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As interest rates climb, explore insourcing

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Most people and most companies understand the term and concept of outsourced development. True to tech, we’ve coined a new term, with a twist: insourced development.

Before the term insourcing, outsourcing covered the entire spectrum of “engaging with an engineering team outside of your office.” This usually meant the team was in a distant time zone. In other words, if your business sat in Brooklyn, New York but your engineering team sat in India, they would be considered an outsourced team.

The concept of insourcing has changed the game — and for good reason. Where outsourcing and insourcing are similar is in regards to where your engineering teams work. In both scenarios, neither are in your office. The major difference with insourcing is that they usually sit within a 2-3 hour time zone from your main office, almost taking the major time zone issue off the table (which is traditionally the biggest hurdle with the outsourced model).

Culturally, outsourcing and now insourcing fall in and out of vogue based on financial climates.  When cash is cheap and money is flowing, local talent usually prevails. When venture money slows and companies are forced to cut costs and/or prove they can make money, they tend to look at ways in which to get their burn down. Outsourcing and now insourcing become a major knob to turn for cost cutting.

It’s no surprise that we’re beginning to see an uptick in interest in insourcing. Interest rates are beginning to slowly climb, venture is slowing and the startup culture as a whole has more critics than ever. We saw a similar landscape in 2007.  We are simply on the far side of the startup slope.

Similarly, tech culture is becoming stale. Many people are identifying (and are appalled by) the waste associated with venture-backed companies competing for “coolest office space” or “best-stocked fridge.” Insourcing provides founders a cost-effective way to establish their own culture without having to adopt the typical “tech” flavor.

From a density standpoint, for as long as we can remember, India has been the major winner with regards to the outsourced model. India isn’t going anywhere — they will continue to dominate outsourced development. But there are new players. What we’re seeing in the States is an entire transformation in Central and South America.

If executed well, the insourced model is very hard to argue against.

 

Countries like Costa Rica and Brazil are filled with young, smart, well-educated programmers who are hungry. The universities are technology-forward and teaching relevant, hard skills, making students prepared for the workforce. Furthermore, the beauty of Cost Rica is that it’s within striking distance of both U.S. coasts, and thus has become a hotbed for talent. Brazil is similarly positioned geographically, although the language barrier plays more of an issue.

Another major benefit with insourcing is that it’s much easier to build entire teams due to their time zone. While traditional outsourcing enables partial team augmentation, with insourcing, it’s very feasible to build-out full development teams away from the headquarters, if so desired. In fact, major agencies and enterprising technology companies are aggressively opening offices in San José, Costa Rica.

If executed well, the insourced model is very hard to argue against. You can see 60 percent (or better) savings in costs while remaining in similar time zones. This means product and engineering velocity doesn’t slow; it’s close to a perfect solution.

Like all great things in life, there’s usually a catch. Like outsourcing, insourcing also has a major Achilles heal: You should not expect anyone to own the product experience in either an outsourced or insourced model. Unless it’s you or someone you know on your team who you can trust with the product, insourcing will not work for you.

Is insourcing for everyone? No. If you’re a startup that requires a soup-to-nuts strategy and there’s no one on your team who understands product, find that person first before engaging further. With that in mind, if you’re slightly further along in a startup, or are a larger business that needs new features added and needs to grow your team quickly, insourcing is a rock-solid option that will only continue to get better.

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