Monday, February 24, 2020

6 Benefits of Outsourcing and Freelancing In Startups

PrintOne of the most stressful and unanticipated challenges that comes with starting a new business is hiring and managing employees. Many entrepreneurs I have mentored make big mistakes in this area, by hiring low-cost friends and family, with minimal skills or training, and expecting them to have the same work ethic, passion, and business knowledge as the founder.

A solution I often recommend, as least in early growth, is the use of outsourcing for critical tasks. While this approach appears to cost more on the surface, it often actually costs you less, when you consider the hidden costs of rework, poor customer satisfaction, employee management, and training required. As your business matures and stabilizes, regular employees make more sense.

I just finished a new book for entrepreneurs, “Secrets to a Successful Startup,” by Trevor Blake, which makes the same points, based on his own real-life experience with three successful startups. He outlines well the following benefits of outsourcing and freelancing, and I agree:

  1. Serving your business well is a competitive priority. With worldwide instant access to skills and alternatives via the Internet, I see a much more competitive and skilled remote workforce than ever before. Contract employees know they have to perform well or they will be quickly replaced. The terms are clear, and there is no entitlement to deal with.

    Of course, it still pays to consider the impact of cultural norms and languages, as well as time zones, particularly in areas that present your image to customers, such as customer service. Direct customer-facing non-technical roles should be the last ones outsourced.

  2. Outsourcing can give your startup a more mature image. Customers won’t know that vendors are not employees of your company. Outsource providers will adopt your company name when they interact with others, and their expertise can help you overcome the hesitation of some clients to do business with small and new businesses.

    For example, if I need help with product installation or customization, I don’t want to see someone who is clearly new to this role or inexperienced. Most freelancers are already experts and confident from previous assignments, and that image will help your business.

  3. You contract expertise rather than train employees. If you do your due diligence hiring job right, the contractors you outsource will already be trained in their jobs. with experience. Their career depends on keeping up their skills, and they must have the confidence to work unsupervised. Training takes time and energy you may not have yet.

    One of the first places that many entrepreneurs effectively use outsourcing, is in the initial hiring of key employees, and the execution of key Human Resources functions. HR is easily done on a contract basis, and may not be a full-time function for early businesses.

  4. Avoid employee-related expenses and management. By using contractors and vendors, you avoid all the expenses and regulations that come with employees, including career management, worker’s compensation, health insurance, and tax withholding. In addition, you can reduce to soft costs of mentoring, relationship building, and socializing.

    According to a recent MIT study, the true costs of employees are typically in the 1.25 to 1.4 times base salary range, not including space and equipment requirements. This goes a long way in covering any premium that you might pay for comparable freelancers.

  5. Freelancers are ready to go to work immediately. Outsourcing vendors hire, train, and manage their own employees, using their own human resources, performance, and appraisal systems. They need no office setup, since they have their own. By outsourcing to experienced staff, you can focus your time and energy on your business growth.

  6. You can easily adjust services to control cash-flow. Services vendors typically offer a menu of services, so you can select what you want when you need it. Outsourcing gives you the flexibility to add on or cut back services and volume according to demand, and meet your cash-flow management requirements. Startups all need that flexibility.

    Every new business finds it impossible to project growth and service needs, since they have no experience or history to guide them. In addition, they often find the need to pivot as they learn more out their customer needs and solution match to the market.

I recognize that there are potential negatives associated with outsourcing and freelancing, including threats to security and confidentiality, continuity issues, communication challenges, and impact on existing employee morale. Yet, in my experience, the pros far outweigh the cons in modern startups, so don’t let managing employees be the nemesis of your great new business.

Marty Zwilling

*** First published on on 02/07/2020 ***



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