As the founder of a consultancy that enables entrepreneurs to build better businesses, I've discovered many companies get "taken for a ride" by outsourcing relationships. To help my clients avoid such a bumpy journey, I've researched the ins and outs of outsourcing. The findings surprised me: Although outsourcers can help companies obtain expert advice for a lower cost than hiring in-house, there is often a downside.
The best reason to retain a third party is to gain expertise. Smart entrepreneurs know what they don't know and resist diluting their expertise by trying to know it all. Instead, they focus on their strengths and hire experts to offset their weaknesses.
But entrepreneurs too often make the following mistakes. They:
- Outsource before it's necessary.
- Contract with the wrong firm.
- Fail to specify deliverables clearly.
- Hang on to a poor match too long.
- Don't nurture the relationship.
Here are five tips to help you get outsourcing right:
#1 – Put Your Horse Before the Cart
Establish your strategic direction and goals before investing time and money in an outsourcer who will just follow orders. Think carefully about why you are outsourcing. What will outsourcing accomplish? If your software is in beta, you don't yet need an advertising agency.
One entrepreneur paid a law firm $50,000 to create her company on paper because she thought it would impress venture capitalists and protect her interests. Unfortunately, she hadn't laid out a plan for what she would sell and to which market. As you might guess, the paperwork didn't impress anyone and was a sad waste of her retirement savings. A more careful investigation of whether such paperwork might be necessary would have allowed her to use that hard-earned money more effectively.
#2 – Hire the Right Contractor
Ask questions to ensure you hire third parties who understand your business. What have they done in the past? What don't they know about this business? Who is going to do the work—a principal or an underling? For example, if you're outsourcing the construction of your Web site to a larger firm, the person building the site is probably not the person who sold you the services. Find out upfront who will actually perform the work.
Find the right person. Too often entrepreneurs retain vendors that don't have experience or contacts in their business field. You're looking for your sweet spot—a combination of personality and expertise that matches your needs. An outsourcing firm that cannot describe its weaknesses as well as its strengths likely won't work out. Be sure you understand what your outsource vendors can and cannot do for you.
Know what you need. If you need a specialist but hire an assistant, for example, don't expect your new assistant to rise to the occasion. A specialist must be able to quickly understand what you want or, if necessary, help you figure out what you need. If the specialist doesn't get it, move on.
Finally, trust your gut. Although referrals are helpful, you might sense that a contractor who worked out well for your friend just isn’t right for you.
#3 – Determine Deliverables
Your next step is to determine exactly what must be accomplished, what resources are needed and who will supply them, what the roadblocks are, and what the schedule will be. To ensure the relationship will pay off for your company, clarify these things upfront.
One entrepreneur blamed her publicist for taking thousands of dollars each month with no results. The publicist blamed the entrepreneur for failing to provide a press kit the publicist could use to make pitches. The contract should have specified the press kit as a deliverable, who was to supply it, and when.
Without the hard work of hashing out all the details, goals, expectations, and deliverables until both sides are in clear agreement, you might as well be on different planets. If contractors don’t know what you want, how can they deliver? If you don't know what contractors are promising, how can you know you'll get what you expect?
If on the other hand you've determined the deliverables with the right partner, things should work out quickly and smoothly. If you're unsure, try a test. I once tried out a copywriter for my coaching business. After a single session, it was obvious she was writing to a formula that did not make sense for me. So I kept searching, and once I found the right match, the results were powerful and immediate.
#4 – Cut Your Losses
Are you already in an outsourcing relationship in which you are experiencing any or all of the following?
- Little or no response to your questions.
- Few, if any results.
- Deliverables that aren't itemized.
- Reluctance to talk with your contractors.
- Uneasiness with the direction of the work.
If so, it's time to move on. Before you do, however, be sure to review your contractual commitments so the relationship doesn't result in even more lost time and additional trouble. (Month-to-month contracts help to mitigate this kind of difficulty.
After breaking free, evaluate what you learned. What missteps led to this predicament? Why did you invest $35,000 over six months and have so little to show for it? Did you put your cart first, hire the wrong vendor or fail to agree on deliverables? Evaluate your mistakes, so you don't repeat them.
#5 – Follow Golden Rule to the Gold
The success of any outsourcing relationship depends in large part on personal interaction, and it's up to you to set the tone. Treat your outsource expert as you would like to be treated. If you want to outsource to someone who is serious, then ask serious questions. If you want a contract, ask for one. If you want your calls taken, take your contractor's calls. If you want reasonable timelines, work them out with your contractor.
The best outsourcing relationships are open and honest. Treat your outsourcers as valuable members of your team. Provide them with the same information about your company's vision and ambitions that you would a high-level executive. Such inclusion will help them do a better job for you and even motivate them to do so. I treat my virtual assistant as a vice president. As a result, she has become a trusted adviser.
Remember, too, you get what you pay for. Outsourcing is not cheap, and it should never be free. If you're tempted to barter, think carefully about what you will get in return. Don't forget that paid work always takes precedence over free work.
Outsourced providers can be of real value to entrepreneurs by providing expertise a company doesn't have or taking over tasks unrelated to a company's primary objective of making and selling a unique product or service. Price is always a factor, but the essentials are expertise, quality, reliability, and service. Focus on those factors. Your contractors will deliver for your company and contribute to its growth.
© 2007 Ewing Marion Kauffman Foundation. All rights reserved.
Kathleen B. Schulweis Founder and CEO Confidence Connections™