Why Outsourcing Is a Smart Solution for Scale Ups
Updated: Apr 11
It’s ironic that the San Fernando Valley Business Journal featured me (see article “Scale-Up Consultant”) in a recent issue where the opening paragraph read “Management consultant, coach and advisor Jonathan Goldhill is a living contradiction — he’s the founder and leader of the Goldhill Group and yet he is the only person in the group.” And, there’s a secret reason why I’m the only person in the group. Read on…
I know that successfully scaling your business requires talent and expertise to grow revenue without increasing costs correspondingly. So, like many other companies, smart outsourcing is the best way to scale up your revenues without scaling up your expenses.
The biggest challenge to scaling up your business is finding the personnel to grow your operation without sinking all your new revenue into that growth. One of the most important realizations successful business leaders make is that they don’t have to do it on their own. For many companies, the key to growth is recognizing which tasks are best done in-house, and which ones are better to outsource to experts.
PricewaterhouseCoopers reported that 68 percent of American consumer products companies outsource some portion of their workforce. What can smaller businesses learn from these companies? A deep dive into their outsourcing practices shows that they focus on specific objectives. In many cases, the goal of outsourcing is not to displace existing employees, but to make sure essential functions are handled in the most efficient way possible.
Is it a core competency?
Consumer products companies aren’t the only organizations that understand the benefits of outsourcing. Most startups owe their very existence to it. Their priority is to scale, where they add revenue at a faster rate than they incur new costs. Both groups rely on understanding and exploiting their core competencies to do that.
Core competencies are an organization’s defining characteristics, the things that make a business stand out from the competition. A core competency must:
● Provide superior value or benefits to the consumer.
● Be difficult for your competitors to imitate or replicate it.
● Be rare.
You’ve built your company on these competencies; they’re the things you’re best at. But that means you are not necessarily best at other areas of the business. You may not have a person on staff with great accounting expertise, for example, so it might make sense to outsource your accounting rather than try to hire an accountant full time.
Not only does outsourcing these tasks save money, but it also frees up your other employees to focus on the things that matter to your business’s success.
Startups have a finite and precious amount of financial resources. So, they often outsource operational roles like human resources, IT services, and even accounting or financial functions. It’s not uncommon for startups to go without a CFO and outsource the entire function to a highly skilled professional for the fractional time their assistance is needed.
Some companies are even outsourcing their CMO role, which has the added benefit of allowing them to change marketing leaders and philosophies as new business needs arise.
It’s certainly necessary, but do you consider payroll to be a core competency – a rare characteristic that sets you apart from competitors? About a third of all employers doing their own payroll make errors, resulting in an average yearly $845 IRS penalties for a small business. Outsourcing the function frees up time and resources you can use to innovate, and it allows you to work with professionals who will use the latest technology to perform tasks better than you can.
IT services for an organization of any size can be expensive. It’s probably not a rare characteristic that differentiates you from competitors unless you are actually in the business of providing IT services. Outsourcing IT management converts capital expenses into operating expenses. Organizations report saving as much as 40 percent – financial resources they can use to invest in innovation and growth. Competition by providers means that you can expect your IT services vendor to be proactive and offer you an optimal return on your investment. You minimize your risk while increasing flexibility.
Where outsourcing makes the most sense
If you don’t already know have the expertise in house, you also run the risk of making a bad hire by trying to bring someone with those skills into a full-time role. By the time you factor onboarding expenses, recruiting efforts, and the drain on productivity, the average cost of a bad hire can be 30 percent of that individual’s annual earnings. It makes literal dollars, and sense, to remove the risk of a mis-hire by working with an outsourced provider that has proven expertise.
In most cases, there are demonstrable cost savings associated with outsourcing. Below are just a few of the many examples. And, truth be told, I have used most of them and currently use several of them to support me in my business:
Customer support and service
Marketing – design, research, online and offline presence, reputation management
Content writing, blogging
Lead generation, i.e., appointment setting
All accounting and finance functions e.g., CFO, Controller, A/R, A/P
Facilities management – operations
Supply chain management – third party logistics firms
IT Services – Computer hardware and software maintenance
Legal and professional services
Oh, and of course, I almost forgot to mention what I do on an outsourced basis for my clients:
Leadership team coaching and facilitation of strategic planning meetings
If it’s not what you do best, and it doesn’t show a clear contribution to your bottom line, that function should be one you consider outsourcing. Certain functions, like IT services, are expensive and the cost continues to grow.
Outsourcing isn’t just about saving money. It’s a practice that allows you to access expertise and efficiency beyond your company. It may cost less, but it’s more about using your available resources to foster growth and innovation. That’s a better return on your investment.
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