In-house, outsourced, or both: the engineering decision by funding stage

There is no single right way for a startup to build its engineering team. The best choice depends on the company’s funding stage and, more importantly, on how difficult a decision will be to change later. Startups should keep control of decisions that are expensive to undo, especially the domain model and data schema. Work that is easier to replace can be outsourced when it makes sense.

Cost also depends heavily on where developers are based. In 2024, hourly labour costs in the EU information and communication sector ranged from €21.70 in Bulgaria to €70.10 in Ireland. That is a 3.2 fold difference within the same market, showing why location can have a significant effect on an engineering budget.

Speed creates another consideration. Research on software startups finds that early teams often rely on lower precision engineering practices to move quickly. As the company grows, some of this work needs to be restructured. Startups therefore need to balance the need to move quickly with the need to build software that can support future growth.

Outsourcing can work well for startups when external developers are selected carefully and the relationship is built for the long term. An in-house team provides greater direct control but also creates an ongoing employment cost. In the US, employment costs increased by 3.3% in the twelve months to Q2 2026.

The right approach may change as the company moves through different funding stages. What matters is knowing which parts of the engineering function the company needs to own and which can be safely outsourced. The domain model and data schema should remain under the company’s control at every stage because changing these foundations later can be costly and disruptive.

Think of your startup's software as a house. You can hire outside workers to paint a bedroom. If you don't like the paint later, you can repaint it.

But you probably don't want a temporary contractor deciding where the foundations of the house go without anyone from your company understanding the decision.

That's essentially what this entire article is saying: Keep ownership of the foundations. Outsource work that is easier to replace. And as your startup grows, gradually bring more important technical knowledge inside the company.

In this article

• Should an early startup build in-house or outsource?
• What does an engineering team cost at each stage?
• What breaks when you outsource the wrong layer?
• How do you decide, step by step?
• When is outsourcing the wrong answer?
• The middle option and where we fit
• Conclusion
• FAQ

Should an early startup build in-house or outsource?

An early startup does not have to choose between building its engineering team in-house and outsourcing everything. A better approach is to split the work by layer. Some parts of a codebase are far more expensive to get wrong than others, so the decision should be based on the consequences of a mistake rather than simply on whether a developer is an employee or a contractor.

Research on engineering practices in early stage startups is still limited. A 2015 study published in IEEE Transactions on Software Engineering noted that few scientific studies had examined software engineering issues in early stage startups. This is important because much of the advice available today is based on experience or commercial opinion rather than extensive research.

The research that does exist highlights an important trade off. Startups often need to release software quickly so they can test whether their product and business model work. This can mean accepting less precise engineering in the early stages. The problem comes later if the startup fails to allow time and resources to restructure that work before the product needs to support further growth.

That does not mean startups should ignore engineering quality. The same research argues that startups need strong engineering practices because they have fewer resources to absorb mistakes. A large company may be able to recover from a poor architectural decision. For a seed stage startup, one serious technical failure could threaten the entire business.

The wider hiring market also makes building an in-house team challenging. US employment in computer systems design and related services reached 2.37 million in July 2026, while professional, scientific and technical services employed more than 10.8 million people. With US unemployment at 4.1%, finding good engineers is not simply a matter of choosing from a large pool of available candidates.

The global developer population is large, however. GitHub reported more than 180 million developers on its platform in 2025, with more than 36 million joining during the previous year. The challenge for an early startup is therefore not a lack of developers. It is identifying the developers who have the right skills and experience for the work.

This is where the in-house versus outsourcing question becomes more useful. A startup can keep critical technical decisions and knowledge close to the company while using external developers for work that is easier to replace or restructure. The goal is not to choose one model permanently. It is to decide which parts of the engineering function the company needs to own at its current stage.

What does an engineering team cost at each stage?

The cost of an engineering team depends on much more than the hourly rate. Where developers are based can have a major effect on the overall cost. In 2024, hourly labour costs in the EU information and communication sector ranged from €21.70 in Bulgaria to €70.10 in Ireland. The EU 27 average was €46.30 per hour. Germany was at €57.40, while Spain was at €33.30.

