Building an internal engineering team for your product development looks straightforward on paper. Three engineers at $120K each, plus benefits and equipment—maybe $450K total. Six months to hire and onboard, then you’re off to the races with your first prototype in twelve months. Then reality hits. The hiring process takes nine months, not six. Your […]
Building an internal engineering team for your product development looks straightforward on paper. Three engineers at $120K each, plus benefits and equipment—maybe $450K total. Six months to hire and onboard, then you’re off to the races with your first prototype in twelve months.
Then reality hits. The hiring process takes nine months, not six. Your first two engineering hires need management oversight you don’t have. The specialized equipment and software licenses cost another $100K. Your engineers need three months just to understand your product vision and market requirements. And that twelve-month timeline to first prototype? Try twenty months, minimum.
Meanwhile, your competitor launched six months ago using a development partner.
Most companies dramatically underestimate the total investment required for effective internal product development. The visible costs—salaries, benefits, equipment—are just the beginning.
Salary costs versus total compensation tell only part of the story. That $120K engineer actually costs $160K-180K when you include benefits, payroll taxes, insurance, and retirement contributions. But the real costs go far beyond direct compensation.
Engineering workstations, CAD software, simulation tools, test equipment, and prototyping capabilities easily add $25K-50K per engineer annually. For specialized work like battery systems or IoT development, software licenses alone can exceed $50K per seat. If your product requires testing equipment—environmental chambers, electrical test systems, measurement instruments—you’re looking at $100K-500K in capital investment before your first prototype.
Time-to-productivity is consistently underestimated by companies building internal teams. Even experienced engineers need 3-6 months to become productive in a new domain. They need to understand your market, learn your requirements, absorb your constraints, and align with your business objectives. For complex products in regulated industries, this learning curve can extend to 6-12 months.
During this ramp-up period, you’re paying full compensation for partial productivity. If you hire three engineers at $180K total compensation each and they take six months to reach full productivity, you’ve invested $270K before generating meaningful development progress.
Hidden management and coordination costs compound quickly. Engineers need management, technical direction, and coordination. If you’re the CEO or CTO, this comes from your time—time not spent on sales, fundraising, operations, or strategy. Companies often discover they need to hire an engineering manager before their engineering team reaches five people, adding another $200K+ in annual costs.
The risk of key person departure creates vulnerability that most companies only recognize after experiencing it. Your lead engineer quits, taking six months of product knowledge with them. The replacement takes another six months to get up to speed. You’ve just lost a year of development progress—and that assumes you can find and hire a qualified replacement quickly.
The decision to build an internal engineering team isn’t just about direct costs—it’s about what you’re not doing with that capital and management attention.
Capital allocation trade-offs determine business success more than most operational decisions. The $500K-800K you invest in building an engineering team is money you’re not spending on marketing, sales infrastructure, customer acquisition, or operational capabilities. For early-stage companies, this trade-off can determine whether you achieve product-market fit before running out of runway.
Speed-to-market impacts competitive positioning in ways that are difficult to recover from. Six months can determine who owns a market category. Consider two companies with similar products launching into the same market opportunity. Company A spends eighteen months building an internal team and developing its product. Company B partners with a development firm and launches in nine months.
Company B captures early customers, learns from real market feedback, iterates its product based on actual usage, and establishes market presence—all while Company A is still hiring engineers. Even if Company A eventually launches a technically superior product, Company B’s head start in market learning and customer relationships often proves insurmountable.
Focus dilution affects every aspect of business performance. CEOs who become engineering managers are CEOs who aren’t focused on sales, partnerships, fundraising, and strategy. The management bandwidth required to build and lead an engineering team distracts from the business-building activities that determine startup success or corporate innovation effectiveness.
Consider a typical scenario: a startup founder with an engineering background decides to build an internal product development team. Eighteen months later, they have a partially completed prototype, a team of four engineers, and $1.2M invested. But they’ve spent minimal time on customer development, have no sales pipeline, and are six months from launching into a market where two competitors are already established.
