Wednesday, June 18, 2014

10 Key Outsourcing Mistakes Made By Entrepreneurs

outsourcing-business-entrepreneurThese days, it is almost impossible to find a small business where everything is done at the home location, by full-time employees. We are in the age of outsourcing, by any of many popular names, including subcontracting, freelancing, and virtual assistants. These approaches allow your startup to grow more rapidly, save costs, but costly mistakes can lead to business failure.

There are many books written on this subject, but a recent one by Chris Ducker, “Virtual Freedom,” manages to pack a lot more practical guidance into a small space that many others I have seen. He is regarded by many as the number-one authority on virtual staffing and personal outsourcing, and is himself a successful entrepreneur based in the Philippines.

I was impressed with his summary of the top ten outsourcing mistakes made by entrepreneurs, followed by real guidance on how they can and should be avoided. In terms of quotes I hear too often, here is my interpretation of his most common mistakes, which every entrepreneur should avoid at all costs, before these assume that outsourcing will be their salvation:

  1. “With outsourcing, we won’t need many managers.” Contractors and freelancers, like any other business, manage their own internal processes, but they can’t manage your business. Don’t over-manage remote workers, but don’t expect them to manage your business. Hire and train your own managers for internal and external work projects.

  2. “With the high-speed Internet, our workers can be anywhere in the world.” Labor rates are lower in some countries, but culture and language match are the real keys to productivity. Countries near you may be in the same time zone for easy communication, but lack the skills you need. As with real estate, it’s still about location, location, location.

  3. “Let’s cut costs by outsourcing all from this point forward.” Some entrepreneurs get outsource-happy to save costs and begin outsourcing everything and anything that lands on their desks. Ideal outsourced tasks are outside your core competency, can be specified in detail, and managed with quantified deliverables and checkpoints.

  4. “Fixed price bidding is the only effective outsourcing model.” Getting a fixed price bid works for well-defined short-term projects, like blogging or programming. But trying to use it on call centers, affiliate marketing, or even data entry probably won’t be effective. Do your research with peers, and check the alternatives on every project. Be flexible.

  5. “Fair compensation is the lowest price we can negotiate.” Outsourcing won’t work if you don’t keep the virtual team happy. Unhappy workers will do a poor job, so cheap is not a good deal. Fair compensation is normally something higher than the market price at the outsourcing location, but lower than you would have to pay in your location.

  6. “I expect everyone working for me to adopt my culture.” The outsourcing team will always try to adapt to your situation, but success depends on their cultural work ethics, time constraints, social status, language quirks, and an overall attitude. Adapting to culture goes both ways, and training is the key. Recognize and embrace differences.

  7. “Current workers will manage the outsourcing as I grow.” Don’t set up outsourced projects under a professional who doesn’t want to manage, or is simply unavailable to the different work hours, or insensitive to cultural differences. Virtual teams need a lot of stability and structure, extra communication, standard protocols, and contingency plans.

  8. “My IT budget will go down as remote users use their own tools.” When you sign up remote workers, you’ll start to rely heavily on collaborative tools, Internet bandwidth, and new data security tools. You will need to invest more in training your own team, and increase your capital budget for new hardware and software. Don’t get caught off guard.

  9. “Utilization and personal growth of virtual employees is not my problem.” Some entrepreneurs view their outsourced employees as temps, or as a cheap way to staff the company during its startup phase. You should never hire internal or external staff based solely on what they can do now. Bored and unmotivated teams are never cost-effective.

  10. “I’ll outsource software development, since I don’t understand it.” Entrepreneurs need to know every component of their business at a management level, or have a cofounder who does. Relying totally on a virtual team implies they are managing your company, not you. If you don’t know where you are going, you probably won’t get there.

In summary, an entrepreneur should never approach outsourcing as an inexpensive and easy method of offloading work. With modern technology, and worldwide reach, it should be seen as an important tool for building an efficient, lean, and competitive business, optimized to give you more time for strategic focus.

As every entrepreneur quickly learns, their time is a scarce resource, and it can’t be outsourced. To grow the business, every entrepreneur needs to spend more time working on the business, rather than in the business. How many hours a day are you working on your company? Maybe it’s time for some smart outsourcing.

Marty Zwilling


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