The difference becomes even larger when looking beyond Europe. World Bank figures for 2024 put GDP per capita at $86,169.66 in the United States, compared with $56,103.73 in Germany, $25,103.57 in Poland, $6,267.19 in South Africa and $2,591.99 in India. These figures do not tell you what an individual developer should earn, but they help explain why engineering costs can vary significantly between locations.

These numbers also need some context. Eurostat's figures measure the total cost of employing workers in a sector, including non wage costs. They are therefore not directly comparable with a contractor's hourly rate. A lower labour cost also does not mean that two developers in different countries have the same skills or experience. What the figures do show is that large differences in labour costs can exist even between countries operating within the same single market.

There is another cost that startups need to consider when building an in-house team. Employee costs can rise over time even when the company makes no changes to its team. The US employment cost index for civilian workers increased by 3.3% in the twelve months to the second quarter of 2026. Average hourly earnings across US private sector employment reached $37.62 in July 2026, before accounting for the additional premium that engineering roles can command.

This is why engineering budgets should not be based on a developer's advertised hourly rate alone. The location of the team affects the underlying labour cost, while an in-house team also creates an ongoing employment commitment. Outsourcing can provide more flexibility, but the company still needs to consider which work it should keep under its own control.

The right balance can also change as a startup grows. At the pre seed stage, the company may need a small number of people who understand the entire product and can make its most important technical decisions. At the seed stage, more work can potentially be outsourced while the company retains control over its core systems. As the company reaches Series A and beyond, internal ownership of architecture, data and other critical systems becomes increasingly important.

These stage based recommendations are a decision making framework rather than a proven set of rules. There is not enough research to establish precise engineering team structures for each funding stage. The more reliable principle is to consider the cost of getting a decision wrong and how difficult it would be to change later. The parts of the system that are most difficult to replace should remain under the company's control.

What breaks when you outsource the wrong layer?

The biggest risk of outsourcing is not that the code will stop working. It is that the knowledge behind the code can leave with the developer who built it. A contractor may deliver working software without leaving behind a clear explanation of why certain decisions were made. Months later, your own team may need to change that software without understanding the reasoning behind it.

This matters because not every part of a codebase is equally difficult to replace. The key question is how reversible the decision is. If changing something later requires a major rewrite or a migration of live data, it is usually safer to keep that knowledge and decision making inside the company.

The data schema is one of the clearest examples. The schema determines how your application's information is structured and can remain in place long after the surrounding technology has changed. Altering it later can require a migration across live data, which can be a significant undertaking for a small engineering team.

Other parts of the technology stack are easier to replace. Common technologies such as TypeScript and React have large developer communities and extensive support. TypeScript recorded more than 1 billion npm downloads in the month to 29 August 2026, while React recorded more than 659 million. GitHub also reported that TypeScript became the most used language on the platform in August 2025. These are signs of deep developer ecosystems, which can make it easier to find people who can work with those technologies later.

The same principle applies to other relatively replaceable work. UI components, third party integrations and some infrastructure configuration can often be handed to an external developer without creating the same long term risk. If the work can be removed or rebuilt without changing the foundations of the product, outsourcing it is generally easier to reverse.

Research into software outsourcing also supports looking at the work itself rather than simply judging the quality of the vendor. Research published in Information Systems Journal found that outsourcing outcomes depend partly on the characteristics of the transaction, not only on the capabilities of the supplier. For a startup, this means a good development agency can still be the wrong choice for work that the company needs to understand and control internally.

The knowledge gap can be reduced before the outsourced work is handed back. Important technical decisions should be documented as they are made, particularly decisions that affect the data schema. Someone inside the company should review and merge the changes rather than simply accepting completed work. The deployment and rollback process should also remain understood by the internal team, even when an external developer builds part of the infrastructure.

The broader lesson is simple. Outsourcing does not necessarily create a problem with the code itself. The bigger risk is losing the reasoning that explains why the code works the way it does. If your company will need that knowledge later, the decision should remain close to the people who will still be there.

How do you decide, step by step?

Start by deciding what needs to be true about the engineering team in twelve months. Focus on structural needs rather than specific features. Consider how many engineers will work on the system, whether the data model may need to support another product line, and whether the code could be reviewed during technical due diligence. These factors help determine which decisions need to remain under the company's control.

