Software Development Outsourcing: Size Matters

Try Googling the topic of selecting a software outsourcing company, and you will end up with a massive number of search results. There is no single “one size fits all” strategy when it comes to choosing a software vendor. Some experts emphasize location, some cost, some expertise. For the purpose of this article, I will focus on one criterion that (in my experience) is not given as much thought as it deserves: the size of your future outsourcing partner. Moreover, the strategy of focusing on this criterion may seem very tricky and counterintuitive, so consider it carefully and decide for yourself.

Recently, toward the end of a friendly meeting with a procurement manager of one of our customers ($6B company), I was half-jokingly told that our working together was a “lucky accident” (lucky for both sides), as we had not qualified during the formal selection process due to our small size. This customer typically does not work with software outsourcing vendors with fewer than 1,500 employees. Initially, we did not make the short list, but we were given a second chance much later, when their relationship with the initially selected vendor started to go south. This particular story has a happy ending for everyone involved, as we have been able to build a mutually beneficial long-term relationship. But, again, was the “size” criterion so important to begin with?

Consider a more recent example I witnessed firsthand… Another large long-term customer of Auriga (a publicly traded medical device manufacturer) also works with one of the very large and well-known Indian outsourcing vendors. During our meeting, an engineering manager leading one of the customer’s most important strategic projects emphasized one crucial difference between us and our Indian rival. He said that a company of their size ($4B/year in revenue) was too small for that Indian vendor. He could never escalate issues to upper management, and he could not influence how projects are conducted on the vendor’s side. This has a simple and logical explanation. While a 40-engineer team is “small potatoes” for large Indian vendors, it is a very important and cherished customer for us. Very senior management at smaller (fewer than 1,000 engineers) companies just can’t afford to not have every single customer on their radar screens. Even smaller projects with fewer than 10 people working on them are still not small enough for senior management to stop paying attention.

That said, jumping to the conclusion of smaller companies being better would be oversimplifying. Are larger companies more scalable when the customer needs to build up the team quickly? Of course they are. Are they more stable financially and less dependent on an individual customer? Probably yes. But are they better organized and do they provide better services? Not necessarily. Can they tailor their services according to customers’ needs? Doubtful—at least not as well as smaller companies can. And how accessible are the decision makers at large companies? Not very.

There is no right or wrong answer when it comes to deciding how big your future vendor should be. Think carefully about your business priorities and decide how important the questions listed above are for your business. Also, consider other factors like the vendor’s reputation, time on the market, and references and the future team’s location, time zone, and technological expertise. Finding the right software vendor that will deliver the best value for your business is a balancing act. Choose wisely!