Outsourcing for a startup: magic wand or great harm

Efficiency. Productivity. Savings. Flexibility. Easier scaling. But, as a young company, should you always go for outsourcing, when you lack expertise and talent? The obvious solution, however, not so obvious consequences.

For those who start thinking about outsourcing for a startup, here are common advantages that might turn out to be a wolf in sheep’s clothing. But this problem is easily cured by thorough planning and risk management.

1. Cost reduction. BUT:

Think about all the transaction costs, bureaucracy, and termination costs. 

To avoid hidden costs it’s better to conclude a detailed contract. And, yes, they are more pricey to prepare. 

Do not forget about privacy and intellectual property issues.

2. Flexibility. BUT:

Outsourcing might decrease a company’s flexibility through long-term contracts because it’s more beneficial for their business, not always yours.

3. Focus on core activities. BUT:

You might even get the reverse outcome. It is tempting to do less by yourself. «Why should I learn something new or develop my current skills? I have a professional agency!» 

Please, keep in mind the need of quite close interaction with a provider. As well as control, that everything is going on the desired and planned way.

4. Expertise from a supplier. BUT:
An outsourced vendor has many other clients and might fail to focus on your and your customers’ unique needs.

5. Guaranteed quality. BUT:
If you want a thing done well, do it yourself. Outsourcing means you do not control the process, you are at risk that the results might differ from the expected.

How to get the benefits and minimize the risk

May be alternatives are better for you

Outsourcing might just not suit your business. Think about, for instance, outstaffing or full-time employees.

DIGIS schme to decide whether alternatives are better for you thatn outcourcing

Be a strategic ninja

Make a separate strategy for outsourcing and integrate it with the startup’s overall strategy. Consider risks, long-term influence on your business, possible outcomes, what results you expect from outsourcing, etc.

Choose your unique objective for outsourcing. Cost-effectiveness does not work for every startup. Example: to gain a competitive edge.

Identify your core competence and do not share it with a supplier

Otherwise, you are at risk to lose your competitiveness. Core activities are actually the reason for the company’s existence. The processes through which you provide customer value. 

Activities directly connected with the core activity are also risky to be delegated.

Example. It’s OK for a marketing agency to outsource accounting, legal staff. But it is risky to outsource, let’s say, SMM. It is not necessarily the case, just to explain.

Devote enough time to choosing an appropriate supplier

Price is not the first you should pay attention to.

Reputation is probably the most important. Quality and delivery reliability are included.

Resembling companies’ cultures. It is a key element for effective cooperation and communication. To understand the provider’s culture, take a deep look at its decision-making procedures.

Talk with your provider

When choosing an off-shore outsourcing company, give heed to the number of English speakers in the team.

Clearly explain your goals and what you expect to receive. Proceed with maintaining communication. So that at each stage of the process you will be convinced that everything is going properly.

Source: Halmstad University.

To sum up, the benefits of outsourcing largely depend on how the risks are managed. You should put effort to find YOUR supplier, who is cooperative, with a similar culture, and is ready to share your passion.

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