Outsourcing Software Development For Startups: The Complete Guide

2885 Updated 08.15.2023
Vasyl Polych

Founder & CEO at Northell


Table of contents

Starting a software business can be an exciting journey, but it’s challenging. As all entrepreneurs know, many important decisions need to be made to set up a successful venture: legal considerations, marketing strategies…and then there’s the technical side of things.

Outsourcing software development is often seen as a key component in any startup launch – but which option is best for your company? In this guide, we’ll explore the ins and outs of outsourcing software development for startups so you can make the most informed decision about the future of your business.


What Is Outsourcing Software Development For Startups

Outsourcing software development for startups can be an incredibly productive and beneficial strategy in the early stages of a business. Startups can quickly and easily access critical development services such as coding, debugging, testing and beyond while removing much of the complexity traditionally associated with software outsourcing.

As outsourcing software development is oftentimes less expensive than building a development team internally, outsourcing allows startups to keep operating costs relatively low while still obtaining high-quality results.

How Much Does It Cost to Outsource Software Development in 2023? [Rates, Countries, and Seniority]

Furthermore, outsourcing software development for startups provides access to the expertise required to develop highly sophisticated applications and tools efficiently. This can enable startups to focus more on their core competencies, making them far more likely to achieve long-term success.

Why outsourcing software development for startups is on the rise nowadays

Outsourced software development for startups is one of the best options for any business, especially those that are just starting out. Businesses have discovered the significant benefits of outsourcing software projects to outside professionals and agencies.

To make sure outsourcing is one of the best options, let’s compare 3 cooperation models: in-house team, outsourcing and freelancers.

in house development team

Hiring an in-house software developer, even when remote, can incur costs of $100,000 to $200,000 per year.

outsoursing development companies

You can outsource software development at a lower cost in many regions, such as Northern, Central, and Eastern Europe and Asia. The average hourly rate for software outsourcing can vary from $25 to $100 per hour, depending on the region.

Why Should You Outsource to Eastern Europe in 2023? (Price, Pitfalls, and Mistakes)

The average hourly rates for outsourcing based on different regions:

  • Eastern Europe: $30-$80
  • Western Europe: $50-$100
  • South-East Asia: $18-$50
  • China: $25-$200
  • India: $25-$50

freelancer in software development

Upwork and Fiverr are the most popular platforms for finding and hiring freelance developers. The average hourly rate for a freelancer can vary from $15 to $150 per hour, depending on their skills, location, and experience.

Quick statistics about outsourced software development for startups

In 2023, outsourced software development for startups is a booming industry, with numerous businesses taking advantage of this cost-effective and time-efficient service.

  • According to Statista, Europe’s software outsourcing industry is projected to reach $138.20 billion in revenue by 2023.
  • According to Precedence Research, by 2030, the worth of the worldwide IT and software outsourcing market is expected to reach approximately $1.06 trillion.
  • According to Commit, the growth projection for software development outsourcing is 70%.
  • According to Forbes, outsourcing software development achieves cost and time efficiencies, helps launch products on schedule, and allows businesses to focus on strategy rather than dedicating excessive resources to software development.
  • According to Statista, the revenue generated from software outsourcing is projected to increase at a rate of 7.54% annually (CAGR 2023-2027).


Furthermore, recent research shows that over two-thirds of startups using outsourced software developers are saving between 20 – 40% on operational costs – demonstrating how reliable and effective this service is becoming. Also, the global outsourced software development market was valued at USD 92.5 billion in 2020 and is expected to grow at a CAGR of 5.5% from 2021 to 2028.

There are many examples of companies that have successfully used outsourcing for their software development needs. Here are three of them:

  • Slack. By partnering with an outsourced team, they were able to launch quickly without sacrificing quality or features.
  • Skype. By leveraging an experienced outsourced team, they were able to develop a robust platform quickly that could handle millions of calls per day from users around the globe.
  • WhatsApp. They were able to achieve this by leveraging experienced outsourced developers who had extensive experience developing complex cross-platform applications like WhatsApp’s messenger app.

What Are The Main Benefits Of Outsourcing Software Development For Startups

Let’s explore the main benefits of outsourcing software development for startups:

features the main benefits of outsourcing

Cost savings

The cost savings associated with outsourcing software development are one of its primary benefits. By outsourcing your software development needs, you can save a significant amount of money by avoiding the financial burden associated with hiring on-site developers.

