Embarking on the journey to bring a digital product to life often leaves startup owners puzzled, especially when faced with the daunting task of engaging with a software development company. Many tech entrepreneurs can relate to the moment they present their groundbreaking idea, product research, user flows, and wireframes to a development company, only to be taken aback by the quoted price.
Thorgate, with over 12 years in the software development industry, understands the challenges startups face. To shed light on why startups receive seemingly high price quotes and how to secure a reasonable one, let's delve into the key considerations.
How to Start the Conversation
Before initiating a conversation with a development team, several crucial aspects need careful consideration:
- To build or to buy? Evaluate if an off-the-shelf alternative exists, weighing the benefits of low initial investment and rapid deployment against building a custom solution. You need to have the right reasons to build a product with similar alternatives in the market.
- Why are you outsourcing? Map out the reasons for outsourcing, ensuring your product needs bespoke development. However, before you choose a company, you must clearly understand why you want to outsource your product's software development. This will help you find the right fit for your needs. You may require a multifunctional team with diverse experience or a dependable service from a team that has previously built similar products.
- Team requirements: Once you determine why you want to outsource, you can easily find a team with the appropriate tech stack, industry experience, and team size based on your product's unique needs.
- Stand Alone or Integration? Before you start talking to potential partners, it's essential to determine if your product is a stand-alone system or needs integration with other systems, acknowledging the inevitability and necessity of integration in most cases. Creating a stand-alone system might seem like an option, but it is not the most efficient way to go about it. Most successful software products need to exchange data with other software products. Therefore, integration is almost always necessary. To ensure your product can connect with other products and maintain its connectivity at scale, you need to develop this capability early on. You can brainstorm with your team and interview potential customers to create user stories. This will help you assess and categorise low-priority and high-priority integrations, which is critical information for a product development team. It will also help you save money in the long run.
- Additional Features: If building on existing software, specify the additional features your software should provide, avoiding the pitfalls of adding features based solely on specific customer requests. Many product teams find it challenging to determine the value of a potential new feature. Often, new features are built in response to a customer's request, particularly in the early stages of a product's life. However, these additional features tend to be too specific to the first customer and end up being unused by others, wasting time and resources.
To avoid such scenarios, it is crucial for your team to have a clear understanding of how to prioritise various features and to know the reasons behind building additional features. This approach will help you save time and money in the long run. - Build or Buy? This point pertains to the first question of whether you should build or buy. If you choose to develop your own product, you must decide whether to build it from scratch or use existing systems. This decision can significantly impact your budget and the price quote you receive from a development company.
Getting a Good Price Quote
Although this is common knowledge in the tech industry, it is worth emphasising that the best approach to building a product is to start with an MVP. This means that the initial cost should only cover the minimum viable product. At Thorgate, we follow the Pareto principle when defining an MVP, which involves creating a product with only 20% of the features that would provide 80% of the required feedback or user satisfaction. The main reason for starting with an MVP is to test the idea while keeping expenses to a minimum.
Once the groundwork is laid, getting a reasonable price quote involves focusing on the key factors:
- Clarity in Product Description: A well-defined product description supported by user stories and product flow reduces the need for an expensive product lead and ensures a smoother development process.
If the product description needs to be more specific, the team should involve an experienced product lead to work with the customer to translate their ideas into a technical brief. This will help ensure the final product matches the customer's original vision.
For example, if you want to build a 2-floor building, you need to plan the design and obtain permits from the city council. If the workers hired to build the house only have experience laying bricks, it is likely that the house won't be built as planned.
Having a clear product description or an experienced product lead within your team is important to avoid unnecessary costs. Additionally, it's helpful to specify your preferred programming language, such as Java or Python, when looking for a development partner. - Purpose of the Product: We've briefly discussed this topic, but it is crucial to understand that you may only receive an accurate quote with a clear understanding and explanation of why your product needs to be built. Developers can create your product to meet your customer's needs if they understand why the market requires it. When communicating this to the development team, be cautious as you are not describing what or how to build the product, but rather why it must exist in the market.
- Starting with an MVP: Utilize the Pareto principle, constructing an MVP consisting of 20% of features providing 80% of required feedback or user satisfaction. Testing the idea while minimising expenses is the primary reason for this approach.
HealX example
The MVP process - Through detailed meetups, discussions and reviews, the client verified with the actual end-users that the problems they aimed to solve could not be addressed by the platform they had planned to develop.
Results - As a result, Thorgate's prototype helped the client verify that the planned big project would not be worth the time and money that had been planned to be invested there, at least not at this time.
Achievements - Last but not least, working with the client, we achieved this result with less than 1/10th of the total price tag of the planned project. Thanks to that, they could direct this money elsewhere to enhance rare disease research further.
Enics example
Enics (now GPV Group) is a cooperation partner for high-level companies operating in energy, industrial automation, transport, building automation, and measuring equipment. As one of the world's largest electronics manufacturing service providers (EMS), Enics helps industrial companies optimise their value chain. They increase the competitiveness of both productivity and products by improving work reliability, reducing the time-money ratio and lowering total costs.
Enics and Thorgate collaborated on a 3-day development marathon to create a solution that can eliminate around 86% of errors using a smart jig. This solution helps remove basic mistakes and prevents the possibility of placing the laser-marked body incorrectly in the jig. The solution is based on the poka-yoke quality improvement technique. To address the remaining 14% of errors, machine vision and machine learning will identify misplaced items and excess or missing products from a particular order or box.
A Thorgate representative said, "During the MVP workshop, we mapped out current processes and a common one was created as a result of cooperation. We found solutions that helped automate processes, reduce unnecessary work and increase efficiency."
Enics team's calculations indicate that implementing the new solution will save the company €25,000 monthly.
We’ve covered MVP development in detail in our e-book here
Realistic Expectations and Budget Transparency
To cap off the process, maintain realistic expectations and transparency about your budget:
- Budget Buffer: Keep a buffer of around 30% to accommodate unforeseen ideas or expenses during development.
It's essential to have realistic expectations when requesting a price quote for software development, even if you've followed all the necessary steps. It's recommended that companies keep a buffer of approximately 30% in their budget to account for any additional expenses that may arise during the development process. This will likely happen as the development team researches user behaviour and product success during the MVP stage. - Transparency: Transparency is critical regarding budget; the customer and the development team should be open about it. If you're transparent about your budget, have realistic expectations based on market prices, maintain a 30% buffer, and clearly define all your "whys," such as why you're outsourcing, building the product and choosing a specific programming language, you're likely to receive a reasonable price quote from a reputable development company of your choice.
By addressing these considerations, startup owners increase their likelihood of receiving a reasonable and comprehensive price quote from a reputable development company. To discuss your product development strategy with an experienced team, contact hi@thorgate.eu.
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