In late 2023, the Web3 landscape still presents startups with substantial challenges, with especially complex ones usually residing in the development aspect. While the decentralized nature of Web3 offers radically new approaches to problem-solving, these innovations come with their own set of obstacles. In this article, we will examine the biggest issue for many Web3 startups - development.

Developer Shortage and Hiring Challenges in the Web3 Sector

The Web3 development space consists of numerous interconnected blockchain ecosystems, each with its unique advantages, but also specific programming languages, tools, protocols, token standards, and required skills, making the development cycle time-consuming and complex.

Compounding on that, the Web3 industry perpetually faces a significant developer shortage, primarily due to the vast number of projects starting to utilize blockchain technology and not enough widespread education and access to resources for novice blockchain devs. A recent survey by Versatus Labs involving more than 1,000 developers revealed that 75.4% felt the lack of supporting resources was a major barrier to entering the Web3 space. Furthermore, 79.8% cited the need to retool their stack, and 77.1% mentioned the complexity and cost of learning new languages as significant hurdles. These statistics underscore the need for more targeted training and resources to address the talent gap in this rapidly evolving sector.

In-house Development Team vs. Outsourcing to an Agency

Given the above-mentioned landscape, startups often face the dilemma of developing Web3 capabilities in-house or employing an agency specializing in Web3 development.

Creating a solid dev team from scratch is no easy task. The absence of essential skills, experience, or a suitable cultural fit within a team can lead to poor management, communication breakdowns, and ineffective collaboration. As startups venture into the dynamic Web3 market, there's a tendency to expedite the hiring process. However, this approach presents its own set of challenges.

The differences between Web3 startups that use in-house development and those that outsource to development agencies can be seen in three major factors: cost, time-to-market, quality control, and recruitment time and scaling.

Cost Considerations:

In-House Development: It is usually more expensive due to the need for infrastructure, salaries, and tools. The costs are typically higher because of the overhead associated with maintaining a full-time team. Most newly acquired developers will also need a period of adjustment and learning in order to get in line with the specific development needs of your project. Important factors that add to the overhead are payroll taxes and insurance expenses, along with other hidden expenditures you don’t necessarily consider when initiating hiring.

Outsourcing: Generally offers lower costs due to reduced overhead. Businesses only pay for the scope of work needed, potentially getting a quality product at a lower price. A very important factor here is the charging model of an agency. Most agencies charge hourly rates. A study on 20+ agencies conducted by Blank through clutch.co, found that the typical hourly rate for development agencies within the Web3 space is around $70, ranging between $50 and $100+ depending on the location. More on that will be shown in a table in the next section.

Time-to-Market:

In-House Development: Often takes longer due to the time needed to set up and manage the development process. However, if the in-house team is flexible and adapts quickly to market needs, it could speed up the time-to-market.

Outsourcing: Can significantly reduce the time-to-market since external providers often use existing infrastructure and processes. This approach allows for quicker deployment and adaptation to market changes. The main thing to consider when hiring a Web3 development agency is its track record. Make sure their team is well-versed in the technologies you are planning to utilize in your business.

Quality Control:

In-House Development: Allows for more control over the development process and greater visibility into product development, potentially leading to higher quality assurance and better customer satisfaction. In-house teams can establish and maintain specific performance metrics and standards.

Outsourcing: Provides access to a broader pool of talent, which might include experts in developing highly reliable solutions. However, this can also mean less direct control over the development process and quality standards. Outsourcing may require additional efforts to ensure that the product meets the desired quality and performance metrics. When assessing whether to partner with a development agency, special care should be taken to ensure the agency and its team are ready to communicate directly and transparently.

In summary, Web3 startups considering in-house versus outsourcing for their development need to balance these factors against their specific needs, goals, and resources. In-house development offers more control and potentially better quality assurance at a higher cost and potentially slower time-to-market. Outsourcing can be more cost-effective and faster but may require careful management to ensure quality standards are met. The decision ultimately depends on the startup's priorities, scale, and market strategy.

Recruitment, Hiring Time, and Scaling the Team:

In-House Development: The time-consuming process of advertising job positions, reviewing applications, conducting interviews, and onboarding is resource-intensive and can take a significant amount of time​. High expenses are a downside, especially for equipping workspaces with high-end technology and dealing with fixed HR expenses. Scaling in-house can be challenging, especially when business demand fluctuates. It could leave the company with surplus resources or a need for rapid expansion, which an in-house team with. Benefits of hiring an in-house team include easier communication and rapid responses due to on-site availability, as well as devs having a deeper awareness of the business.

Outsourcing: The outsourcing provider handles the process of finding, vetting, and onboarding professionals, saving time and effort. Outsourcing offers a more scalable approach, allowing for easier adjustment of team size based on project needs. It is suitable for businesses that need to scale swiftly without significantly impacting their budget. Among the benefits of outsourcing are access to a larger and diverse talent pool, and the ability to focus on core business functions, and faster project delivery. Disadvantages include potential communication issues and quality concerns due to time zone differences and lack of direct control over the team. This is why you need to choose your partner wisely.

What does this look like in practice?

(In-House vs Outsourcing)

To put the above-mentioned factors into perspective, Let’s imagine a startup is building out its product, and its development time frame is three months. The startup currently has an in-house CTO which is covering all the aspects of development and has received a pre-seed round of investment. They are thinking of expanding their team and are not sure about whether they should go with in-house expansion or outsourcing.