Additionally, most outsourced developers offer very competitive rates because they often have lower overhead costs than traditional developers. This means that you will be able to get more bang for your buck when it comes to getting quality software developed at an affordable rate.

Access to a wider talent pool

Another benefit of outsourcing software development is access to a wider talent pool. When you outsource your software needs, you are not limited to finding local talent; instead, you can access a global network of talented professionals who may specialize in specific areas that could benefit your project.

This gives you more options when it comes to finding the right developer for your needs and reduces the time needed to find and hire a qualified developer.

How to Outsource Product Development? [Guide + Tricks]


Outsourcing also offers flexibility when it comes to managing workloads and deadlines. By having access to a wide range of experienced professionals who can work remotely from anywhere in the world, you can easily scale up or down as needed without worrying about having too much or too little staff on hand at any given time. This helps make sure that your project stays on track and meets its deadlines without going over budget.

Faster time to market

Outsourcing also allows startups to bring their products and services to market faster because they don’t have to wait for an in-house team to complete their projects before launching them into production.

By tapping into an external team of experienced professionals who already understand the nuances of developing successful applications and websites, startups can bring their products and services quickly while still ensuring quality results.

Reduced risk

One of the biggest benefits of outsourcing software development is that it reduces risk significantly. By outsourcing, startups can focus on core competencies and avoid investing in costly infrastructure or hiring full-time staff with limited experience or expertise. It also reduces the risk associated with potential delays or unforeseen issues that could arise from developing in-house.

Focus on core competencies

When you outsource your software development needs, you can focus on your core competencies and what makes your business unique without worrying about the technical aspects of developing software applications.

This allows you to focus more time and resources on growing your business and expanding into new markets. Additionally, by focusing on core competencies, startups can develop innovative products faster than ever before.

outsorce software development team

What Are The Main Challenges Of Outsourcing Software Development For Startups

While outsourcing can be beneficial, there are also some potential challenges that come with the process. Let’s take a look at five of the most common challenges associated with outsourcing software development:

Communication & collaboration

One of the biggest challenges of outsourcing software development is communication and collaboration. When you outsource software development, you will likely be working with an overseas team who speaks different languages and comes from different cultures than you do. This can make it difficult to communicate ideas effectively or collaborate on projects.

To avoid any miscommunications or misunderstandings due to language barriers or cultural differences it is important to establish clear lines of communication early on in the process. This may involve setting up regular video calls or emails as well as providing detailed instructions and feedback in order to ensure that everyone involved understands what is expected from them.

Quality control

Another challenge when outsourcing software development is quality control. It can be difficult to guarantee the same level of quality when working with an overseas team who has different standards for coding or design than you do.

To maintain quality control when outsourcing software development, it’s important to define expectations upfront so that everyone involved clearly understands what is expected from them in terms of code quality or design aesthetics. Additionally, it’s important to regularly review progress so that any issues can be addressed quickly before they become major problems down the line.

Intellectual property protection

The next challenge associated with outsourcing software development for startups is intellectual property protection. When working with an overseas team, it can be difficult to protect your company’s intellectual property (IP) since IP laws vary from country to country and may not offer adequate protection against theft or misuse of confidential information or data by third parties or competitors.

To ensure your company’s IP remains secure while still allowing you access to the talent pool available through offshore teams, consider investing in a legal agreement that outlines how confidential information should be handled and enforced, if necessary, in court proceedings outside of your home country’s jurisdiction.

Dependency on the outsourcing partner

One of the key challenges that come with outsourcing is a dependency on the external partner. When you outsource your software development project, it’s important to understand that you are relying on another party to deliver your product or service.

This means that if anything goes wrong with the delivery or execution of your project, you may not have a way to recover it quickly or easily. To mitigate this risk it is important to choose an experienced and reliable partner who has a proven track record in delivering successful projects.

Cultural differences

Another challenge faced by startups when outsourcing their software development is cultural differences between themselves and their outsourcing partners. It’s important to understand that different cultures may have different approaches to problem solving and communication styles.