A competitor with equivalent funding partnered with a development firm, launching a working product in ten months for $300K. They spent the remaining capital on marketing and sales, acquiring their first 50 customers while the first company was still hiring engineers. The technical quality of the first company’s eventual product is marginally better, but the competitive disadvantage from delayed launch proves fatal.
The build-versus-partner decision isn’t one-size-fits-all. The right answer depends on your specific circumstances, constraints, and strategic priorities.
Build an internal team when your core competitive advantage comes from proprietary technology that requires ongoing innovation. If your product’s success depends on continuous technical advancement that you must control and protect, internal engineering capabilities become strategic necessities rather than operational choices.
Long-term product roadmaps with sustained development requirements favor internal teams. If you’re building a product platform that will require continuous enhancement, feature additions, and iterative improvement over many years, the economics of internal teams eventually overcome the initial investment and ramp-up costs.
Sufficient volume to justify fixed costs shifts the economics dramatically. If your product generates enough revenue to sustain a dedicated engineering team while maintaining healthy margins, internal teams provide long-term cost advantages and complete control over development priorities and timing.
Partner with development firms when speed to market is critical for competitive positioning or market timing. If launching quickly determines success—whether to capture a market opportunity, preempt competitors, or meet a funding milestone—development partners provide immediate access to complete engineering teams without hiring delays.
Technology outside your core competency, but essential for your product, creates strong partnership cases. If your competitive advantage is in software but your product requires sophisticated hardware, partnering with hardware development specialists often delivers better results than building internal hardware capabilities from scratch.
Uncertain development timelines or scope make partnerships more flexible and lower-risk. If you’re not certain about product requirements, market fit, or technical approach, partnering provides more flexibility to pivot, adjust scope, or even abandon directions that prove unworkable—without the fixed costs of an internal team.
The hybrid approach offers a middle path that many companies eventually pursue. Start with a development partner to create the initial product, prove the concept, and establish market fit. As the product matures and volumes grow, build internal engineering capabilities to support ongoing enhancements and future generations.
This staged approach minimizes early-stage capital requirements and maximizes speed to market while building toward the long-term advantages of internal capabilities. The development partner’s work also provides a foundation of documentation, design files, and proven approaches that make building an internal team more effective.
Making an informed build-versus-partner decision requires an honest assessment of your situation across multiple dimensions.
Calculate total costs accurately by including all direct and indirect expenses. Don’t just compare salaries to development fees—compare the total investment, including time to productivity, management overhead, equipment and software, facilities, and opportunity costs of delayed launch.
Assess your engineering readiness by asking hard questions about your current capabilities. Do you have technical leadership capable of managing engineering teams? Can you attract and retain top engineering talent? Do you have existing engineering infrastructure, or are you building from nothing? Do you understand the technical domains required for your product?
Evaluate your timeline criticality by determining how speed affects your business outcomes. What happens to your competitive position if you launch six months late? Do you have a funding runway to support an 18-24 month development cycle? Are there market timing factors that make speed essential?
Consider risk factors that might favor partnership over internal development. How much technical uncertainty exists in your product concept? How comfortable are you with the financial commitment required to build a team before proving market demand? What happens if your initial product direction proves wrong and requires significant pivoting?
The decision to build internal engineering capabilities versus partnering with development firms isn’t about which approach is inherently better—it’s about which approach fits your specific circumstances, constraints, and strategic priorities.
Companies that build internal teams prematurely often struggle with long development timelines, high capital requirements, and management complexity that distracts from business building. Companies that partner strategically often achieve faster time to market, lower capital requirements, and maintain focus on their core business activities.
The most successful approach recognizes that build-versus-buy isn’t a permanent decision. Many companies start with partnerships to quickly and affordably prove their concept, then transition to internal teams as their product matures and their business scales.
Wondering whether your next product needs an internal team or a development partner? Let’s walk through the economics and strategy together. Contact Treetown Tech to discuss how different development approaches might fit your specific situation, timeline, and business objectives.
You have the vision. We have the team and expertise to get it built. Let's collaborate to innovate, problem-solve, and de-risk every step of the way.
