Outsource Like a Pro
Most new businesses start small. Their founders work from home or in an inexpensive office. They often convert their garage into a warehouse or a workbench. As money is scarce, they may not have the funds to pay for outside help and, instead, have to perform all responsibilities to run and grow their company themselves. Marketing, procurement, project management, research, engineering, payroll, and finance are just a couple of examples of how many hats founders have to initially wear.
After a couple of years, with their business expanding, the daily workload on the founder(s) can quickly become overwhelming.
On one hectic day, sleep-deprived and stressed to almost the breaking point, most founders realize that they can no longer do it alone because too many things are not getting done on time. They decide to add resources. When that happens, they have achieved a significant milestone: their company is about to exit the startup phase and transition into becoming a small business.
If you think getting your company off the ground has been a challenge, this transition most likely will be just as much. Why? Because you need to organize your business, divide up your work, and hand parts over to others. That sounds easy, doesn't it? Believe me, it's quite the opposite. Letting go is difficult and emotional because you are relinquishing some of the control. Especially if you enjoy doing a particular task, sometimes you may try to convince yourself that the other party won't be able to handle these tasks according to your standards, and you will have to redo them. All of these feelings and concerns are valid and normal during this transition. Every founder had some form of them.
Fortunately, such a transition is always a gradual process and is not completed overnight. Instead, take your time and begin handing over small work packages.
But how do you choose the work you want to transition and to whom?
Always Keep your Core Competencies In-House
When you transition your business from a founder-run to a founder-led company, one of your first strategic decisions is to either hire your own employees or outsource the work to an outside firm.
Don't rush that decision. It is vital to the future of your business.
As a general rule, you always want to keep your core competencies in-house and outsource only non-core functions. What does that mean?
Companies that are growing like yours are successful for a reason. One may have developed an app that helps users save time, another creates value for their customers by delivering high-quality home remodels. The recipe for their success is their secret. Like a high-end restaurant chef, who would not ask an outside party to create new recipes or to cook them, you should not give away your trade secrets either. Because if you did, the other party could try to replicate your success by launching a similar business to yours that would then compete with you.
The recipe for your success, the sum of your firm's capabilities and skills that distinguishes you in the marketplace, is called your company's core competencies or X-Factor.
If you want to expand your core competencies or add capacity in this area - for example, to manage more projects in parallel - you have to hire your own employees.
How to Find Work to Outsource?
The two very first tasks most founders outsource after establishing their company are accounting and taxes. Why? Unless you are an accounting firm, maintaining your books is rarely how your company earns its money. However, if you do not keep your books in order, you will most likely get into trouble with the tax authorities.
Staying with my bookkeeping example, here are the main three questions for finding work to outsource:
Is the bookkeeping part of your billable services?
Do your customers buy more from you because you do such an outstanding job of maintaining your books?
Would it help you to differentiate your company from your competitors if your own employees managed your books?
If the answer is "no" to these three questions, you have probably found the right task to outsource to an outside firm.
What is the Ideal Outsourcing Scope?
After identifying the task to be outsourced, its headline description - such as accounting or taxes - may still be too broad for an outsourcer to accurately understand, evaluate, and price. Often you have to break it down further into specific work packages. The sum of these detailed work packages is also called the scope. You can choose a narrow scope consisting of very few work packages or a broad scope with many work packages.
Narrow scope. The advantage of outsourcing only a narrow scope is that most of the work is still carried out internally. While retaining significant influence over each step, you run the risk of adding many new touch points between your organization and the outsourcer. This added complexity can often increase your costs more than outsourcing can save. Keep this disadvantage in mind if you are thinking of handing over only a few work packages.
Broad scope. The advantage of outsourcing a large number of work packages is that it reduces the amount of touch points between your organization and the outsourcer. Although the diminished complexity is a huge benefit, it comes at a price of less visibility into the quality of the outsourcer's work product. Therefore, pros set up key performance indicators, so-called KPIs, that measure the quality of the outsourced work.
Defining the scope is more art than science, and many pros often don't nail this on the first try either. So, do not worry too much if you need to make adjustments later. However, try to outsource work packages that logically belong together. For example, you would outsource all of your bookkeeping to your accountant, not parts of it.
