If I have heard it once, I have heard it a thousand times, “I should have done this five years ago … a year ago … when I first started my business” … and everything in between. Why is it that we postpone the inevitable and then kick ourselves for not having done it sooner? It’s the curse of every business owner and entrepreneur in America. We have a hard time letting go until it starts to hurt us if we don’t. While hindsight is 20/20, foresight is worth its weight in growth. Truly savvy entrepreneurs know that anticipating and proactively planning for “letting go” is how real progress with no pain happens.
When it comes to expanding your business’ capacity to serve your customer, bringing in the right resources to fulfill the needs that must be served is critical to growing the business from the inside out. Looking at the current resources you are using to make sure they really are at capacity is also an important inventory to take in your business. The problem is most business owners only look at the money side of the capacity expansion when there are other resources which must be considered in order to make the best decision for the company. Whether you are considering hiring talent inside or hiring a service to supplement your needs, you should still look at all of the resources in your business in order to make a decision that strategically takes into consideration the short and long term repercussions.
Before you can even begin to gauge and weigh the pluses and minuses of expanding capacity by subcontracting or outsourcing, you must take yourself beyond the money that it will cost. If you only look at what you will pay a new employee, provider or vendor, you are making a decision that is not taking all factors into consideration. Where many business owners get stuck is in not recognizing the other three resources in their business. These other resources are: People, Technology, and Time. By looking at the areas of time, people, technology, in addition to finances, a business owner can better assess whether hiring in or outsourcing is essential to effectiveness and growth. Most important, it will also help you determine if you are looking for a quick-fix or something that will truly be the best interest of the company for the long term.
The first question you must ask yourself is why you think you need to hire or outsource to begin with. Outsourcing or considering a new employee is typically being considered because 1) there is a pain being felt affecting delivery to the customer; 2) something in the company is not flowing as efficiently or effectively as desired and there is no-one within the company with the expertise or time to focus to take corrective action; or 3) something is too time-consuming, yet necessary, taking the internal focus away from where the company’s core competencies and profits are generated. If one of these is proving to be the case, then you need to look at each of your four critical business resources and weigh how they are affected or perhaps not being used as effectively.
Time: The factor of time and how it could be better spent is something that is continuously overlooked, especially in a younger business. The owner tends to wear all the hats, not realizing that some of the hats could be worn by another resource freeing them up to do what they are in business to do in the first place. A business should constantly assess what each person in the company’s time is worth and how it is best spent within the company, specifically as it relates to income-generating activity. For instance, a lawyer who billed $200 an hour was hesitating outsourcing some administrative functions, which could not be billed. Once pushed to outsource, she was amazed at how her billable dollars increased literally overnight once she weighed what her time was worth compared to the cost of outsourcing functions that were essential to running her practice, but were taking her away from what clients wanted her to be doing. In addition, the administrator she hired was also able to support her in research and lower-dollar-per-hour billable functions, resulting in the person paying for herself as the attorney continued to consistently bill at the highest per hour rate. So, how is time taking you or others in your company away from income-generating activity, and could outsourcing these functions be a smart decision?
People: Taking an objective and broader look at the people currently in the organization doing the work is another resource to assess when determining to outsource or hire in support. Are they equipped and capable of doing a particular task to the level required to safeguard the company’s best interests? Two areas in which companies tend to hold on to too long are the areas of accounting and payroll processing. Any function within the company where there can be potential legal ramifications should be scrutinized thoroughly as a potential outsource where a third party could bring knowledge, assurance, and experience to the table that could not be achieved in-house. Another question to ask is do you really need to hire a particular role into the company on your payroll? Is it more of a temporary or part-time pain that is being felt that could be better served by outsourcing versus bringing another in-house person on board?
Technology: Most businesses underutilize their technology, which could be a huge source of efficiency and effectiveness for getting a particular aspect of the business done internally before moving toward outsourcing. Taking a look at how technology can ease a particular pain, improve productivity, initiate activity, or minimize steps may potentially uncover an opportunity to improve internally without outsourcing. However, identifying the functionality and productivity of your technology may require bringing an expert in to assess and determine the best use of your technology for what you need it to do. A high-end retail cookery boutique business owner was inundated as a result of her high demand and interest in the boutiques chef-led cooking classes. Classes were booking two months in advance with demand for more to be added. It was consuming her time in managing what was already on the calendar, so she was concerned how she would manage a doubled class-load of offerings. One thought was to hire in an assistant to respond and process the inquiries, registrations, and follow-ups. The better solution was to use technology to do the work for her. Her website was programmed with everything from processing registrations, to auto-response high touch confirmations, reminders, and alerts to upcoming classes. She got her time back to focus on other aspects of her business and there was no need to hire in another person for that particular function.
Finances: When looking at the cost of outsourcing, a business must also take an accurate look at the cost of keeping things in-house. What is the business losing in profits or income generation as a result of trying to do everything or a particular aspect in-house? How much will outsourcing enable the business to increase income or profits by delegating that particular function to another source? Analyzing and projecting based on this perspective offers a more realistic view of whether outsourcing makes sense from a financial perspective. Another aspect a business owner oftentimes falls short is in effectively planning for growth based on projected sales figures. If you simply are stating you want a 25% growth and have not backed into what this means in capacity, you will find yourself reacting to growth versus staying one step ahead of it. Your sales figures should be broken down into real numbers attached to who it will take to achieve these numbers without service or the ability to deliver being jeopardized.
When considering to outsource versus hiring an employee, it should be viewed as an extension of your company both from an operational and a service standpoint . Therefore, once you have determined that an area of the business is to be outsourced, the following should be considered in making your vendor or service provider selection:
Quality: Does the vendor or provider have what it takes to produce the quality according to your expectations and standards? Are these expectations clearly defined and understood from the onset?
Ability: Do they bring a competency that your company does not have or cannot do consistently? Will they enhance your operations through this ability and what will it mean for your company in the short and long-term?
Efficiency: Will bringing them on board result in your company being more efficient? Will they bring more efficiency to your business through their methods, processes, and experience?
Effectiveness: Will they make your company more effective in other areas as a result of letting go in the outsourced area?
Compatibility: Do they share the same values and philosophy in how their business is run? Are they interested and concerned about the way you run your business and the role they play in the big picture and its vision?
Finally deciding not to wear all the hats can be a business’ greatest strategy for effective growth and maintaining fluid operations during demanding times. Making the decision to hire or outsource is one that should be considered at every stage of a business, before it is something that “should have been done.” The key is doing it the right way for the right reasons and staying ahead of the curve.