More and more companies all around the world decide to rent dedicated development teams to build their products. But what would you say if I told you that most of them are doing it for the wrong reason?
The obvious reasons why one decides to rent dedicated software teams from a software house instead of hiring developers directly are costs. Offshoring or nearshoring your development might be a great way to cut the costs. But why not to cut them even more? For example by starting your new IT department in Poland and hiring developers directly without intermediaries?
Well, there are a few reasons. At Pragmatic Coders, we are often asked what value we add as a Software House? Why our clients should decide to use our services instead of starting their own IT department in our country.
For the purpose of this article, I am going to skip the discussion about why outsourcing to Poland (instead of, for example, to India) makes more sense since the data are self-descriptive. Also, value for money looks good both for your business (you can pay less) and for people who work on your product – at the end of the day they earn more than for example in the UK.
So do you really need an intermediary to build your dedicated development team?
Well, cutting the costs by eliminating intermediary and hiring developers seems legit. Of course, you will never cut the costs by the entire difference between average developers’ salary in a particular country and the rates that a Software House charges you. But still, you can probably decrease that cost significantly – at least on paper.
A few obvious costs of building your own IT department
When building your own IT department, besides the developers’ salaries you need to consider a few other costs. The obvious are:
Recruitment fees charged by a professional recruitment agency in Poland are somewhere between 1-3 x developers monthly salary and it is quite fair I would say. By the way, at Pragmatic Coders, we do not use the services of any external recruitment agency for a few very important reasons. The costs are not among them – our internal recruitment cost is probably even higher than the average agency fees.
Office and administrative costs
Yes, if you want your team to be productive you would probably have to colocate them. For that, you need an office. Preferably some modern office located in the city centre instead of some basement in the suburbs. What is not so obvious, is that you have to consider not just a monthly cost of renting the office, but also the costs of finding a proper one, finalizing paperwork, designing the space (that is actually a nice fun) and finishing it. It is a very time-consuming process.
Hidden costs of running your own IT department instead of renting a dedicated software team from a software house
Besides those above, there are a few other not so obvious costs. Some of them are:
“Soft“ HR costs
Keeping people motivated, helping them grow, that all require a lot of effort. Setting up proper HR processes around your team is challenging and time-consuming. Especially if you have not done that before. People are people – you might be sure that you will make a lot of mistakes here and that it will cost a lot of your time and money to fix them.
Employer Branding costs
A new, yet well-known company will probably not attract the greatest talents on the market. For a rising startup, it is a nightmare. Such a company without the history, reputation on the market and high risk is not attractive for programmers. Especially in markets such as Poland where IT employees dictate the rules, not employers. Such a company from nowhere would rather attract (with few exceptions) desperates who could not find a better job or people who did not fit to other organizations instead of people who you really want to build your business with. So building an employer brand on the local market is also something that will cost something. Remember that you are competing with companies such as software houses that usually have more to offer to people who are aiming for continuous growth and improvement.
Recruitment mistakes costs
We are just humans and we make mistakes, especially when judging other people. Recruitment mistakes are probably the cost that is most often underestimated. Especially the results of those mistakes are often visible only months after hiring someone. If you have not hired hundreds of people in your life you will probably make a lot of mistakes. It will take time before you learn how to do this properly. And I am sorry but no recruitment agency will help you with that. Currently, at least in Poland, developers do not need to actually fight for open positions. If they are good (not great) none of them needs the help of a recruitment agency to find a job. Probably this is why agencies usually end up with a bunch of mediocre candidates who are struggling with finding a good job on their own or who are too lazy to find one.
People training and education costs
I am not writing about the training budget or the costs of sending people to conferences. Those two are important too, but its costs are nothing compared to the real costs of education. Training and conferences, this is at most a few percent of the entire education process. People learning the most by simply doing things, but only if there are right processes in place that encourage this education. This process takes time and people make a lot of mistakes on the way. It also does not happen in the void – people to learn efficiently need to be surrounded by others who they can learn from and who will correct their mistakes.
The cost of setting up the proper management process in place
The right management process is something that might save you a lot of money and time. Setting it up with a brand new group of people who do not know each other and did not work together before is also costly and time-consuming. And here also you will make a lot of mistakes before the process will actually be optimized.
