Startup 2020: Step 9, Outsource Ancillary Functions
This is the ninth article in a series on how to start a company in 2020. See the previous article, Create Name and Branding Strategy. Apologies for the delay between posts, I have been caught up in the COVID Craziness and helping startups put out fires.
“The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles.” ~ Azim Premji, Indian business tycoon and philanthropist
As a startup, just about everything you need to develop your product and launch your company can be outsourced. The rule of thumb is to outsource every function that is not a core competency and not absolutely required to be performed in-house. This includes engineering, manufacturing, testing, packaging, shipping, project management, design, quality assurance, customer service, payment processing, payroll, accounting, legal, marketing, public relations, and hosting. The most cost-effective strategy is to be a virtual company for as long as you can.
One of the biggest mistakes startups make is spending too much money on office space and too much time on general and administrative functions. The most critical function of a startup company is to serve the customer and to continually adjust the product offering as needed to profit from the relationship. Never outsource your company’s relationship with the customer. Outsource all the ancillary functions needed to deliver your product to the customer and operate the business.
Things to Think About and Decide
First, think about every mission-critical function that needs to be performed to bring your product to market.
Second, decide which functions (core competencies) should be performed in-house and which functions should be outsourced for the next 12-18 months.
Third, think about who you know that can perform outsourced functions, or who can introduce you to reputable partners and suppliers.
Fourth, think about which suppliers might provide discounts or accept equity or a combination of cash and equity to you as a startup.
Things to Do (or not)
- List the key functions that you will need to launch and operate your offering for 12 months.
- Rate each function on a scale of 1 to 10 as to whether it should be outsourced with 1 being “outsourced” and with 10 being “in-house,” and also rate the importance of each item to the success of the business with 10 being “most important.”
- Draft a one to five-page request for proposal (“RFP”) to identify vendors for the most important functions that you need to outsource over the next 3-6 months.
- Send the RFP to at least three target vendors and post information from the RFP to appropriate online vendor markets and forums.
- Negotiate with each appropriate vendor for reduced startup pricing by offering barter, referrals, deferred payment, equity or any other vehicle.
- Set up a vendor review system to regularly measure the results they provided, particularly as it relates to delivering on time, on budget, and according to specification.
Recommended Readings & Resources
How to Build a Better Business with Outsourcing Entrepreneur Magazine
Top 10 Tips for Outsourcing Success About.com
Stay tuned for Step 10, Draft Guerrilla Marketing and Sales Plan