Start-Ups

Think about outsourcing as an early stage startup

Outsourcing business processes to a third party can be a useful way to relieve some pressure on you as a founder. Here are some best practices for outsourcing in the early days.

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The office of Zendesk, a popular customer service platform.
Image: James Martin/CNET

Starting a business is difficult, there's no doubt about it. There are a number of pieces that must fit together — especially in the beginning — for it all to work.

Startups have short launchpads and high expectations. In order to lighten the yoke, many startup founders turn to outsourcing, letting a third party provider handle some aspects of the business.

In considering outsourcing as a potential option, you must first weigh the positive and negative impacts. Outsourcing frees up leadership to focus on the parts of the business that differentiate you from the competition, while staying assured that the basic parts are all still operating properly.

However, outsourcing can bring about problems. Giving another party power over part of your business, however mundane, is ceding control. Regardless of how much input you have, you are now no longer 100% in charge, but the same could be said of giving some control to board members when equity is exchanged for capital.

Outsourcing is a great option for some startups, but it can be confusing. Let's start with defining what outsourcing is.

What is outsourcing?

Outsourcing is the farming out of a business process or service to a third-party provider. For example, if a company wants to hire an accounting firm to handle all of its financial processes regarding taxes, it has outsourced that process to the firm.

That example is different from a traditional business approach, where a company would build out its own accounting division and handle the processes in-house. Outsourcing frees up some mental space for founders and can sometimes even save money.

"I think it is almost impossible to start something without outsourcing certain aspects of the business," said Brian O'Malley, a venture capitalist at Accel. "Not only can you move tasks off your plate, but many of these shops can perform the function better at a lower cost than you could do on your own."

Some businesses choose to forgo outsourcing in favor of offshoring — operating another office in a foreign country to handle a specific business process or multiple processes. After working with a few outsourcing agencies in India, Jessica Mah decided decided to offshore aspects of her accounting company, inDinero.

Her company has a 50-person office in Manila, the capital city of the Philippines, where the employees are directly employed by inDinero. Mah said that team members are included on the inDinero payroll, follow the dress code of inDinero t-shirts in an offical company office, and, most importantly, know the company culture.

"We also have our own recruiting team which allows us to be in full control over the speed at which we hire new employees," Mah said. "While the upfront costs and overhead of setting up an office are higher, the long term payoff is huge: quality is much higher than if we had gone with an outsourcing partner, and the operation is far more affordable too."

What should I outsource?

The key to understanding what you shouldn't outsource lies in understand what core business practices make your particular offering unique. Those aspects of the business should never be outsourced, as you need to be in complete control over them. For examples, Mah said, it wouldn't make sense for a company that prides itself on the perfect customer service experience to outsource customer service.

Once those critical functions have been set aside, you can start to delegate some of the remaining processes out to a third party.

"I would highly encourage startups to consider outsourcing all non-critical functions as early as possible," Mah said.

It is essential to understand what you will and what you will not be outsourcing, to understand what should rest totally in your control and what can be handled by someone else.

"You can either do everything, but not do anything particularly well," O'Malley said. "Or, you can focus on the most important aspects of the business - those areas where you can have a strategic advantage - and let others worry about the rest."

Many founders start their outsourcing in the back office, and there are a plethora of companies now that can help handle those things. Legal processes, accounting and taxes, customer service, payroll, benefits, human resources and recruiting are all commonly outsourced.

O'Malley, though, would contend that recruiting is one of the essential pieces for every company to keep in-house.

"Now, not all businesses win because of great technology, but most do win because of having great people," O'Malley said. "As an investor and board member, you can get help along the way finding good candidates or introducing recruiters, but ultimately the founders are responsible for building a great team and culture."

In addition to some of the standard, back-office practices, O'Malley said that outsourcing lead generation, public relations, and design can be good choices early on.

Talk to your advisors to determine what is essential and what can be outsourced. Once you have a list of processes to begin outsourcing, reach out to the founders around you to see how they went about it. Ask for reviews and recommendations of providers to try and determine which one best fits your needs.

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About Conner Forrest

Conner Forrest is a Senior Editor for TechRepublic. He covers enterprise technology and is interested in the convergence of tech and culture.

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