Video: the most popular business models of building your product team in software development

In this article, we’ll provide an easy-to-follow guide covering various software development cases. We’ll speak about the most wide-spread and effective contract models and process frameworks, highlighting the key procedures and risks.

Video below is a short version of my recommendations as a Head of Service at Akveo.

Before you read further, make sure to answer the following questions:

• Have you defined your product roadmap for at least 3 months ahead?
• Can you afford to have an in-house product team? Do you have the needed experts at your location?

The answers to these questions will determine the model that suits you best. 

Further, we’ll describe the pros and cons of having an in-house team and opting for outsourcing models, i.e. a dedicated team, fixed price, time and material (T&M).

In-house team

An in-house team is a suitable model for a product that is already released. It implies that all the team members are working from the same place and the same company. 

Advantages

• Ability to build strong communication with your team.
• No limitations in the development and delivery processes.
• Ability to keep all the team expertise on your side.
• Less efforts on documenting requirements.
• A shorter feature development cycle.
• Full transparency over the development process.

Disadvantages

• You need time to find a good team and set up the processes.
• High development costs in comparison with outsourcing models.
• Lack of in-house expertise.
• Some domains (geology, medical research, etc.) require professionals from the appropriate field, thus the team may be partially remote.
• No ability to increase the team in a short time.

What projects this model fits best

An in-house team model allows for setting up a smooth development & deployment flow, so hiring an in-house team may be advantageous for any kind of project. However, this model will better fit partially developed projects, and the released ones. You should opt for arranging an in-house team if you have a clearly drawn up roadmap, and are not planning any major changes in the team capacity.

Outsourcing models

The next 3 contract models – a dedicated team, fixed price, time & materials – imply the partnership concluded between a product company and a development services provider. Most of the software development companies not only build their own products but also work with other entrepreneurs and companies as resource providers.

Dedicated team

A product team signs a contract with a services provider, and assigns particular product development specialists to your project. You need a dedicated team when there are no appropriate specialists in your product team. 

Following the dedicated team model, developers join the team either remotely or on the client side. A product manager is responsible for controlling the development process and evaluating the team.

Advantages

• An ability to hire mature professionals at an affordable cost.
• An ability to make fast changes in a dedicated team depending on a product roadmap.
• An ability to bring new expertise and empower the product team.
• A quick start for startups and proof of concept (PoC) projects.

Disadvantages

• The need to properly organize requirements documentation, as well as communication.
• Features development and deployment become more time-consuming.
• The need for a product manager to pay attention to the dedicated team’s performance. 

What projects this model fits best

• Projects with a lack of technical and domain expertise.
• Projects with tight budgets.
• Short-time projects with a quick team ramping up.

Fixed price

Fixed price model means that a services provider organizes analysis, design, development and testing processes according to their standards. A product owner reviews the deliverables at each stage, and provides feedback and corrections. A development partner is responsible for budget and timeline accuracy.

Advantages

• Ability to get a complex solution that doesn’t require high technical expertise on the product owner side.
• Defined timeline and fixed cost.

Disadvantages

• The need to conduct an intermediate review by the product owner and ensure intensive communication with the development team.
• The necessity to conduct discovery to get accurate estimations beforehand.
• No ability to significantly change the features scope during development.
• An acceptance stage is essential, however the acceptance period is short. And once the warranty period is over, the expenses for fixing the issues fall on the product team.
• All the expertise (except requirements documentation) remains on the services provider side.
• Due to the volatility in the amount of required efforts, this model is not suitable for projects involving a long research stage.
• It’s hard for a product owner to check team expertise and productivity.

What projects this model fits best

• Projects with lack of domain and technical expertise.
• Small projects with clear business requirements.
• 1-3-month projects with budget limits.

Time & materials (T&M)

This model is more flexible than fixed price and dedicated team models, and it generally works perfectly for remote teams. A services provider arranges the team with all required specialists, and a part of the team may be on the client side, e.g. QA or DevOps specialists.

A development process is transparent and coordinated across remote teams. If you opt for this model, make sure there are decision makers responsible for preventing delays on each side.

Advantages

• An ability to hire a well-organized development team.
• No limitations in introducing your own development flow.
• An ability to have a part of the team on the product owner side.
• A possibility to pay a discounted hourly rate.
• An ability to change the team capacity depending on a product roadmap.
• An ability for startups to kick off quickly.
• If the remote team is self-organized, you don’t need decision makers to participate in the development process everyday, so they can focus on making business decisions.
• Clear monthly budget projecting.

Disadvantages

• Business analysts need to keep in touch with a development team to support development since delays block the delivery process. Prompt backlog grooming (at least 2 weeks ahead) helps to prevent delays.
• All project specifications need to be documented.

What projects this model fits best

• Projects with lack of domain and technical expertise.
• Projects with iterative roadmaps.
• Long-term projects.
• Research and development (R&D) projects.

Regions offering outsourced development services

• India and Southeast Asia. 

The development services providers here are focused mostly on short-term and simple projects. Although an hourly rate is very low, project quality leaves much to be desired. You should also remember about the time zone difference if opting for this region.

• Central Europe (Belarus, Ukraine, Russia). 

Here, most companies specialize in complex software development. They have their centers of excellence, domain and technical expertise. When choosing a services provider from the companies in this region, check their profiles thoroughly, and consider the testimonials from previous clients.

• US, Europe. 

There are two main options on the market – individual freelancers and high-class technology consulting companies concentrating mostly on AWS, Azure, SalesForce related services. Freelancers work with product teams remotely, and join the team in some time. Consulting companies provide high-end comprehensive services. In both cases, an hourly rate is rather high.

Summary table

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On a final note

There are many factors you should take into account when choosing the most suitable option to build your product team. Keep in mind the following recommendations:

1. At the very start, try to find reliable key team members – the ones that will drive business and technical development.
2. If you don’t have in-house technical expertise, find a trustworthy software development partner, and sign a short-term fixed price agreement with them.
3. Once you’ve tested the waters with a short-term contract, you can switch to a T&M or a dedicated team model. At this stage, you’ll be able to build a smooth development flow while arranging deliveries as frequently as you need.
4. At the same time, try to keep expertise on your side, and hire mature in-house specialists.
5. As a result, you’ll build the team capable of achieving ambitious goals and delivering a high-end product to your users.

We hope these suggestions will bring efficiency to your product development.