This can lead to misunderstandings and miscommunication between both parties, which can cause delays in project delivery or even fail altogether. To mitigate this risk it is important for both parties to be aware of cultural differences and strive for effective communication throughout the entire process.

outsorcing team

Northell Tips On How To Start Outsourcing Software Development For Startups

Outsourcing software development for startups can be a great way to help your business grow and scale. However, it’s important to go into the process with a plan in place so that you can ensure you find the right partner and have successful results. Here are some tips from our team on how to get started:

In-depth research

The first step is to do your research. This means researching different outsourcing companies as well as familiarizing yourself with the market rates for outsourcing software development services.

You should also look into the various types of services offered and whether they would be beneficial to your startup. Doing this in-depth research will help you find the right partner who can meet all of your needs in terms of budget, timeline, and quality standards.

Case studies analysis

It’s also important to look at case studies and reviews from other startups that have outsourced their software development projects. This will give you an idea of what worked for them and what didn’t work so that you can avoid making similar mistakes when embarking on your project.

It will also provide insights into which companies have been successful in delivering quality results on time and on budget.

Communication channels

Once you have identified a potential partner, it’s important to establish clear communication channels between you and the team assigned to develop your project. This could include regular meetings via video conferencing or telephone calls, as well as email communication or even instant messaging platforms such as Slack or WhatsApp.

Having regular communication ensures that everyone is on the same page throughout the project, which will ensure clarity and clarity throughout the line.

Talk to developers

Finally, it’s crucial that you take the time to talk directly with developers whenever possible during the development process so that everyone knows what is expected from them and there are no surprises once the project is complete.

This also allows you to better understand their working style, level of expertise, and commitment – all factors which should play an important role in deciding whether or not they are right for your project!


How To Outsource Software Development For Startups In 10 Steps

To make it easier for you to outsource software development for startups, we have prepared a 10-step guide that will help you understand this process better. Let’s take a closer look at each step:

Steps of outsorcing software development

Step 1: Come up with your software idea

Before you outsource anything, it’s important to have a clear idea of what type of software you want to develop. Think about the features that it should have and what problem it should solve for users. Once you have an idea, write down all of the details so that you can easily explain it to potential developers later on.

Step 2: Write a software project development plan

Now that you know what type of software you want to build, the next step is writing a detailed plan for its development. This plan should include all of the features that need to be included, as well as how they will work together. It should also include an estimated timeline and budget for the project so that potential developers can get a better understanding of what they will be working on.

Step 3: Determine the budget and timeline for your project

Now that you have written out the details of your software project, it’s time to determine the budget and timeline for its completion. Take into account all of the features that need to be built, as well as any additional resources or services needed, such as hosting or design work. Make sure to leave room in your budget for unexpected expenses or delays so that your project does not go over budget.

Step 4: Choose the best outsourcing model

Step 4 of outsourcing software development for startups is arguably one of the most important steps. At this point, business owners should consider various outsourcing models in order to determine which will be the most advantageous for their company. Of the many outsourcing models available, some include fixed-price, time and materials, dedicated outsourcing teams, turnkey outsourcing solutions and offshore staff leasing.

Step 5: Research regions for software development outsourcing

The next step in outsourcing software development for startups involves researching different regions for outsourcing that best fit the technical and cultural needs of the business. It is important to take into account factors such as time zone differences, cost of outsourcing, legal frameworks, and skill sets available in any regional area being considered before making a final decision. Some best regions for software development outsourcing include Western Europe, Eastern Europe, South America and Asia.


best region for outsorce

Step 6: Start your search for software development outsourcing companies

Step 6 of outsourcing software development for startups involves beginning the search for outsourcing companies – do your due diligence here! Take your time to shop around and compare different companies, ensuring the company you choose is both experienced and trustworthy. Check online reviews or speak to past customers where possible and make sure you feel confident in moving forward with outsourcing your project!

Step 7: Make a list of top software development companies and evaluate them

The seventh step in outsourcing software development for startups involves making a list of top software development companies and evaluating them against each other on factors such as experience, cost-effectiveness, quality of deliverables, agility and scalability.

Step 8: Conduct interviews with candidates

Then conduct interviews with potential candidates. Before calling someone in, review their profiles and application thoroughly to ensure they possess the necessary skills or qualifications. During the interview, it’s important to ask specific technical questions related to past experience in a similar field and to assess problem-solving abilities, communication proficiency, and an understanding of ethical concerns in outsourcing software development.