What is your core business?
I believe that the question in the subtitle above is crucial and every business owner needs to answer it. Do you really think that continuously optimizing the hiring processes, setting up your employer brand and continuously working on making it better, experimenting with new management methods, building proper education systems and structures, taking care of the office administration, accounting and paperwork, dealing with you team-members problems every day and working on their motivation is really your core business? Is this really something you want to spend a lot of time and effort on instead of focusing, for example… on your product? Because, when hiring a development team, you are not outsourcing (just) development but all of the other things above.
Yes, I know it seems better to have “your own” team and not to be dependent on some vendor. This is exactly why it is so important to be very selective when choosing the right software development agency and why you should look for partners rather than vendors. And by the way, this why we decided to focus on partnership with our clients, instead of providing regular software outsourcing services.
What value a software house could add to your core business?
So what is the value that the software house brings to the table by offering dedicated development teams services?
I can not speak for all Software Houses. I am aware that many of them simply have not found their answer. It is not obvious what is the added value they create as an intermediary. They often talk about flexibility, low risk, etc. but is it the real added value?
I could only speak on behalf of Pragmatic Coders and share what is our added value.
How difficult it could be to build your own IT department?
You may still think that building an IT department is easy. You have seen it many times, maybe you have been a part of that. And you are right – building a standard IT department is not so difficult. But does a standard IT department will be your advantage over your competitors on the market? To outperform your rivals you need outstanding IT, not a standard one. And creating an outstanding one is not easy.
Believe me, we spent almost five years on that and still see plenty of things that could be working much better. Even if we are far before the competitors we have to continuously improve the way we work. And by “we” I mean an entire team of people at Pragmatic Coders focused mostly on that. Of course, you may hire a good CTO to do that stuff. But do you really think it will be efficient to let her or him focus on building IT structures? Or rather it would be more efficient to let her or him focus on designing technical aspects of your product in a proper way? Of course, she or he could do both, but how effective that could be?
What is the core business of a Software House?
Software house’s core business is not software development – it may sound strange but remains true. At least in our opinion. Our “product” is a dedicated development team able to deliver value to our clients by building their products (however it sounds). Our core business is creating “our product” and refining it continuously. I believe as a business owner you know what I am talking about. So we are continuously mastering the art of turning a bunch of candidates from the market into well performing dedicated development teams that outperform competitors.
Mastering recruitment process
As I mentioned before, if you have not hired a lot of developers in the past, you will most probably make a lot of mistakes. I remember that at the beginning we made many big and many small mistakes too. Since then we have processed thousands of candidates, interviewed hundreds of them and chose less than a hundred to work with. On the way, we managed to build a repeatable, optimized process to minimize the risk of making the aforementioned mistakes. Choosing to work with a software house you get this kind of know-how by default.
Software house should be designed to enhance employee growth
Knowledge and experience – the educational part of building a team. In a software development company, people have a chance to work on various products without changing the environment and within very similar processes. That boosts their learning to the extreme.
Access to the best talents
If you decide to create your own internal IT department in another country, you will need to prepare yourself to stand up against many competitors. They are likely to have already well-established employer brand on the local market. What do you think, how competitive your brand would be? We have been building our brand as an employer who assures challenging projects and a bunch of learning opportunities for years. Who do you think to have more chances to attract and hire the best talents? By the way, when choosing a software development agency it is also good to check how they perform on the job market. It is worth to check how are they perceived by potential candidates who sooner or later may also work for you.
Experience in management
Last but not least – processes and management. Besides attracting good developers, we also attract great management talents. We do have experience collected from various domains, various clients, different environments and product scales. We have tested our methods in battle many times and are continuously optimizing them in an empirical way. Thanks to that we can assure a good performance from the start of the project and quickly optimize it to a great level.
So wrapping things up, the greatest advantage of renting a dedicated software development team is that you can be 100% focused on your product. You should continuously answer the question of “WHAT to build” not “HOW it should be built”. Everything besides of your product and your customers should not be your concern. This is what we offer at Pragmatic Coders.