Outsourcing is the act of one company contracting with another company to provide services that might otherwise be performed by in-house employees. – Wisegeek
The outsourcing that we see in the national news every week is what capitalists euphemistically call “creative destruction”. Multinationals close factories because a community on the other side of the world will do the same job for less pay. In the long run, this forces American workers to move to higher value jobs, but in the short run it causes very real social pain. Outsourcing is often a dirty word. But it doesn’t have to be.
At the small-business level, outsourcing is a key strategy to work with experts at lower cost and lower risk. When a company hires a law firm, they just outsourced their legal advice. When a company contracts with a web developer, they just outsourced their online tech. In many cases, a small company could never afford to bring such expertise in-house, and by contracting it, they can operate at a much higher level.
When we were starting Brode, we made all of the prototype Drinking Companions in-house (literally in my apartment). When it came time for the first production run, we investigated what it would mean to do the run ourselves, and what it would mean to outsource it. To do the run in-house we would need: an FDA compliant commercial space, professional blending equipment, a tablet compressor, printing equipment, AND employees with technical experience on the equipment. To outsource we would need to manage a contractor to make sure they made what we wanted–not always easy itself.
Needless to say, we hired a local contractor to make our production. You could say that we “rented” all the professional equipment and all the professional technicians to make our product, then gave them back when it was done. Compared to setting up a factory, it was a piece of cake. We got a pro-quality product at a fraction of the cost and risk.
Never outsource your core competency
You will read horror stories when it comes to outsourcing. There is one important tenet to keep in mind when you consider outsourcing: Is this vital to our brand? Is this one of our core competencies? Is this something that we can do better than everyone else? If so, you might want to keep it in house.
Outsourcing is a great way to let other experts sweat the details, and allow your company to focus on what it does best. So don’t outsource what you’re supposed to do best. If you are an author, you would never outsource your writing. If you are a restaurant, you would not want to outsource your cooking. If you were a web design firm, you would want to think long and hard about about outsourcing any of your tech. But on the flip-side, it would be ridiculous for a law firm to create their own website, and it would be crazy for a web design firm to try to manage their own legal documents.
Outsourcing can be critical to running a successful, lean business.
Things to consider outsourcing:
- accounting
- law
- visual branding, logos, and design
- website design
- hosting
- office IT
- production
- fulfillment
- warehousing
Headaches and pitfalls
If not managed properly, outsourcing can be stressful. The key word being managed. Because you outsource to a firm or individual who you may not see or talk to as often, having a strong relationship and crystal clear communication is vital to achieving a great result for both parties. It is important to set expectations, follow up routinely, and hold each other to high standards. If you put in the proper time and effort, outsourcing has the potential to give you greater results for less cost, allowing you to focus on whatever your business does best.
Marc Brodeur just wants everyone to be awesome. His first company, Brode, makes the Drinking Companion, a special vitamin that helps promote proper hydration and detox when drinking alcohol. Follow him on Twitter and Tumblr.