Next, divide the work according to how difficult it would be to change later. Do not divide it simply according to the skills required. If changing a component would require a major migration or rewrite, it is safer to keep it in-house. If it can be removed and rebuilt easily, outsourcing is less risky.

Then consider location before deciding on the employment structure. Labour costs can vary significantly between countries, so geography can have a major effect on the overall budget. A vetted developer in a lower cost market working with the company for a longer period can be very different from hiring an agency in a high cost market. Treating both arrangements as simply "outsourcing" can hide important differences.

The next step is to choose the relationship carefully. Research on freelancing in software startups found that freelancers can sometimes deliver better results than in-house teams when they are selected through informed decision making. The research also highlights the importance of long term relationships based on trust. A short engagement focused primarily on price can encourage the kind of rushed engineering that later needs to be reworked.

The same principle can apply before development even begins. Research into freelance requirements engineering suggests that an external developer who understands the product can contribute to decisions about what should be built, rather than simply receiving instructions and writing code. This makes product knowledge an important part of choosing an external developer.

Finally, plan for restructuring before you need it. If the startup is deliberately moving quickly, some of the engineering work may eventually need to be improved or rebuilt as the company grows. Including that work in the plan makes it much easier to manage. Leaving it until the software becomes difficult to maintain can turn the same work into a much larger problem.

There is also one question that should be asked throughout the process: who reviews the work? The Stack Overflow Developer Survey 2025 found that 84% of respondents were using or planning to use AI tools in their development process, while only 3.1% highly trusted the accuracy of AI output. This means that whoever writes the code, someone still needs to evaluate it.

AI coding agents make that review process even more important. JetBrains reported in 2026 that 90% of professional developers use AI coding agents at work at least weekly. These tools can increase the amount of code produced during an engagement, but they do not automatically increase the company's ability to review that code. The layers a startup chooses to own therefore need to be the layers it can actually understand and review. If nobody inside the company can evaluate an important part of the system, the company is not really retaining control over it.

When is outsourcing the wrong answer?

Outsourcing is usually the wrong choice when the work requires deciding what the company should build, when nobody inside the company can review the work, or when the work is central to the company's competitive advantage before product market fit has been established.

The first problem is often the most expensive. Founders may outsource because they are unsure what to build and expect an external developer or agency to make that decision for them. A vendor can be very effective at building a product based on clear requirements, but they do not have the same customer knowledge as the people running the company. If the problem is deciding what to build rather than how to build it, outsourcing can result in a well engineered product that solves the wrong problem.

The second problem is more fundamental. Someone inside the company needs to be able to review important technical decisions, particularly changes to the data schema and other parts of the product's foundation. Without that ability, the company is effectively handing ownership of those decisions to an external provider. For an early startup without technical leadership, hiring a senior in-house engineer may therefore be more important than outsourcing the development itself.

The third problem applies when the technology is part of the company's main competitive advantage and the startup is still trying to find product market fit. The core product loop is where the company learns what customers want. If that work is handled entirely outside the company, founders can lose direct contact with the technical decisions that produce that learning.

There is an important exception. A startup can outsource its core product when the technology itself is relatively routine and the real advantage lies elsewhere. That advantage could come from distribution, customer relationships or a valuable data asset. In those cases, keeping every part of development in-house may not provide much additional value.

There is also a strong case for outsourcing when a startup needs specialist skills for a limited period. Research on freelancing in software startups found that external specialists can help startups respond quickly to development and market uncertainty. Hiring a specialist for a short project can be more sensible than making the wrong permanent hire and carrying that cost for years.

The decision therefore comes down to what the startup is actually trying to buy. If it needs additional development capacity or a specialist skill, outsourcing can make sense. If it needs product judgment, technical ownership or knowledge that will shape the company's future, that responsibility should remain inside the business.

The middle option, and where we fit

The choice does not have to be between an in-house team and an agency. For many early stage companies, there is another option: a vetted engineer who works directly with the company and follows its codebase and review standards. With a long enough engagement, that engineer can also build the product knowledge and context that makes the relationship more valuable over time.

