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Software Development Teams: Build vs. Contract

By In Technology

Almost every business is technology-enabled in some way these days. Hair salons do their scheduling online, powerline workers train in VR, and pharmacists use AI systems to check for contraindications. There are very few businesses out there that could not be made more efficient and profitable — or provide better services for their customers — through technology.

In most situations, buying software and customizing it makes the best sense. You need a word processor and an accounting system, but it would show boldness to the point of lunacy to build one yourself. Quickbooks and Microsoft Word are worth the few hundred dollars a year. They might not be perfect, but the cost to build and maintain your dream accounting software could run into the millions.

However, in many situations, businesses invent new ways to improve their internal operations or their customer experience. While a comparable off-the-shelf solutions may exist to fit those needs, a custom built product is likely the only way to deliver the required features and processes the company is looking for. Features like these become competitive advantages. Organizations want to own the intellectual property behind their competitive advantages. You don’t want to license these types of systems if your competitors can license them just as easily.

That leaves companies with one choice: Build your own custom software. But the question is whether you should try and build your business-changing application in-house or outsource it to a development agency.

Cost vs. Time

Most decisions in the professional space come down to the project management triangle. If you want to build software of any decent quality, you can pick two of the three corners to move: cost, time, and scope (the number and robustness of features the project has). If you want fast and cheap, you have to shrink the scope. If you want robust and cheap, you’ll have to wait a long time.

The decision to hire an agency or build a team hinges on these three corners. In business applications, scope is usually the non-negotiable — the requirements are the requirements. Building a team takes a lot of time and costs money. Hiring an agency will drastically reduce the ramp up time by comparison, but potentially cost more. If you are worried about quality, remember that you get what you pay for.

Management Structure

Deciding to build out your own development team is not for the faint of heart, but it can have serious benefits.

To build a basic, but healthy and functioning, software team you will need the following:

  • A CTO or CIO to handle strategy and management.
  • A Director of Engineering to manage the team, build out processes, etc.
  • A Software Architect to design the system. (This can be a senior developer for small teams.)
  • A couple of DevOps engineers to manage the environments.
  • At least one QA expert. (No, developers can’t check the work themselves, I’ve tried.)
  • Developers, including full-stack, frontend, and backend developers if you’re building out a product. A good mix of senior, mid-level, and junior developers would be my recommendation to make the team robust.
  • A product owner. Preferably someone with management experience
  • A scrum master (if you’re following Scrum/Agile).
  • UX expert. I cannot understate this role enough! (They can be outsourced if you have to, but are much better to have on the team.)
  • A visual designer. Depending on the product you are building, this is the one optional role.

This is the biggest reason to hire an agency. If you want something built well, you really need a team that looks like something similar to this. Depending on your budget and experience, it could take years to put a team like this together.

However, if you have highly technical and experienced upper management there are benefits to in-house teams.

But We Are a Lean Startup

That’s great! Then you don’t need any of the stuff I listed above. But if you are purely a technology startup, then you (I’m guessing you’re a founder), need to be building the tech yourself, or at least have a co-founder building the tech. As the company scales, you can bring on additional help and you will almost certainly start looking like the organize above.

How Long Does It Take To Build a Team?

It depends on if you’re talking about a good team, or just any team. Building an organization from scratch takes time. You need to recruit, hire people, onboard them, manage them, weed out the good, let go of the bad, hire replacements for those let go, etc. You also need to invent, document, and enforce the systems and processes that will lead to the best outcomes. You will need to build a culture of caring, accountability, and quality. So, basically it will take a long, long time. This is a lot easier to do if you have a top rated CTO or a Director of Engineering in place already. Someone who has gone through this process before will be able to get you up and running much more quickly. They will also be able to oversee all stages of the team building from recruiting to delivery.

Recuiting may be the hardest piece of all of this. Good developers don’t want to join companies without histories of good development practices. So if you don’t have someone for new hires to look up to, you’re going to be stuck with coders who are just looking for a job, and they don’t write good code.

In-House vs Outsourced — Conclusion

Unless you are going to go with the lowest bidder, there probably isn’t that much difference between a good internal team and a good agency. Well-run development studios partner closely with their clients and eventually start to act as part of the same company. The developers in agencies like this feel as much ownership in what they are building as full-time employees would — sometimes more.

Price is not going to be dissimilar either. Once you count things like benefits, office space, management scaffolding, training, hardware and software tools, payroll, HR, etc., etc., etc., it’s unlikely that in-house could be done cheaper than even the large agencies.

