• Is there enough information about the company, the team, and their key competencies? Do they match your needs?
• Do you find the profile attractive?
• Does the company look professional at first glance? Is their portfolio worth your attention?

Shortlist your chosen agencies based on your initial impression. We recommend cutting the list of candidates to 10–15 agencies so you can dedicate enough time to each of them, focus narrowly, and make the best choice for your business.

Now, it’s time for the first contact.

The selection process

Typically, selecting a software development company includes four stages. Sending a short message is the first.

• Intro message

Most companies have a contact form on their website. Once you’ve decided you like a certain company, you can immediately send the first message.

You can either fill in the contact form or reach out to the company via the email address you find on their website.

Another way to contact a company is by writing a representative on LinkedIn. Focus on managers, sales development representatives, and business developers to get detailed, fast, and professional responses.

Use the most convenient option for you.

In your request, briefly describe your expectations and needs.

If you send an email, you can send your project brief as an attachment.

• The first call

Within 48 hours, an outsourcing company should reach out to you to ask further questions and schedule an introductory call.

If they don’t do so within two business days after you contact them, this may be a red flag, as a delayed response is not what you’re looking for.

During the first online meeting, you will get acquainted with your potential partner, share your project brief, ask questions, and help your potential partner understand your objectives.

• Portfolio review

During the intro conversation, a potential partner is supposed to share their presentation and portfolio with you. Take your time to review the documents carefully and make sure the engineering team has experience developing products in your industry. Have a closer look at the apps the software development company has already developed. Compare them to your idea. Do you find similarities between your product and apps from the company’s portfolio?

Based on what you learn from your intro conversation, take your next step.

• Request for proposal

Request a proposal to make sure that prices for services align with your budget.

What components should your request consist of?

• Introduction — briefly describe your idea and goals
• Instructions for the vendor — language of communication, contacts, expected deadlines
• List of requirements

Shortlisted firms will send you their proposals containing a list of necessary information for a successful start.

After that, you can request a pilot project with selected candidates before choosing one for full-scale cooperation.

5 critical factors to consider when choosing a custom software development vendor

Here are five factors to pay extra attention to when choosing a software development vendor:

1. Communication

Do you feel comfortable when talking to your potential partner?

Pay attention to everything that matters to you in your teammates. This is the first step in software vendor evaluation. Verbal and written English skills are a must, while a sense of humor may be optional: some founders may even find it irrelevant. However, when choosing a software development company, try to consider them not as a service provider but more like your partner who can translate your words and ideas into code and improve your business with a high-quality software solution.

2. Portfolio & domain

As we’ve mentioned, a company’s portfolio is significant. At first, it may seem like the more projects you see, the more experienced the company is. However, this doesn’t entirely reflect reality. Consider only experience that is relevant to your project.

3. Testimonials

What do former clients say about a particular software company?

Visit a company’s profile on LinkedIn and Clutch. Do five-star reviews prevail? Are there any complaints or unresolved issues mentioned?

On some company pages, you may also notice employee reviews. Check them out, too, to make sure the company’s culture, HR policies, and overall atmosphere aren’t toxic. Employee satisfaction may have a direct impact on your product.

4. Professionalism

Do the people you talk to behave professionally? Do they use the terminology, business, and technology concepts in your niche? How do they answer your questions?

Analyze behavioral patterns and consider if you would like certain specialists to contribute to your project.

5. Cost

Analyze hourly rates for software company services and rough project estimates that a company provides. Are you ready to invest these resources in the development process? Your answer to this question, combined with your assessment of the four above-mentioned factors, will help you decide on a software outsourcing development team to work with. Read our article about the cost of custom software development to find out more on the topic.

These are some of the crucial software development vendor selection criteria to consider when choosing the right partner for your project.

Create a simple spreadsheet to collect all your thoughts and impressions regarding each of the shortlisted companies. Take notes during each conversation and evaluate the five most important factors that may impact your choice.

Red flags while looking for an outsourcing partner

When searching for an outsourcing partner, it’s crucial to be aware of indicators of potential issues or risks. Here are some red flags to watch out for:

• Difficulty in reaching the outsourcing company, delayed responses to queries, or unclear communication can indicate problems with the vendor’s responsiveness and reliability.
• Be cautious if the outsourcing partner offers unrealistic results, costs, or timelines. It’s essential to have a realistic understanding of what can be achieved within a given budget and timeframe.
• Reviewing past projects can give you insights into the quality of a company’s work. If the portfolio provided is unclear or inconsistent, it may indicate that the company is not capable of delivering the quality you require.
• If the company can’t offer proper security measures, such as an NDA and a contract agreed between both sides to protect your data and intellectual property, it can pose significant risks to your business.
• High employee turnover rates within the outsourcing company may indicate internal issues such as poor management, low morale, or inadequate training, which can affect the quality of service.

It’s crucial to thoroughly research potential outsourcing partners to mitigate risks and ensure a successful collaboration. Taking the time to identify and address red flags early can save you from potential headaches down the line.

Also, keep in mind that you can seamlessly manage your projects directly through Upwork. You can use the platform to effortlessly track hours and handle payments. Upwork is a great option for those new to outsourcing who might feel a bit apprehensive about diving in alone.

In conclusion: how to choose a software development company in 2024

Rio Rocket, a digital entrepreneur

Software development outsourcing may become a winning strategy for you, just as it has already been for many startup founders and businesses.

The main challenge of outsourcing is choosing the right outsourcing partner. While the web is booming with offerings and services, it may be hard to find and select a custom software development company.

Your outsourcing team should not only be able to code; it’s also essential to look for people who will become your reliable consultants, tech experts, and helpful partners.