Building a successful startup isn’t easy. The path from validating the idea, through its execution, starting with a proof of concept, going through a prototype, raising the funds, up to this magic moment when you have your MVP and your customers are willing to pay for your product… Well, the path can be long and bumpy. We’ve written about the challenges of first steps before, so if you are facing them right now, feel free to skip to the following articles:
This time, we will focus on execution.
It is said that to build a successful startup, you need a Hipster, a Hustler, and a Hacker.
Hustler is the person who takes care of the business part of your startup, making sure it survives (and grows) in its early days. Hipster is your customer experience expert – the one who will make sure that your product meets the expectations of your clients and who will build your brand’s identity, making the product unique. The last one, Hacker, is your technology specialist.
That’s for the theory. In practice, it may be tricky to have all of these roles on board from the very beginning. You may be the only founder, or maybe you have partners but none of you is a “Hacker”. Does it always mean that you need the third, technical, founder? Not necessarily.
If the founders are not tech people themselves and they need extra hands to build the product, they may hire software engineers who don’t need to be founders. If they decide to do so, they can either build an in-house team or outsource. Both solutions have their pros and cons but today, instead of comparing them in general, we will focus on one aspect that is crucial to most startup founders: money.
What’s the point of outsourcing in software development when it’s not cheaper anymore?
Not that long ago, when anyone mentioned outsourcing in software development (or any other business area), it would automatically bring up some specific qualities. Outsourcing was a synonym for cheap. But it’s not anymore.
So, assuming that money is the only factor that we take into consideration and that there are no differences in terms of project management, communication or other business-related issues – outsourcing software development is no longer an alternative to building an in-house team. Or is it?
11 hidden costs of hiring software engineers
The first thing you need to realize when you decide to build your own team is that the average rate per hour is NOT the whole cost that you will have to pay. The real cost of hiring software developers consists of:
1. The actual salary
That’s the most obvious one. If the developers in your area earn $100K per year, that’s the exact amount that you’re going to pay. You are competing in a crowded market and you are not looking for volunteers.
Mind that it’s not just a recruitment agency fee or the cost of posting a job advertisement, but also the cost of your time spent on the interviews. Hiring one developer may entail 20-30 interviews, practically consuming a whole work week. The precious time of a founder taken out of operations is often omitted in calculations but it does affect the whole process of product development and the time of its launch. Time needed for recruitment in London may take up to 9 months. This is the time that blocks your project and lets your competition pass you. During the time you struggle with hiring, your competition is able to deliver a working product to the market.
3. Office space, equipment & tools
You need to provide your team with hardware, workspace, office-supplies etc. Some of these, hardware, for instance, are non-recurring expenses, but most of them are the expenses that you need to cover every month. And there is software – licenses for IDE, Gitlab, Jira, and other programming and project management tools may cost around $100/month for a very small team but can also easily reach $1000 and more.
4. Obligatory public contributions, bonuses
What the software engineer wants to get paid is not the amount that you will actually pay. Depending on the country that your company is based in, hiring people may require you to cover various taxes, including public medical insurance or social insurance. So when you compare how much software engineers earn, mind that it’s only a part of the cost that you will need to cover. Add bonuses such as performance bonuses, health & wellness programs will grow the cost again.
On average, you are getting only 80-90 % of the time that you actually pay for. Calculate all the paid holiday (including bank holidays), sick leaves, maternal leaves, time for getting the employee back into the workflow after the time spent off work – these are all the days that you pay for but you are not getting a job done.