Why Outsourcing Is Startup Scaling’s Secret Weapon

Competitive Advantage

The top reason to outsource as you scale is because it levels the playing field — or even gives you the high ground. There’s no reason your startup company can’t compete on the same level (and the same standard of quality) as much larger enterprises. Businesses used to outsource primarily for financial reasons, but the new name of the game is “Disruptive Outsourcing.”

The idea is essentially this:

• Accelerate growth and increase the agility of your organization

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• Outsourcing services equipped with ‘disruptive’ emerging technologies (e.g., cloud computing, robotic process automation)

Deloitte’s 2018 global outsourcing survey of over 500 business executives shows disruptive outsourcing has outpaced traditional outsourcing (which focused on back-office improvements and personnel cost-control). New business and IT outsourcing solutions are:

• Ramping up speed to market
• Driving innovation
• Improving top-line growth

These competitive advantages are why 84% of the executives surveyed “have either initiated discussions, conducted pilots, or have implemented at least some disruptive solutions.”

Instant Expertise

Outsourcing can help with an overflow of work, sure, but even more important is it’s potential to address in-house skills gaps. Not every talented entrepreneur is also a talented marketing manager or CFO.

When you lack internal skills at your company, you’re not only creating inefficiency but also undertaking unnecessary risks. Small businesses are fined billions each year for incorrect payroll information, for example. If you don’t have the time or resources to coach up an in-house payroll staff, outsourcing to an expert protects your best interests.

And why spend time developing your own team, anyhow? You’re busy scaling an operation built on a core business that needs your total focus. If you spread yourself too thin by trying to remedy every skill deficit, you’re siphoning time that could be better spent on perfecting the product.

No matter what area you outsource, you know you’re handing it to a team of specialists who have put in the necessary work to attain expert proficiency. This is an instant upgrade. Over 60% of companies with 50 or more employees are doing this (or plan to).

Cost Reduction

Outsourcing has a lot of hidden cost savings. Payroll and benefits might come to mind first, but consider the reductions in office space, training costs, hours spent doing interviews or onboarding paperwork, and other overhead costs of full-time internal hires.

These savings free up additional capital to solve cash flow issues or reinvest in the growth of your company. How much you save will depend on your unique situation, but a 2017 Datamark whitepaper showed evidence that business process outsourcing saves 36-40% on costs compared to in-house work. To illustrate, it’s like finding more than a third of your income lost in the couch. Extra (free) money is critical to startup scaling success.

Resource Efficiency

Getting new people, new equipment, and new processes in place can slow progress. On the contrary, startup scaling should be all about moving faster.

Outsourcing can cut down on the time-consuming tasks (like round-the-clock customer service) requiring too large a percentage of your team’s already-divided time. You’ll also eliminate hours spent on project management or prolonged planning and review meetings — these things are up to your outsourcers now. Brief them on your needs, and they’ll handle the specifics.

Better yet, you’ll cut out non-productive (but necessary) hours spent on doctor’s appointments, lunch breaks, and vacation/sick time. Michele Hanson-O’Reggio, the founder of Biz Success Partner, suggests these gaps bring the real cost of a full-time employee almost to double their base salary.

You’re also loosening up internal resources for more efficient allocation. Employees that were once multitasking in several areas (with varying skill) can now put their focus entirely on the tasks best suited to their talents.

More Scalability

The first few phases of startup scaling are unpredictable, but growth is a must. And yet, hiring permanent employees early in the life of a growing company is a huge financial commitment you may not want to make.

The ebb and flow of market tides can send startup scaling into rough waters. For example, if your business is booming, then you might bring on a fleet of new hires. But when the storm settles and things regress towards the mean, you’ve got unsustainable payroll costs exceeding the percentage of revenue you’d like to devote towards personnel.

With outsourcing, you can pay as you go and increase your output without increasing fixed costs. Need more productivity for a big advertising push? Get an agency to handle it. Outsource customer service with a flexible contract so you can adjust up for peak quarters and down for lulls.

This way, you can set your own pace for growth and avoid the potential issues with committing to permanent internal hires.

Improved Focus

As legendary business consultant Peter Drucker was fond of saying:

“Do what you do best and outsource the rest!”— Peter Drucker

Your startup is centered on a golden egg: your core business idea. Without it, you would never have gotten this far. The early days were entirely focused around incubating this idea and developing a quality product that will conquer its target market.

The problem inherent in startup scaling is when you rev up the growth engine, your staff’s plates start piling up with increasingly diverse responsibilities. These other responsibilities will dilute your staff’s focus on the product that made the company great to begin with.

Cut down on competing priorities by relinquishing all batons that aren’t core to your business to outsourcers. When non-core tasks are delegated to outside providers, your team can keep doing what they do best.

Nike does this with its shoes. What makes Nike great has always been its innovative design talent — they conceptualize cutting edge footwear that tells a story. Therefore, the in-house company works on design and marketing while the manufacturing is outsourced.

Try using an SLA (service level agreement) to mitigate your risks and set clear expectations with your outsourcing providers. This way, no distractions can take your focus off the work that matters most.

Investor Interest

Finally, outsourcing is incredibly attractive to investors and VCs in today’s global economy. Yogen Dalal, a partner at Silicon Valley venture firm Mayfield, predicts 90% of all start-ups will have some level of international outsourcing connection within a few years. This, he says, is because VCs are increasingly looking for “micro-multinational” companies that outsource right from the start — not just after they’ve begun scaling up.

The notion is startups who outsource early are more agile and efficient, and thus more likely to succeed in the long run. Between reduced labor costs, increased productivity, and more flexible scalability, early adopters of outsourcing have a huge advantage in the scrum of 550,000 businesses that American entrepreneurs launch each month.

Any of these many benefits of outsourcing would be worth it. Altogether, it’s clear that outsourcing is an essential slice of the startup scaling pie.