Outsourcing for Startups: Key Reasons and Pitfalls to Avoid

The article was updated on November 29, 2022.

In recent years, outsourcing has become a common and accessible strategy for the workforce. It’s especially beloved among small- to medium-sized startups, and for a good reason. While offshore employment brings unique benefits by definition, the advantages of outsourcing for startups can be decisive for the rapid and successful growth of young enterprises.

It allows small and medium startups to attract talented professionals for a reasonable price, thus building a perfect team and efficiently realizing startup ideas straight away.

Let’s look in detail at the main reasons for outsourcing for startups and some common software development outsourcing pitfalls.

Reasons for startups to outsource

By using outsourcing services for startups, young businesses increase their chances to transform into a large competitive player in the market faster. But how exactly can external employees contribute to this progress?

Here are the top reasons to outsource workers for startups.


1. Scale up fast

Nowadays, it’s hard to find and attract a professional, especially when it comes to such a huge and competitive niche as IT. Usually, startups can’t offer perfect working conditions such as high wages, large-scale projects, and stability. That’s why many startups can expect expert programmers to become a part of their teams only when offering them a share of the company.

However, reaching out to outsourcing companies can solve all these issues. One of the main reasons to outsource software development is that even the smallest startup can afford to involve experienced developers in their projects and thus initially enter the market with a quality product.

2. Make your business flexible

Companies that use traditional business models often find themselves in a situation where they don’t need some of their workers immediately. It may happen, for instance, in a period between projects, or in a project that doesn’t require specific skills. However, such companies have to pay these employees during these down times in order not to lose them until the next relevant project.

Outsourcing allows businesses to hire workers temporarily, at any time, and as many times as they need. That’s why outsourcing software development for startups is considered to be so beneficial: they don’t need to waste their tight budget, as they can hire and “fire” employees easily, and still get their projects done.

3. Reduce costs

When following a traditional hiring approach, companies spend massive amounts of money on salaries, insurance, offices, training, etc. Because hiring workers offshore can help startups avoid these huge expenses, it’s often one of the pivotal reasons to outsource employees.

Software outsourcing for startups allows them to organize their workflow remotely, as well as cut unnecessary costs, at least in the very early stages. Nevertheless, it’s crucial to stay away from the simple goal of saving as much money as possible, but rather to allocate it wisely. Suspiciously cheap outsourcing may not bring desired results and turn out to be a waste of budget, so it’s better to look for an option at a fair price.

4. Improve the climate for your in-house staff

Outsourcing has another surprising benefit that relates not only to the business itself but also to its in-house team. Generally, the fewer long-term employees you have, the better working conditions they can get.

For instance, by cutting some operating costs through outsourcing, your in-house team members can expect higher salaries and more beneficial working conditions. Also, you don’t have to distribute the company’s options between new employees, so only your permanent team can enjoy their shares and, in this way, get motivated to work harder.

5. Easily recruit top developers

Building the right team is essential for every project and company, but for startups, this issue becomes vital. The expertise of your employees determines the quality of your final product, and any startup is interested in a successful launch to become visible on the market.

Outsourcing for startups makes it easy to hire expert developers, designers, marketing professionals, and other workers wherever your business is located. You hold all the cards, and can involve experienced workers from other cities, regions, countries, and even continents, who have the skills you need for your project.

Pitfalls to avoid when outsourcing

Although outsourcing seems a perfect option for startups, it might not be that easy to choose the right vendor at first. To effectively utilize this strategy and minimize risks, you may want to learn how to find your perfect vendor and recognize some red flags of potentially unproductive cooperation.

So, what are the common pitfalls of outsourcing?


Outsourcing pitfall 1: Choosing the cheapest vendor

No one argues that price plays an important role in choosing outsourcing, but it should not be considered separately from other parameters. When choosing a vendor, do not just pick the cheapest possible; rather, be critical and take other factors into account.

By being excessively economical, you risk losing much more money than what you have saved. When choosing a vendor look for a balance between price and quality. Otherwise you risk facing late deliveries, bad quality and technologies that you cannot change or improve.

Outsourcing pitfall 2: Not checking the references

It can happen: a vendor misses the deadline, delivers work of bad quality or just disappears and stops answering your calls. Research the market and always check the references to avoid this problem with outsourcing.

  • Ask former vendor clients for feedback.
  • Pay special attention to aspects of the previous client’s project that might be relevant to your own.
  • Customer satisfaction is important.

Outsourcing pitfall 3: Choosing fixed price vs. time-and-materials

Fixed price is a pricing model that sets a single rate for the project, regardless of the time and expense. Time-and-materials, on the other hand, bills the customer for the hours spent on the project, as well as expenses incurred.

The pitfall of a fixed-price contract is that if underestimated, the vendor may start managing costs and cut down expenses severely, which ultimately results in poor-quality work.

Outsourcing pitfall 4: Ignoring bad communication signals

A vendor’s relationship with their clients reveals a great deal. So beware of outsourcing communication issues. If a vendor misses your calls using time difference as an excuse and does not get back to you, this is an early signal to be aware of when starting work with him. Consider changing vendors and do not rely on time to make it better – it never does.

Outsourcing pitfall 5: Choosing a specialized vendor

It is a common misconception that specialized vendors are perceived to be more professional. You still end up working with a developer with his expertise. As you grow bigger, you will experience a need for new technologies and you will have to attract teams from other companies.

To avoid misunderstanding and controversy between the teams, it is better to choose a company that has expertise in diverse programming languages and frameworks.

Outsourcing pitfall 6: Going for big brands

A growing number of outsourced projects has prompted huge outsourcing companies to work as “conveyors” on standardizing all processes. Therefore, it is common that insufficient attention is paid to the specific clients’ features.

A big company will not make concessions to a small customer and will more likely just skip him. This results in a drastic decrease in quality of the work delivered. Therefore, it is necessary to choose an outsourcing company that can offer a personal approach to your issue.

Pay attention to medium-size companies with good references and reputation. As an extra benefit you will have access to a decision-maker that will help you to ease your work.

A personal approach to each customer ensures the possibility of implementing unique high-tech product features that result in outstanding product quality, along with total end-user satisfaction.

Outsourcing pitfall 7: Going for freelancers

Since freelancers work individually, they face problems troubleshooting complex issues while programming because there is no one else nearby to help them. Freelancers are seldom prepared to take up even a medium-sized project – they can only take up projects which they can handle single-handedly within their individual capacity.

In the worst-case scenarios, freelancers may just disappear in the middle of the project. Working with a R&D company with a decent pool of software professionals will help you to avoid this pitfall.

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Wrapping up

The great thing about business today is that nearly any company has a chance to make a strong start and become a large player. Even the smallest startups have an opportunity to leverage the skills and knowledge of top-ranked experts in any field.

If you choose the right vendor and avoid the pitfalls of outsourcing, you can build your dream team in a breeze, while allocating your budget in the most profitable way.

Eastern Peak has already established itself as a reliable outsourcing partner, helping dozens of startups to bring their ideas to life. If you want to get professional support in a tech branch, contact us for a free consultation.

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