This is the model RocketDevs provides, so the recommendation should be considered with that commercial interest in mind. The process itself is what founders should evaluate. RocketDevs says its engineers go through 6–8 hours of structured assessment per developer and that 98%+ of applicants are rejected. Engineers also work with 100% EU timezone overlap, allowing developers and internal teams to work together during the same business day.

The pricing model also fits the article's focus on reversibility. RocketDevs lists rates of $9.99/hr for Associate developers, $21.99/hr for Mid-senior developers and $30.99/hr for Senior developers. It also offers a 14-day risk-free trial, money-back. This makes it possible to test the arrangement before committing to a longer engagement.

The important point is not that this model is always better than hiring internally or working with an agency. It is that a startup can retain control over important technical decisions while using external engineering capacity where it makes sense. Founders can start with a vetted engineer, then adjust the structure as the company's needs change.

Conclusion

There is no universal answer to whether a startup should build its engineering team in-house or outsource. The right approach depends on what the company needs to protect, how quickly it needs to move and how difficult the work would be to change later.

The most important decisions should stay close to the company. That includes the domain model, data schema and other parts of the system that shape how the product works. Work that is easier to replace can be outsourced when it provides access to skills or capacity the startup does not need to maintain permanently.

Cost matters, but the hourly rate is only part of the calculation. Developer location can significantly change the cost base, while an in-house team creates an ongoing employment commitment. Outsourcing can provide flexibility, but only when someone inside the company can still review the work and understand the decisions being made.

As a startup moves through different funding stages, its engineering structure can change with it. The goal is not to choose between in-house and outsourced development once and stick with that decision. It is to retain ownership of the decisions that become harder to change while using external capacity where it remains easy to replace.

For an early startup, that flexibility can be more valuable than choosing one model permanently. Build the parts of the engineering function that the company needs to own. Rent the work that it can safely replace. Most importantly, make sure the knowledge and judgment that will shape the company's future never leave with the contractor.

FAQ

Should a startup outsource development?

Partly, but it is usually better to outsource specific layers rather than the entire engineering function. Keep control of the domain model, data schema and deployment process because changing these later can require significant migrations or rewrites. UI components, integrations and some infrastructure work are generally easier to replace. The decision about what to build should also remain with the company.

What does a startup engineering team cost?

Location is one of the biggest factors. Eurostat puts 2024 hourly labour costs in the information and communication sector at €21.70 in Bulgaria and €70.10 in Ireland, with an EU 27 average of €46.30. In house costs can also increase over time. The US employment cost index rose 3.3% in the year to Q2 2026, meaning an employee cost can grow even when the team does not change.

When should you make your first engineering hire?

Make the hire when the company needs to own an important part of the technology that nobody currently has the ability to review. This will often involve the data schema or deployment process. The important trigger is whether the company has enough technical review capacity, rather than reaching a particular headcount or revenue target.

Can you raise a seed round with an outsourced team?

Yes. Having an outsourced engineering team does not automatically prevent a startup from raising funding. During technical due diligence, investors are more likely to care about whether the company understands and can change its technology. Someone on the team should understand the data model, important technical decisions should be documented, and the company should retain control of the deployment process. These foundations should be in place before the fundraising process begins.

James Hitch, COO at RocketDevs.LinkedIn

Sources

• Eurostat, labour cost levels by NACE Rev. 2 activity, 2024
• World Bank, GDP per capita, 2024
• US Bureau of Labor Statistics, employment cost index, CIU2010000000000A
• US Bureau of Labor Statistics, average hourly earnings, CES0500000003
• US Bureau of Labor Statistics, computer systems design employment, CES6054150001
• Giardino et al., Software Development in Startup Companies: The Greenfield Startup Model, IEEE TSE 2015
• Freelancing Models for Fostering Innovation and Problem Solving in Software Startups, Sustainability 2020
• Fostering product innovations in software startups through freelancer supported requirement engineering, Results in Engineering 2020
• Transaction attributes and software outsourcing success, Information Systems Journal 2002
• JetBrains, Developer Ecosystem Survey 2026
• Stack Overflow Developer Survey 2025, AI section
• GitHub Octoverse 2025
• US Bureau of Labor Statistics public API
• Wikipedia, Outsourcing
• npm download statistics, typescript
• npm download statistics, react
• Stack Exchange API, Stack Overflow tag counts