Who is the Ideal Outsourcer?
Choosing the ideal outsourcer is very different from buying products from a supplier. Since the outsourcer usually handles large parts of your company's processes - such as accounting, marketing, your website, or your online store - they have to fit into your corporate culture. Because your relationship with your outsourcer will likely last for a long time, typically years, it is all the more critical that the firm you choose shares your values and beliefs.
If you are not happy with any aspects of your relationship, you need to let your outsourcer know. Don't postpone this feedback to later. By then, you either may have forgotten what this issue was about, or certain behaviors may have become acceptable business practices between you and your outsourcer that are more difficult to reverse.
Most outsourcers welcome constructive feedback and are willing to adapt to your company's style. However, some may have a hard time changing. In this case, you have to decide whether you can live with these shortcomings or whether another outsourcer suits you better.
What is the Fee Structure?
The outsourcing fee structure is mostly based on two generic models: transaction-based or time-based.
Transaction-based. With a transaction-based fee structure, the unit price is multiplied by the number of transactions, such as calls, posts, or newsletters. As the outsourcer assumes the risk of not covering their employees' salaries due to process inefficiencies, the volume of transactions must be high with low variability and the type of transactions uniform.
Let's take a call-center as an example. For a transaction-based fee structure to work, the calls would need to be about the same length. Should these calls take longer or are more complex than anticipated, the outsourcer would not recoup their costs and likely ask you for more money or a change to a time-based fee structure. On the other hand, if the calls are shorter or less complex, you overpay for the service level you receive. Extensive monitoring of the agreed key performance indicators is often necessary to make optimal use of such a fee structure.
Time-based. The time-based fee structure is often the default position in many outsourcing contracts. You pay for a certain number of hours multiplied by an hourly rate, which can vary depending on the skills you need. With this fee structure, the risk that tasks may take longer entirely lies with you and not with the outsourcer.
This built-in flexibility can be hugely attractive for small and medium-sized companies who only want to outsource parts of their non-core functions or acquire a spectrum of different skills. It works like ordering from a menu: 12 hours a month from this skill and 24 hours from the other skill.
While it is tempting to hire a lot of different skills, it can also be costly. If you want to get a reasonable price from your outsourcer, it is sometimes better to pool your volume around just a few skills to make it easier for them to fulfill your requirements and give you a better price.
Slow and Steady Wins the Race
Unpredictable swings in the volume - transactions or hours - can pose a significant challenge for any outsourcing arrangement. Just imagine how tough it would be for an outsourcer to deal with a scenario where you give them a block of 100 hours in one month and 25 hours in the next, and then go up to 130 hours in the following month. Since these fluctuations would be very disruptive and financially destructive for your outsourcer, most outsourcing contracts would only allow you to make volume adjustments within a small range and a few times a year. The increase or decrease of hours usually happens slowly and steadily and in close collaboration with the outsourcer.
Final Thoughts
As you have seen, outsourcing can help you a lot in the transition from being a founder-run company to becoming a founder-led company.
Despite the many advantages of outsourcing, it is not without risks.
One of the main risks is the lack of cooperation with the outsourcer. As most pros will tell you, don't put the relationship with your outsourcer on autopilot or take it for granted. Successful outsourcing is the result of everyone's active participation. The little things can make a big difference in the long run. Invite your outsourcer to your corporate events and meet them regularly. If an outsourcer feels part of your extended team, they often think beyond their contractual commitments and may share some improvement ideas that could save you a lot of money.
Don't expect miracles, though. Outsourcing works in steps and rarely in big leaps. And that is by design. As the work packages move to the outsourcer gradually, your execution risks are significantly reduced. Before you decide to hand over more work, allow a couple of months for the relationship to mature. During this time, give your outsourcer plenty of feedback. The more specific your feedback is, the easier it is for your outsourcer to make adjustments.
Once you have made this transition, you won't look back and miss the time when you had to do all the work yourself. Instead, you will enjoy the extra hours you have gained through outsourcing. Your family and friends will notice and be very grateful.
Happy outsourcing.
