It’s just smart business to seek out easier, better, and more cost effective methods of running your company. And in an economic down cycle, streamlining and cutting the fat is more important than ever.
For decades, the following age-old words of wisdom have been passed down to future generations of entrepreneurs and business owners: A penny saved is a penny earned. But an even smarter lesson may sound something like this, “If you own a small business and you aren’t outsourcing, you’re going to struggle during a recession.”
Outsourcing is considered controversial for a number of reasons, but primarily because it has an infamous reputation for transferring jobs from American soil to other countries. But the more pressing issue, for small business, is whether they can afford to compete with big business — and carry on the country’s entrepreneurial spirit — using only their home turf, especially when the cost of American talent is so expensive.
The sad truth is, unlike the all-American game of baseball, home turf is rarely an advantage when you’re running a small business.
Rules of Thumb for Beginners
Victor Cheng, a former McKinsey consultant and current president of Bookmercial Productions, has outsourced more than 100 projects, including clerical work, Web site development, Web research, data entry, telephone duties, basic-level writing, and customer service. “Anything a big guy can outsource, a little guy can too,” says Cheng, who has sent projects to India, Romania, Poland, Argentina, Mexico, Russia, and the Philippines.
Cheng’s first experience with outsourcing began just five years ago, when he posted an ad for a part time assistant to do clerical work. But he was located in San Francisco, and all the candidates wanted between $25 and $35 an hour. “So I hired a team in India,” he says. “They offered to do it for $2 an hour. They were thrilled, and so was I.”
Since that initial foray into outsourcing, Cheng has developed his four specific rules of thumb as to what a successful business can outsource:
1. Tasks performed on a computer, especially those that are repetitive, easy to learn, and boring.
2. Tasks conducted via telephone, which aren’t business-critical, such as customer service and simple telemarketing.
3. Jobs that don’t require face time with a customer or a physical presence.
4. Any activity that isn’t the reason customers buy from you. In other words, jobs where a “B” performance is good enough.
12 Specific Outsourcing Categories
Now that you have a general idea of the tasks that outside companies can perform for you, here are 13 specific job categories that can be outsourced by any business entity:
1. Bookkeeping, accounting, payroll processing, and taxes. You have to do it, says Cheng. “Your customers don’t care how you fill out your tax forms, so for most smaller businesses, just get someone else to do it for you.”
2. Web research and language translation. Jeff Rivera, author of Forever My Lady, uses outsourcing services to extract e-mail addresses from specific Web sites and determine the contact information of the people with whom he needs to speak. “I also use them for translation, not only for printing but also speaking.”
3. Human resources, employee benefits, workers’ compensation, medical insurance. “I’m a big fan of PEO (professional employer organization) for any business with more than a small handful of employees,” says Cheng. “It’s basically 400 small businesses combining their purchasing power to buy a medical insurance and 401(k) plan designed for a Fortune 500 company.” For a small fee, you save money, have fewer hassles, less paperwork, and better benefits. “And the whole service is essentially free, because it can be paid out of cost savings,” he adds.
4. Customer service. But only if your business is telephone- or e-mail-based and customer service isn’t core to your success, says Cheng.
5. Ghost receptionist. “Your first point of contact at your office can literally be anywhere in the world,” says Michael Corbett, chairman of the International Association of Outsourcing Professionals.
6. Invoicing, receivables, payables, and fulfillment. According to Cheng, if you own a business that ships products to customers, all of these tasks can and should be outsourced.
7. Telemarketing. “One of my clients, a commercial real estate agent, has hired a full-time overseas telemarketer at $1,000 a month to call businesses in his area and ask when their commercial leases expire,” says Cheng. “Then he can personally call on prospects whose leases will expire in six months or less.”
8. Web-based technology. This refers to outsourcing a Web site, its hosting and design. “Don’t buy software,” says Cheng, “buy software as an outsourced service. Buy QuickBooks online versus the QuickBooks software. Don’t buy back-up hard drives, buy outsource back-up storage from a company such as carbonite.com.”
9. General technology. Corbett, who helps his association members outsource effectively and uses outsourcing to perform many of his own daily business task, says, “Technology is not just the Web, but the equipment, phone systems, location, and remote hosting of much of a small business’s infrastructure.”
10. Manufacturing. “Big companies like Nike don’t manufacture anything anymore, they outsource it,” says Cheng. “I have multiple clients that outsource manufacturing for as little as $10,000 per order, which is well within reach of most small businesses.”
11. Marketing and sales. “If you’re a manufacturer that doesn’t know how to sell, you can outsource,” says Cheng. “Manufacturer reps are nothing more than freelance sales professionals who will sell your products to their clientèle.”
12. Public relations and media relations. “A lot of public relations are run through outsourcing,” says Jim Meadows, a partner in the Global Technology and Outsourcing Practice Group at Hunton & Williams. “If you look at the Fortune 1000 companies, they all maintain in-house media relations or PR departments to help spread their corporate message.” But small organizations should not be spending their internal dollars on these projects, advises Meadows, who has made a business of counseling clients on outsourcing.