Step 9: Choose the most suitable pricing model

Choosing the most suitable pricing model is an important step when outsourcing software development for startups. There are different options available, such as fixed price, time and materials, or dedicated team models.

Step 10: Choose the best company and sign the contract

After researching various options and going through nine careful steps, the last step is ultimately deciding which outsourcing company best suits your needs and signing a contract. It may be important to review contracts carefully before signing to ensure all parties are on the same page.


Outsource Software Development For Startups With Northell

Northell is a reliable and reputable software development outsourcing company. Partnering with us enables you to access our wealth of wisdom, making it simpler to incorporate the essential skill sets into your software development project. We aim to build robust business relationships over time and provide support in tackling every one of your programming challenges.

Our outsourcing software development services differ significantly from others due to our capability to combine talented experts, extensive expertise, extensive knowledge and a personalized touch, all of which are vitally important elements for startups striving for success.

Northell team provides the following software development outsourcing services:

  • Staff augmentation. Our proven recruitment processes and proven methodologies guarantee you get the best match for your needs – a single expert or a team that can scale up or down quickly as needed.
  • Dedicated team. With our dedicated team, you can leverage a wealth of knowledge and experience to create a great software product that will work as intended and will surpass expectations.
  • Full process outsourcing. This means that you delegate work to us on absolutely all software development processes, from business analysis to delivery.

northell design team for outsorce

If you have an idea for your future software and need a reliable team, get in touch with us. Our team will be happy to discuss your project and offer the best solution!

We also recommend that you familiarize yourself with the following materials that our team worked on:

What Model To Choose For Outsourced Software Development For Startups

Let’s explore the three main location-based outsourcing models: nearshoring, offshoring, and onshoring. You will be equipped with the knowledge to make an informed decision about which model may be right for your business.


If your company is looking for a cost-effective option while still maintaining clear communication channels, nearshoring may be the best choice for you. This model involves outsourcing to a firm within the same time zone or region as your business. This allows for easier communication between teams and fewer cultural and language barriers. Nearshoring can also be less expensive than hiring local talent, making it an attractive option for smaller companies with limited budgets.


Offshoring expands the search outside of your local region or time zone, allowing you to choose from a global pool of talent. This option often comes at a lower cost than nearshoring and provides access to a much larger selection of partners and models. Most reputable offshoring firms hire partners fluent in English and staff talent according to your time zone, making communication flow smoother. It’s important to thoroughly research potential partners to ensure they have strong communication channels and cultural compatibility.

Onshoring/local outsourcing

Onshoring involves hiring a team local to your business. While it comes with the benefit of building relationships with local investors and less worry regarding communication, it can also be the most costly option. Local talent is often more expensive and selection from the talent pool can be limited for some niche industries. Onshoring is best suited for companies that require an on-site team and do not need the cost savings associated with other outsourcing models.

Depending on the type of project and the budget available, different pricing and contract models may be more advantageous than others. Let’s discuss three of the most common models: fixed-price contracts, dedicated teams, and time & material.

needs what model to choose for outsourced

Fixed-price contract

A fixed price contract is when a project is scoped out in advance and an agreed-upon fee is paid upon completion. This model works well for projects that have a clear beginning and end with well-defined requirements.

With a fixed-price contract, it’s important to ensure that the scope doesn’t change during the course of the project, as this could result in additional costs or delays. Additionally, it can be difficult to estimate costs accurately under this model since some tasks may take longer or require more resources than initially estimated.

Dedicated team

The dedicated team model involves hiring an external team to work on your project full-time. This model works best for startups that have ongoing projects with long-term objectives. It’s also beneficial for larger projects that require expertise in multiple areas, such as design, development, testing, etc.

In addition to cost savings from not having to hire new employees or manage projects internally, dedicated teams often offer higher quality work since they are familiar with your product and goals from the start. However, you must be willing to invest in building relationships with these teams since they will become an integral part of your company’s success over time.

Time & material

Time & material is a model where the project’s cost is based on the hours worked and the materials used. This model works well for projects where the scope is undefined or the requirements are constantly changing. Time & material models provide maximum flexibility, enabling companies to scale up or down as needed. However, there can be concerns on the client side regarding the accuracy of time tracking or transparency in invoicing.


