August 1, 2023
Having worked in software development all over the world during the last 30 years, I’ve seen pretty much everything when it comes to bizarre business practices in the outsourcing industry.
While many software firms offer world class development at competitive rates building lasting partnerships with customers in the process, the reality is that these companies are in the minority.
This is an industry that unfortunately is still plagued by fly-by-night companies that over-promise and under-deliver, trying to pass themselves off as reputable IT services companies in an effort to make a quick buck.
At Accelerance, we call them the suboptimal majority. These are companies we choose not to work with. What are the signs that a software company falls into this dubious category?
🚩 Here are five red flags we regularly see in the course of our due diligence efforts that signal danger ahead!
- Unrealistic Pricing
When a software company tells us how cheap their rates are, we run a hundred miles away the other way. Beware of outsourcing companies that offer rates significantly lower than the market average or present unrealistic delivery timeframes.
If they are offering to put junior software engineers on your project at $18 an hour and the market rate is $25 - $35, you are buying yourself trouble if you sign on with them. Even in a relatively low-cost destination like India, $18 an hour isn’t a reasonable wage for an IT professional. What you will end up with is people working on your project who are not properly trained or managed, and who are quite likely being poorly treated.
Some software companies will low-ball labor prices, but introduce additional fees to improve their margins. Scrutinize their pricing model to ensure there are no hidden fees or ambiguities that may put your project's budget at risk. - Lack of Experience and Expertise
One of the first signs of an untrustworthy software outsourcing company is a clear lack of experience and expertise in the required domain. When you turn up to a meeting and they can barely produce anyone who is going to be working on your project, that’s a red flag.
Of course, some firms will need to bring onboard additional people to serve your particular needs, but we regularly hear of software companies scrambling to hire an entire team once they’ve got a contract signed. Almost unbelievably, some clients take the risk, hoping that everything will work out fine. That’s no way to start a software project that is mission-critical for your business. - Lack of Client References or Testimonials
A company's reputation is a valuable indicator of their trustworthiness. Untrustworthy software outsourcing companies may lack any references or testimonials from previous clients, making it challenging to assess their past performance and customer satisfaction.
Requesting client references, reaching out to them, or searching for independent reviews can help you gauge the company's reliability and overall client experience. But make sure you have a robust reference-checking process. We’ve heard horror stories of supposedly independent referees turning out to be friends or family of the company’s CEO, or even worse, a colleague in the same building masquerading as a customer!
Companies that fail to demonstrate a solid track record, impressive portfolio, and expertise in relevant technologies may not have the required capabilities to deliver quality results. Be cautious of providers that cannot provide ample evidence of their past successes and ongoing professional development. - Poor Communication and Language Skills
Effective communication is the backbone of successful outsourcing partnerships. Untrustworthy outsourcing companies often exhibit poor communication practices, including delayed responses, vague answers, or an unwillingness to provide regular project updates.
Language barriers and cultural differences can exacerbate these issues, making communication breakdowns more likely. Clear and transparent communication plays a pivotal role in building trust, so be vigilant about companies that display consistent communication shortcomings. - Legally or Ethically Dubious Entities
When you’re considering signing a deal with a software development partner in another country, you need to do your due diligence to ensure that you are not getting yourself into legal or regulatory hot water in proceeding.
The United States has export controls as well as a sanctions list of individuals and companies it prohibits US citizens and organizations from doing business with. Tensions between the US and countries including China, Russia, and Iran are rising, with a growing range of technology companies prohibited from supplying goods and services to those countries. Thorough checking to ensure your remain compliant is more important than ever.
Some software companies have unusual ownership and asset structures, which makes the job harder. But any company or associated individual that is vague about these issues and can’t offer written confirmation that it isn’t subject to any trade restrictions or sanctions, is to be avoided.
Don’t ignore the red flags
When selecting a software outsourcing company, it is essential to be cautious and vigilant about red flags that indicate potential untrustworthiness. By recognizing the signs of an unreliable partner, such as a lack of experience, poor communication, unreliable development process, a dearth of client references, or unrealistic pricing, you can avoid unnecessary risks and ensure successful outsourcing endeavors.
Remember, thorough research, due diligence, and clear communication are indispensable for identifying a trustworthy outsourcing partner that aligns with your business needs and objectives. That’s what we specialize in at Accelerance, where we have run the ruler over 8,000 software companies internationally, choosing the top 1% of them to add to our carefully vetted partner network.
Contact an Accelerance adviser to find out how you can take the risk and hassle out of finding a suitable software development partner.
