The Outsourcing Imperative

By Guest Authors Richard Hooker and Steve Monas

[In this series, Richard and Steve use excerpts from their book “Shoestring Venture: The Startup Bible” to explain why even startups on shoestring budgets should outsource some of their business functions.]

We live in a brave new world in which all the tools to build a full-scale enterprise are at the fingertips of anyone with a business idea — without ever having to walk out their front door. Although outsourcing allows entrepreneurs and small businesses to focus on what they do best, building a virtual organization involves complex and difficult capabilities. In this excerpt from our book, “Shoestring Venture: The Startup Bible”, we outline the outsourcing imperative, why every startup must develop the capabilities to efficently outsource many of their business functions from day one:

In the MBA world, they call “what you do best” your core competencies. Large corporations understand that they succeed by doing what they do best and letting other folks, like suppliers or vendors, do the other stuff. For instance, most hotel chains do not actually own their hotels. Why? Any moron can own a hotel. The owning part is easy; it doesn’t take tons of talent or business acumen. In fact, it doesn’t even take ounces of talent or business acumen. In the hotel business, the hard part is a) figuring out the best places to locate hotels; b) cutting favorable real estate deals; c) managing the construction of the hotel; and d) administering and marketing the hotel. Being able to do these things better than everyone else is what makes one hotel chain more successful than others. But owning the hotels … no hotel chain is “better” at owning hotels than any other hotel chain. So they often don’t waste their time on the owning part of the hotel business. This frees them up for the business activities that make the big bucks.

The same applies to building the hotel’s Web site. Hotel chains do not build Web sites better than other hotel chains, so they pay someone else to build their Web sites. What hotel chains do well is use their Web sites to find and build a loyal customer base. So they spend their valuable time and money trying to do that better than any other hotel chain. The better a hotel chain is at filling hotels through their Web sites, the more they “beat” their competition. But actually designing, coding, and programming the site? No hotel can “beat” other hotels by designing, coding, or programming their Web site.

Just because you’re a small business venture on a shoestring budget doesn’t mean that you, too, shouldn’t focus exclusively on your core competencies in order to gain a competitive advantage. In fact, because you’re a small business venture on a shoestring budget, you must focus exclusively on your core competencies to gain a competitive advantage. And you must outsource the rest. You have neither the time nor money to waste performing activities – or develop the internal capabilities — that others can do just as well as you can at a fraction of the cost.

The reality is this: the more time you spend doing tasks related to what you do best, the more competitive your business will be and the more likely your venture will succeed. The more time you spend doing tasks that you’re not good at, like bookkeeping, HTML, or word processing, the less competitive your business will be and the less likely your venture will take off. It’s a simple principle that doesn’t take a $60,000 MBA degree to figure out.

But what should you outsource?

 Well, you can sit down with your business and determine all the activities that need to be performed in order for your business to succeed. You then look at this list of activities and determine where your time and effort will maximize your business’ success. You outsource the rest.

And that is the subject for another day…