How Much Does Outsourcing Software Development For Startups Cost

Outsourcing software development for startups can be an affordable and effective solution for startups that are looking to outsource their development needs.

Generally, the cost of outsourcing software development for startups depends upon the size of the project, the complexity of the work involved, the number of necessary programming languages and other specific requirements.

Ultimately, investing in outsourcing software development services at an early stage of a startup’s life cycle allows entrepreneurs to focus on customer experience while also saving time and money in the process.

We have prepared a table for you that shows the cost of individual product development processes in different regions that provide outsourcing software development for startups.


Eastern Europe

Outsourcing software development to Eastern Europe is a popular choice due to the region’s high-quality work, affordable rates, and proximity to European time zones. The main hotspots of Eastern Europe software outsourcing are Ukraine, Poland, and Romania.

More information on Eastern Europe outsourcing, you can find here: Why Should You Outsource to Eastern Europe in 2023? (Price, Pitfalls, and Mistakes) 

Western Europe

Software development rates in Western Europe are higher due to the stable economy and high living costs. The main hotspots of Western Europe software outsourcing are Germany, France, the Netherlands, and the United Kingdom.

South America

Outsourcing software development rates across South America can offer a cost-effective solution. However, finding an outsource software developer is challenging since you cannot guarantee they perform the work in line with quality standards. The leading outsourcing hubs are Brazil, Argentina, Peru, and Colombia.


Outsourcing software development to Asia can be a cost-effective solution due to the region’s lower cost of living and salaries. Examples of Asian countries include India, the Philippines, and Vietnam. However, it’s essential to understand that although prices are low, there are also risks of low-quality work, and you will need to have references or some time to find high-quality software development services.

How Long Does Outsourcing Software Development For Startups Take

The average time for outsourcing software development for startups depends largely on the complexity of the project and its specific requirements. However, based on experience, an initial idea can often be turned into a workable concept within one week.

Depending on the complexity of the project, outsourcing the software development process could take anywhere from four to twelve weeks, depending on how quickly progress is made and how well-informed stakeholders are when starting their outsourcing journey.

In the following table, you will see approximately how much time is needed for each process of creating a product, depending on the size of your project:



In conclusion, leveraging software development outsourcing for startups can help to properly assess the potential of a business idea. This type of engagement is associated with lots of advantages, including access to proficient developers, advanced tools, cutting-edge technologies and flexibility when it comes to scaling. But the process requires careful planning and proper due diligence.

It’s important to carefully evaluate service providers before making any commitments in order to find those who would be able to understand and execute all your ideas. With careful planning and proper expectations set, you can greatly benefit from outsourced solutions that really work for startups, allowing them to reach their goals faster and more efficiently than ever before. If you are looking for an experienced and qualified team to outsource software development for startups, contact us!

Should startups outsource software development?

Outsourcing software development for startups can be a wise decision. It can provide access to specialized talent and expertise that would otherwise not be available while keeping costs at a minimum. This is especially beneficial when developing complex applications or systems, as outsourcing software developers can often offer cutting-edge technology solutions that optimize cost and time. 

What are the dangers of outsourced software development?

When outsourcing software development for startups, it is important to be aware of the risks that come with it. Poorly managed outsourcing projects can result in a lack of communication and alignment between the in-house and outsourcing teams, resulting in incompatibilities between codebases. Issues like this often lead to bugs and security vulnerabilities, both of which can have costly consequences. 

Why does outsourcing software fail?

Oftentimes, outsourcing software development for startups can fail due to a lack of sufficient planning and communication between the outsourcing team and the startup. Startups are often so eager to build out their product that they overlook the importance of having careful communication guidelines, organizational structures, and a comprehensive plan in place before outsourcing. 

Is outsourcing cheaper than hiring?

Outsourcing is an appealing solution for startups looking to create software applications or websites. It is often seen as a more cost-effective approach than hiring one or multiple employees to develop their products. Although outsourcing can be cheaper, there are several factors that need to be taken into consideration before making the decision. Factors such as communication barriers, lack of control of project implementation, and cultural differences may impact the effectiveness of outsourcing software development for startups. 

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