Based on the data in the table, we can state that:

In-house development would most likely cost significantly more, due to the fact that for the in-house team, you need at least 1 Full-Stack developer + 1 Smart Contract dev, so the monthly cost for a small (2-3) dev team can easily go upwards of $12k per month.

With the average hourly rate of a dev agency around $70 in most situations, this approach will prove to be more cost-efficient than hiring in-house. This does not account for the Quality Assurance which dev agencies have included in their proposals, whereas you would additionally need to hire QA staff for the startup.

Another advantage of going the agency route is that you can hit the ground running much faster than if you’re hiring individual developers from scratch. For many startups, the right decision will be hiring an agency. However, after deciding to outsource the development to an agency, there are several crucial factors to keep in mind while shopping for the ideal partner.

5 things your outsourced Web3 development team must have

1. Expertise in Blockchain Technologies and Languages

Blockchain is the bedrock of Web3. Although this one might be obvious, it is the depth and versatility of your potential partner's knowledge that should be the focus of your inquiry. Agencies specializing in blockchain development have a deep understanding of these technologies, allowing them to build applications that are not only secure and scalable, but also align with your startup’s vision and the decentralized ethos of Web3.

What to look for: Seek agencies with a proven track record in developing smart contracts, building and managing decentralized applications (DApps), and understanding various blockchain platforms and smart contract languages. Their ability to navigate these complex technologies will be pivotal in creating solutions that leverage the full potential of Web3. The best Web3 development agencies will be proactive and offer you solutions for problems and show you opportunities for improvement before you even know they exist. Read more about dApp building in our case study based on our work developing the Endemic App - a Social NFT Marketplace.

2. User-Centric and Intuitive Approach to UI Design

In Web3, where user interaction with blockchain-based platforms is still evolving, a user-centric design is essential. It's not just about aesthetics; it's about crafting intuitive, engaging interfaces that make navigating decentralized platforms seamless for users. There can be no widespread adoption without the ease of use that can be provided only by senior UI/UX designers with expertise and plentiful experience with Web3 native activations.

What to look for: Evaluate the agency’s approach to user research, UX/UI design, and the ability to create interfaces that are not only visually appealing but also functional and simple to use. Agencies should demonstrate an understanding of how to translate complex blockchain functionalities into user-friendly experiences.

3. Problem Solving and Tool Proficiency within Decentralized Ecosystems

Decentralization is a core tenet of Web3, an industry in which innovation is constant, and utilizing scaling solutions such as L2s, sharding, private sharding, state channels, side chains, ZK rollups, and many other can bring you a competitive edge in a market bursting with competition. Hiring a team that can recognize where and how these models can be applied to your product or service will significantly boost your chances of success while saving you a fortune on unnecessary fees. Robust understanding of the development tooling is crucial, meaning that the agency is able to adapt to the new technologies and toolsets which are constantly changing.

What to look for: Look for agencies that understand building on decentralized architectures. They should be skilled in integrating smart contracts, DeFi platforms, bridges, and leveraging the blockchain to put you one step ahead of the competition. Ideally, a development agency should help you utilize the full potential of blockchain technology while helping you avoid common mistakes.

4. Enhancing User Experience with NFTs and Gamification

Smartly integrating relatively simple, but crucial Web3 concepts that rely on NFTs, POAPs, and other types of digital assets into a startup’s business strategy can revolutionize user interaction and engagement, driving the overall growth of the project and its community. From digital collectibles to token-based incentive systems to digital asset marketplaces, these elements add a layer of engagement and value to Web3 applications.

What to look for: Ensure the agency has experience integrating NFTs and token standards into applications. They should demonstrate how these can be used to enhance user experience, drive engagement, and create new revenue streams. We’ve previously written in-depth about this in a case study based on our collaboration with Infobip & IUTD Studio.

5. Security, Integrity, and Communication

In an industry so focused on the financial and social aspects of life, security is paramount. It is vital that you research well who you are getting into business with, and that your core values are aligned with your development partners. The agency you employ should be proficient in implementing advanced security measures to protect user and client data while avoiding potential security breaches. It is crucial to maintain the highest levels of safety in any commercial ecosystem, and the foundations of security in systems like these are made in the earliest development stages.

What to look for: Partner with an agency that understands the importance of privacy, safety, and legality in the decentralized ecosystem. When selecting a Web3 development agency, consider their portfolio, reputation, and ethics. Look for an agency that is transparent and practices open communication.

Securing the Future of Your Startup

Keeping these criteria in mind, to choose the right Web3 development partner, thoughtful preparation is key. Before you begin your search, it's crucial to have a clear understanding of what you want to achieve in the Web3 space. Clearly articulate these needs to potential partners. The more precise you are about your expectations, the more accurate and tailored their proposals will be.

Conduct diligent research on potential Web3 development companies, focusing on those with a strong track record in blockchain technology, smart contract development, and other Web3-specific areas. Examine their portfolio, focusing on projects that are similar to what you envision. Pay close attention to client reviews and the company's culture to gauge their fit with your project's ethos.

Finally, Web3 development is complex and often involves navigating uncharted territories. Choose a development partner who values open collaboration and maintains consistent communication. This approach ensures you remain connected to the development process, can provide ongoing feedback, and are promptly informed of any challenges or pivots. Frequent communication is vital to ensure that your product develops in line with your vision and adapts to the rapidly evolving Web3 landscape.

If you found this article intriguing and want to delve further into the matter, we’d love to talk to you directly. Contact us, and have a look at our Portfolio or our clutch profile.