13. Miscellaneous personal tasks. “I definitely outsource having my home office cleaned and organized,” says Rivera. “Who has time or interest to do all the menial things, such as making your bed or brushing your teeth when you can have someone do it for you? OK, that may be a little extreme. But it’s not too far from the truth.”
The Pros and Cons of Outsourcing
As effective as outsourcing can be to pull your small business up from its boot straps and into the leagues of big business, it is certainly not for everyone. There are benefits as well as costs with every portion of outsourcing you incorporate into your business. The number one benefit to outsourcing according to Corbett is its ability to free up your time as an owner to concentrate on more important things, like growing your business. There are so many little things to running a business that take your attention away, and while as individual tasks they may not seem like much, as a whole they probably take up a lot more time than you realize… and money!
While you are busy doing these menial tasks you are losing growth potential, clients, and sales. Progressive management, involves running a team of professionals who are good at certain aspects of a business to build on its efficiency, but if you hire even just one American professional, you are talking quite a drain on your net income, not to mention quarterly unemployment taxes. You can purchase overseas labor for somewhere around $4 an hour, free and clear of benefits, insurance, medical, or unemployment. This gives you an entire staff for the price of one in-house American employee.
With experience in helping hundreds of small businesses with his expertise as an outsourced advisory board member, Gary Patterson, CPA/MBA of Fiscal Doctor says, “Lets face it, most American’s don’t like typing data into spread sheets all day.” But overseas workers do. “In fact, they worship low value work because they can make more money and buy American goods,” says Patterson. From this standpoint, it could be said that outsourcing becomes a win-win situation for both the small business and American economy. Another thing that American workers don’t like is the reduced employee benefit plans that often goes along with working for a small business.
This handicap can be turned around according to Rob Wilson, President of Employco, a company who outsources HR to small business owners who cannot normally afford competitive employee packages similar to the Fortune 1000 companies. “Outsourcing allows the small business owner to offer a very competitive employee benefit plan at low cost that will also help with the recruiting and retention of employees.” says Wilson. There was a time when all the top ranked employees were instantly sucked into the large corporations at career fairs because of their very competitive benefits packages, but that no longer has to be the case.
Finding good help has always been an issue and outsourcing is no different. This will be one of your greatest challenges when using outsourcing. “Sometimes it takes a considerable amount of time to find someone who is not only reasonably priced, but also has the skill set to do the job to your level of expectation.” says Rivera. Patrick Clements, the CEO of BigWebApps, has used outsourcing in a variety of areas in his business, and he has just grown to expect the loss of time, comprehension, ethics, and “flakiness” that comes from using these sources. Sometimes it is not so much just a lack of comprehension and flakiness, as it is a barrier in language and pop culture.
“There is sometimes a serious language barrier, where Americans just get it more than someone from overseas,” says Rivera. “There are references and expressions of pop culture that some countries are unaware of and you just can’t explain it to them.” With a failure rate of one in every three projects hired out due to misunderstanding or inability to complete the entire task, Cheng compensates for this by hiring three different outsourcing companies and then picking the one that does the best job. “Even by doing this, the cost is still less than hiring in the US,” says Cheng.
Patterson reminds us that depending on your business, there are other reasons that can be discouraging when using outsourcing, such as the recent escalation of transportation costs. “In some cases the cost differential in favor of outsourcing has been canceled by the current cost of overseas transportation.” This brings up another point by Patterson, “What do you do if you have outsourced something for years and then need to bring it back into your company?” You will need to handle that function internally and many businesses are not capable unless they have the proper contingency plans in place, and most do not.
One of the greatest dangers in outsourcing a new and innovative idea, is it can be stolen by a copycat manufacturer. “Your intellectual property has almost no value in areas such as China,” says Patterson. “They will take your idea and within a matter of 30 to 60 days, it will no longer be just yours.” This of course happens anyway once many products are released, but time is of the essence. That several months lead time these copycat manufacturers gain, may just become the straw that breaks your camels back during your initial product release.
Outsourcing is no longer just for big business. There are areas of specialty work that can be outsourced by any size, shape, and income level of company. Playing with the BIG boys and girls has just gotten easier for the little guy or gal, just make sure you think your idea through to catch any of the initial unforeseen drawbacks. Outsourcing will give you a similar edge over other businesses that only the very large corporations once enjoyed, but don’t wait too long to get started. The early bird always gets the most worms!
Find Your Best Source
There are ways to minimize your risks and costs in outsourcing, and this can be most easily accomplished through a number of outsourcing rating Web sites that have come available as of recent years. “It’s kind of like an eBay for outsourcers,” says Cheng. “Their rating systems are pretty accurate, so if a company is not rated, I just won’t hire them.” Here are the sites in accordance to the type of specialty work you might be looking for:
- Technical computer, Web site design, programming, coding — Rent A Coder (rentacoder.com
- Non-technical computer, PowerPoint, Excel, freelance writing, accounting, marketing, graphic design — Elance (elance.com)
- Expert advice, business plans, CPAs, tax strategists, attorneys — Guru (guru.com)
- Personal assistants, appointment setters, booking — Get Friday (getfriday.com), Ask Sunday (asksunday.com)
(Photo via DEBATEitOUT.com, Article originally appeared in Growing Wealth Magazine)