101: Outsourcing

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As the owner of a small business you are used to doing things yourself.  Many entrepreneurs start out with the attitude that they can do it all, and whether they are just launching a new company or have an established firm, they can be too slow too consider the possible benefits of outsourcing some non-core functions.

Once considered an option only for large multi-national corporations, outsourcing is now available even to the smallest startup company thanks to advances in technology and the growth of the global outsourcing industry.  So it makes sense to understand the outsourcing landscape and to weigh the costs and benefits for your business.

Start by figuring out what tasks you may want to outsource.  While anything that is outside of your core functionality can be fair game, most business owners derive the highest return from outsourcing the following types of work:

Low-skilled, repetitive tasks – In addition to basic data entry, this category can also include functions such as accounts payable and inventory.

Technology-related expertise – Hiring a full-time IT person is expensive, and trying to troubleshoot technology issues yourself can waste endless hours. But outsourcing your IT help on an as-needed basis can save you both time and money, not to mention headache.

Senior Executive-level help – It may surprise you to learn that it is possible to outsource—rather than hire—senior-level professionals to help with your business, but this is a corner of the outsourcing market that has seen a good deal of growth recently.  Although you might be a great CEO, if you don’t have a strong finance background you may not be an ideal CFO.  But full-time CFOs don’t come cheaply. Rather than hiring one in-house, it is possible to outsource the role to someone who can spend a few days a month with your company making sure that your financial house is in order.

Once you figure out what you want to outsource, you’ll need to decide when to do so.  This of course depends on where you company is in its development but it is never too soon to consider beginning the process. If you have a startup you can benefit right away from having help with the low-level repetitive tasks so that you’re free to focus on building the business.  For a more mature business, if growth has stalled because you and the other key personnel are wearing too many hats, that is a clear sign that it is time to look for outside help.

So now let’s move on to how to implement an outsourcing plan.  While it has gotten a bad rap in certain circles, outsourcing is not a dirty word and it doesn’t have to mean shipping jobs overseas to the developing world.  There are lots of options closer to home that can still save you a good deal of money.  If you are located in a high-cost metropolitan area, then consider outsourcing functions that can be performed remotely to contractors in smaller markets or rural areas where the cost of living is lower.  Their rates should be lower and you’ll be supporting the economy in a place that could probably use the help.

And the same can be said for hiring help from overseas.  You may have to deal with language, cultural, and time-zone differences if you go this route, but it can have its advantages as well.  In addition to offering very affordable labor, overseas contractors can allow you to expand the number of hours in a day that folks are working on your business.  It can be nice to assign someone a project at night and wake up in the morning to find it competed.

Outsourcing is not without financial risk, so in order to make sure that you don’t wind up with runaway costs from your contractors it makes sense to start out with highly specific task-based agreements when dealing with new providers.  Once you are satisfied with the caliber of their work you can switch them to an hourly rate or a fixed-cost retainer.

Despite the risks, in the end you may well find that outsourcing offers you a cost-effective way to build the right mix of professionals and frees you up to focus on the most critical matters facing your business.

More By Gregg Schoenberg
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