When Does Outsourcing Make the Most Sense for Your Venture?

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When is it best to hire an outside team and when is it best to keep the project in-house? Companies outsource for a number of reasons. Some of the common reasons are to gain access to capabilities, streamline efficiency, free internal resources, reduce operating costs, and to share the risk with a partner. Many organizations hire outsourced staff as a mechanism to increase a corporation’s resource base.

Because my area of expertise is on startups, this post will focus on how and where ventures like yours can successfully leverage outsourcing in your launch efforts. The landscape is extremely different for a new venture versus an established company like a Fortune 500, Russell 2000 or even inc 5000. Let’s explore three areas where ventures will find outsourcing most valuable.

Leverage an Outstanding, Locally Unavailable Experience Base

Often a venture’s product or solution is an extremely focused, sometimes narrow, approach to the market. This niche focus on a small market or technology may be the reason the organization was originally founded. Utilizing a group of resources with a rich background in that particular area of focus can be very smart.

One major benefit of leveraging experienced workers is to accelerate time-to-market. If the outsourcing partner has a deep understanding of the subject matter, they hit the ground running and enable the partner to produce results much faster than hiring and ramping up in-house personnel.

An experienced outsourcing provider brings substantial expertise to the team and will help you avoid pitfalls or blind alleys. This type of assistance is invaluable and hard to quantify in terms of dollars; it can truly make the difference between success and failure, especially when charting unknown territory or new product offerings.

For example, if you are developing an application for the fashion industry, but are based in a non-traditional fashion market like the Midwest, you might want to take advantage of a development organization with deep ties to LA, NYC, London, Paris or other centers of fashion excellence to avoid making market-specific mistakes.

Advice: If you choose to leverage outsourced resources, avoid having the organizations develop completely ground breaking or proprietary technology. Make sure that the intellectual property remains within your organization and that the learning and insight from the development stays with your organization long term. You don’t want to lose the technology if you switch outsourcing providers or their resources depart for better offers elsewhere.

Satisfy Needs Outside Your Core Competency

Another way that outsourcing can help is by meeting organizational needs outside the company’s core competencies. Using outsourced partners to provide services in non-strategic core areas enables your organization to scale more quickly without putting the burden of recruiting, training and retaining the best talent in every area of your business. This allows your organization to stay nimble, lean and focused. Some examples of non-core areas might be legal, HR, recruiting or facilities management.

Other commonly outsourced areas like call centers, chip fabrication, key business operations like billing and collections and other largely repetitive, labor intensive processes are often difficult to start without scale. If you keep the focus of your outsourcing to areas outside your core competencies, you will ensure higher value-add talent and capabilities without potentially causing your organization to have to drop everything and turn on a dime to set up a call center – which is no small feat!

This approach will allow your organization to scale quickly. In the same example if you need to rapidly grow from 10 call center operators to 100, using an established provider is much more straightforward than building the centers yourself. Another example of where a venture can leverage outsourcing vendors is for one-off projects or activities. These types of activities, while they may be vital to the operation and success of a venture, are one-and-done projects that may not make sense for the venture to staff in-house.

Another example would be for an event or conference booth where necessary support staff aren’t available locally, but a presence is necessary for market positioning and awareness. Hiring local talent to staff-up the booth, with a “boot camp” 101 on the product and the company, can often scale-up the venture’s ability to drive sales and marketing without the need to hire staff for one-time events. Leveraging outsourced resources to focus on these one-off activities will extend your reach and accomplish sales and marketing goals without overloading or distracting your internal team’s focus on important core competencies.

Realizing Cost Efficiencies or Achieving Scale

Finally, outsourcing can dramatically reduce your venture’s cost-of-doing-business. Taking advantage of outsourcing partners can substantially cut costs and improve operations and it’s just smart business!

One example of potential cost efficiencies is in opening new geographic markets, industries or specialties for your products. Often this activity requires specific knowledge and expertise as well as geographic and cultural background. Rather than hire and build that capability from the ground up, a venture can outsource sales to area specialists with a rich background in that market. This can dramatically improving time to first sale in these geographies and is more cost efficient to drive those sales, even though the actual cost of a sale might be higher due to the costs of these outsourcing provider. So why do this? It’s simple. You can penetrate this new market more quickly and effectively.

If your organization needs to rapidly scale an operation, like a call center, by leveraging outsourcing partners, you can up-size or downsize quickly with minimal impact to your business; this isn’t possible if the call center is owned and operated by your venture. Utilizing a vendor’s economies of scale, investment, and operational expertise, enables your venture to effectively get a better level of service and capability so that you can turn around and provide that high level of service back to your own customers. Note: This is normally for a price below your own current spending levels.

Your customers will appreciate the experience provided by the qualified and talented people working with them and your venture will save on direct payroll and investment expense as well as on indirect, hidden and additional organizational overhead expenses like management oversight. These types of indirect costs can eat into profits and often don’t contribute to driving profits for the venture.

For a venture, outsourcing can effectively and efficiently scale your resource base and add significant value to your organization. Outsourcing also enables your organization to devote more of your internal venture team’s time and energy to core competencies and knocks one more item off of your team’s seemingly endless “to do” list.

 

If you have any questions, please drop me a note. I’d be happy to provide you with advice and guidance. Please read and share all of my blogs at LeadingVentures.com.

About this blog – The goal of this blog is to share my experiences, to capture and reveal valuable insights, and to draw from my serial entrepreneur-ship through 7 ventures over the past 20 years. I have encountered many impressive entrepreneurs along the way and I hope to share our collective experience with you to help teach and perhaps motivate you to launch your own B2B or B2C enterprise.

© Jitin Agarwal – All rights reserved. This blog is property of Jitin Agarwal and leadingventures.com. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Jitin Agarwal and leadingventures.com with appropriate and specific direction to the original content. For this blog, in instances where other previously copyrighted content, trademarks or brand references are used and noted as such, the author disavows any ownership claim, trademark, copyright or intellectual property ownership of these items and they remain the property of their respective and original owners, their inclusion in this blog is merely for illustrative example purposes only.

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