The real difference comes down to the level of control you want over the team and the type of product you’re building. If you are a small technology startup you would be crazy to hire a big agency unless your product needed to be really good from day one. If you plan on becoming a technology company, you might want try a hybrid of agency and in-house. Finally, if you are a small- to medium-sized company whose existing products or services are not predominantly tech-focused or delivered, I would suggest not doing development in-house.

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I help companies turn their technical ideas into reality.

CEO @Sourcetoad and @OnDeck

Founder of Thankscrate and Data and Sons

Author of Herding Cats and Coders

Fan of squash, whiskey, aggressive inline, and temperamental British sports cars.

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The State of AI-Coded Software, May 2025

In Software, Technology

I’ll probably regret writing this. At the very least, I’ll cringe reading it in a few months. But here we are.

Lately, we’ve been getting a wave of client requests asking us to evaluate software they built using AI tools. These aren’t engineers. These are business folks using increasingly powerful AI products to try and build functioning systems. And to be completely honest, the results are both impressive and a bit alarming.

People are building whole applications on their own. Backends, frontends, user interfaces, even some database logic. Sometimes they even look good. These are smart people who don’t know how to code but have managed to produce working systems.

The problems show up immediately when we start reviewing the internals. The code is usually a mess. In many cases, it would be extremely difficult to maintain or extend. And if you need to move that code from the platform it was created in to a cloud provider like AWS, you’re going to hit a wall. These platforms wrap everything in layers of scaffolding that make portability a nightmare.

Security is worse. We’ve found plaintext credentials scattered across files. We’ve seen SQL injection vulnerabilities that shouldn’t even be possible in modern frameworks. We’ve seen structural issues that would get flagged in a freshman CS class.

Despite all that, what people are creating are legitimate prototypes. They’re functional. They run. But when you’ve put a few weeks into building something, and you show it to a software engineer, it’s hard to hear that your shiny new thing needs to be rebuilt from scratch.

I want to be clear. I am not anti-AI. Almost everyone at my company uses AI tools every day. We use Copilot, Cursor, ChatGPT, Claude, and more. We build out frontends with tools like v0 and Lovable. These tools have changed how we work.

Some of our engineers report productivity improvements of 30 to 40 percent. That’s not a rounding error. That is a major shift. But they are still writing the code. They are reviewing it. They are checking for performance, clarity, security, and maintainability. They are not letting the tools decide architecture. They are using AI like they use autocomplete or linters, but with more power behind it.

This is also where expectations need to be adjusted. These systems will not save you 90 percent on development. They will not let you skip engineering altogether. But if they save you 30 percent, that’s a real gain. Imagine you’re building a house. The general contractor says it’s going to be $500,000. You tell them you already did the blueprints, filled out all the permits, and figured out the site plan using some AI tools. If they came back and said, “Alright, I’ll knock 30 percent off,” that would be the best deal of your life. That’s where we are today with AI-generated software. A solid start. A real value. Not a replacement.

For me personally, AI has made it fun to write code again. I haven’t been a working programmer in over a decade, and most modern toolchains are enough to scare me off. Now, with the right assistance, I can build something without getting stuck on Docker configs and dependency mismatches. That’s a big deal.

In the startup world, AI-first development is everywhere. Most of the current Y Combinator batch is using AI tools to write the bulk of their code. But those teams are highly technical. These are engineers using better tools, not tools replacing engineers.

So for non-developers using AI to build products, here are three things you should keep in mind:

  1. These tools are great for building prototypes. If you build something yourself, you will understand it better and will be a better partner to your engineering team. That matters.
  2. These tools can help you build usable frontend components. You probably won’t want to go live with them, but they can get you close enough to work with a real development team.
  3. If your app is small, non-critical, doesn’t store sensitive data, and lives entirely in its native platform, you can probably keep it running. That’s fine for internal use or personal projects.

One day, you’ll be able to speak an app into existence and deploy it with a voice command. It will be fast, secure, and beautiful. But today, you still need an experienced software engineer to check your work before you send real data through it. That’s just where we are right now.

The upside is huge. We can now get experts from other domains to build working prototypes and test ideas without needing an engineering team on day one. That’s powerful. But if your product is going to handle sensitive data or support real users, bring in someone who knows what they’re doing. Not because the AI is bad. Because the stakes are high.