Avoid these 5 mistakes in Software development Outsourcing

January 3, 2017
Paavo Pauklin

Every CTO or a start-up CEO gets about 5-10 sales emails every week from potential software outsourcing companies. And everyone hates these emails!

However, at the same time, many of these CTOs or CEOs are thinking how to solve their product development solution.

A lot of companies have bravely started their outsourcing adventure and ended up with an expensive “horror movie”. Since we deal with software outsourcing daily, let us share some of our best practices on how to avoid expensive mistakes.

Mistakes in outsourcing

Problems in outsourcing usually occur between 2 and 24 months after starting the outsourcing project, but many problems can be tracked down to lack of research and preparation. Let’s look at the most common mistakes, which can be very expensive.

1. Hourly price as nr.1

It’s expected that outsourcing software development should come with an affordable price. However, we see a high failure rate amongst these companies that make the hourly price the most important parameter when choosing their outsourcing strategy.

There are many factors that determine the final cost of writing software more than hourly price. The difference of output quality for equally experienced (in years) developers can be 8 times. Did you get it – 8 times!

It’s all about how the code is structured, written, how many bugs it has and what are the maintenance costs in a later stage. So, the hourly price can be very deceiving and may lead to much higher end costs for the client.

2. Don’t rush the research!

Make time for research and preparation – it’s worth it. The time spent on researching and preparation should be in correlation with the investment size and expected cooperation length you would like to have.

If you are to make a simple mockup for your new app, then you should not spend 3-4 months selecting the partners. But if you need to scale your technical team from 40 to 70 or you have a 3-year roadmap in front of you, then you should take your time and do proper research.

The more serious relationship you are after, the more certain you would like to be that the choice is good.

3. Where to outsource?

No region is worse than the other, but it is important how the regional characteristics suit your expectations and capabilities.

Things like travel cost, visa requirements, cultural differences, working ethics, English proficiency, Internet penetration, broadband capacity, legal risks, currency risks, and (labor) market size influence the final cost of the outsourcing.

There are many things to consider, and we will shortly write a longer article on “how to find a matching outsourcing region.” Stay tuned and check our blog.

4. Proper vendor selection process

Many CTOs are asking us, “How could you find a good software outsourcing partner?”

Every outsourcing vendor is great in the “bikini round”, but how do you differentiate talent from wannabes? This checklist is long and detailed, but let’s give you a quick overview of some of the basics.

•    Have they done similar projects what you are looking for (similar technologies, team setup and size, regional knowhow etc.)?

•    Do they have experience in Outsourcing so they could support you with outsourcing procedures and lower the overhead risk?

•    Do they have the required experience and skills in-house or just on paper?

•    Are they the “right size” for your company todays and tomorrows needs?

•    What’s their company culture and do people like working there?

•    What are the business values of the companies management?

•    Are they financially strong or do they have cash-flow problems?

•    I will shortly write a longer blog post on “how to choose an outsourcing partner.” Subscribe to our newsletter and stay tuned.

5. Lack of due-diligence

You wouldn’t believe how little due diligence is done when a company chooses an outsourcing partner.

Very few companies call their references and ask about the cooperation with the given vendor. Very few companies ask for a financial statement and ownership structure on paper. Very few people check with the tax office if the vendor has tax debts.

Check, check and double check!


As you see, many risks have to be evaluated before outsourcing. The mistakes can be very expensive. Don’t hesitate to contact us if you have questions about the topic – we will gladly help.

Please also check our blog for other articles on related topics. If you subscribe, you’ll get the best and most relevant articles straight into your email box. Thanks for reading and stay tuned.

This article is written by Paavo Pauklin who is a Chief Strategist and leading consultant on software development outsourcing at Netcorp Software Outsourcing Services.

Meet the authors

Paavo Pauklin
Executive Board Member
+372 6 555 022
Joseph Carson
Ethical Hacker, Cybersecurity Advisor
+372 6 555 022

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