Idea for small outsourcing software development companies
In 2019-2020, the management consultancy VINT Consult researched of the problems and opportunities of small outsourcing software development companies. Hereinafter, small outsourcing software development companies mean custom software development companies with a staff of up to 100 people.

We were interested in this particular segment of IT companies, since its development is able to mediate a real increase in export earnings, the creation of new jobs and the development of entrepreneurial initiative without significant investment.

The first stage of the research was a survey of intra-industry experts - former and current owners, CEOs, COOs, CTOs of small outsourcing software development companies. We interviewed 178 experts with 15 questions about their own experience in existing and previous companies, experience of partners and acquaintances. Based on their comments, more than 40 typical problems of small outsourcing software development companies were identified, which hinder their development or even lead to the rapid death of companies.

The following problems usually lead to the dying of the company:
  • company's team is hired by a competitor;
  • the development team create its own IT company;
  • bankruptcy of the anchor customer;
  • a large competitor picked up the company's customer;
  • inability to cover unforeseen expenses.

Even if you exclude the risks of death, there are serious obstacles to the growth of such companies. They are available due to the following problems:
  • Anchor customer's project has growth limits.
  • Limited experience of the team, poor marketing activity and the absence of a sales department make it impossible to form a package of new clients.
  • Obsolescence of the product or technology used by the anchor customer.
  • Professional burnout of employees.

After analyzing the answers of experts, our own experience in IT, as well as the media publications on the IT market topic, we came to the conclusion that there are four unfavorable factors that the vast majority of small outsourcing software development companies face. And this factors mostly lead them to the problems:
  1. 1-2 clients (anchor customers) generates all the company's income.
  2. Lack of a sales department in the company's structure.
  3. Lack of employee's training and development system.
  4. Little budgets for business development, that is, revenue is enough only for salary, minimum benefit package, and office rent, but cannot be re-invested in company development: promotion, creation of new offices, media activity, etc. Lack of financial reserves.

We selected a sample of 120 small software development outsourcing companies. We checked their performance for the presence of these factors.



The fight against all these vices is possible only by joining efforts. Today companies unite their forces within associations (business unions). This model works well in performing its traditional tasks: lobbying the interests of its members, information and educational services, business events. But we need new tools and new types of association to solve the above problems.

Discussing the problems of small outsourcing software development companies, our company has developed a number of tools for mutual assistance between them. The project name of such an ecosystem is “Consortium of small outsourcing software development companies”.

One of the main tools will be the general assurance foundation for IT developers' salaries. When an unfavorable factor appears, for example, the breaking a contract by a key customer, a member of the Consortium will be able to receive a payment from the foundation.

We also propose the creation of a common sales department that will look for new contracts for the members of the Consortium, depending on the workload of the companies and specialization, taking into account the professional competence of the staff of each of them. If new customer requires the involvement of more resources than a single company has, prefabricated teams of specialists from different member companies can be assembled.

If necessary, within the Consortium members will outstaff employees or subcontract the project to other members (resource exchange). The Consortium will create HR register to ensure this process. At the same time, the data that will be contained in the register will be meticulously checked and reliable.

IT education is often talked about now. Large software development companies have their own training centers, which allows them to raise specialists for their own needs, receive an inexpensive workforce of newly-graduated Junior Developers, and also constantly improve the qualifications of their employees. Small software development companies cannot afford a training center, however, it will be easier to create such an institution within the framework of the Consortium. Moreover, in the Consortium's educational center, companies will be able to train their employees both for a specific project and as periodically improvement of their qualifications. This training center can also be a Consortium's certification body. The quality of training and certification criteria will be regulated by the members of the Consortium, which will assure the quality.

The salaries of developers with a similar stack and level do not differ much from company to company. Therefore, the key factor in choosing an employer is often the content of the project, as well as the size and quality of the benefit package. The benefit package can include a large number of different benefits: medical insurance, office meals, gym membership, personal transport, joint events and many other options. By reducing the cost of benefits due to the mass scale, the Consortium will provide a more attractive benefit package for each incoming company from both quantitative and qualitative points of view.

The Consortium model will allow companies to reduce the cost of supporting business processes: accounting and legal support, recruitment and hiring, an office search and rent, marketing. All these processes can be centralized in the Consortium, but not in each company separately.

We believe that the proposed model will help small companies develop faster and better. We invite everyone to discuss the legal model and software solutions for Consortium's operation.

Authors
Trofim Eremenko Timofey Polomannyy

VINT Consult, LLC (Payer’s registration number 191689433)

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