Category: Outsourcing

In the previous article, we discussed trust, quality and cost. In this part, we will dive into more serious risks that can affect your outsourcing strategy.

Finding the right people to outsource:  While doing a comparative study of providers from various regions and outsourcing platforms, may give you a fairly good idea of the market and its price mechanisms… there is no guarantee that you will end up recruiting the right outsourcing agency or freelancer. Choosing from a lot of options and weighing different criteria is still a difficult task. You may seek advice from your fellow entrepreneurs or your account manager at the outsourcing platform. Here are a few tips

• Narrow down the skill sets and experience to your exact requirements
• Check if the freelancer is available as per your schedule
• Check the project completion rate, feedback and reviews. Many freelancers are in the habit of leaving small projects in the middle in favour of a big project.
• Check if the agency or freelancer is resorting under-pricing or over-pricing
• Is the freelancer trying to sell other services to you?

Control :   You can control things at your end, but controlling the other end is not possible most of the time. If your company relies on proprietary technologies and intellectual property, you better not to outsource your precious development work or data. This is really important if your product is purely a digital one. The best thing you can do is to divide the task into several sub-tasks and get them done by different agencies. But this requires some extra managerial and technical skills from your part. Or you can try to forge a partnership with your technology developer. In most cases, this is not such a big issue and is easily manageable.

Communication: It is the most important part of any successful project. Not only the project details need to be thoroughly understood by both parties, but also the required prototypes are developed in order to avoid failures. If both parties speak the same language and have the same understanding about the requirements, it is an ideal situation. But it is not always possible. The idea behind outsourcing is to obtain the best possible service at the lowest possible price, so you will have to work with agencies from different regions. In such cases, it is always a good idea to engage with a translator while dealing with agencies speaking other languages and establish a common terminology to make sure that nothing is lost in the translation. Similarly, for culture related issues, you can give some good examples of your culture and seek similar information from the other end. This is particularly important to know about working hours and holidays that the freelancer or agency observes.

If all this seems a bit intimidating to you, seek help from your fellow entrepreneurs or forums. These are not any regular issues that happen with every entrepreneur. These are only occasional problems that surface when you didn’t put enough thought. You just need to be aware of these risks and have a plan in place to deal if such situations arise.

Outsourcing, by nature is a low-risk and high reward transaction, only if you planned it after a careful thought and investigation. It’s a low risk one because you can always test with a small order and seek samples before you outsource to a vendor. If you are using well known outsourcing and product sourcing platforms, you can look at reviews and ratings before you can recruit your partner. Companies have varying experiences from their outsourcing endeavours, ranging from dreary disappointments to outstanding success. You may be inclined to believe what you wanted to hear, but here are the few factors that you can use to refine your decision to outsource or not

Trust: Like any other business transaction or relation, trust is a major factor when you want to outsource. The outsourcing agency may be highly competent, but if you cannot create an environment of trust and mutual respect, you may not be going too far with your partner. This applies to your agency partner as well, if they couldn’t win your trust, you better look at alternatives. Trust is beyond signed agreements, because you and your outsourcing agency are operating from different geographical areas under different regulatory authorities. It’s very important to talk to your partners and find out if they are what you are really needed. If yes, try to understand them better and find out how you can create a good relationship with them.

Quality:  Quality is often the most discussed part in the outsourcing business, because this is something that comes into picture only after you have commissioned a project got some output. Many times, quality is hard to define. It could be because you have an idea, but don’t have the vocabulary to describe your idea. You feel it, but you can’t define it. Even if you define, it is possible that you are unable to convey it to the other party, or it is lost in the translation. This is where you need to list out similar products and write down your ideas to the last detail. It is your responsibility that the developer at the other end is able to understand what you are trying to say. Some outsourcing projects fail simply because everybody seems to have understood what they need to do as per their last conversation, but no one cared to put down their thoughts and imagery on to a paper and shared it to the other party to confirm if it is what they really meant!

The downside of it is that quality is expensive in most cases. You can’t expect top quality output at the meagre prices you are willing to pay, even with outsourcing. So, you have to find a reasonable trade-off between what you pay and the quality you are expecting

Cost:  Cost is the obvious reason why many choose outsourcing.  The direct cost benefits produce the real value only if the desired business goals are achieved. If projects ran for a long-time or the desired output is not produced, your outsourcing is not generating you the value. There are a lot of factors you can take into consideration. Do a comparative study of service providers from different regions. Look at their price variations and guess what the defining factors for their pricing are. Mostly it’s the experience, expertise, success rate, in-demand skills and communication skills that determine the price of a service. The origin of service is also a huge factor, because freelancers from some countries come at a cheap price because of their living standards. You have to compare the skills of freelancers from different regions and see the variations in their hourly wages to choose the right talent at the desired price.

In the next part, we will discuss about some more risks…

While cost reduction is an obvious benefit, it should not be the primary concern to you as an entrepreneur. Many startups suffer from lack of resources for various business functions and skills gap. An entrepreneur needs to look at filling those gaps with talent from outside agencies for a limited time during the growth period. Let’s look some benefits of outsourcing

Talent from anywhere: You can find talented freelancers that can do any business related work. Several peripheral tasks such as graphic designing, branding kits, digital marketing, website development etc can be outsourced. Hiring permanent staff for such short term or one-time work doesn’t make any sense. You need to analyse the remaining functions related to your core business and create a plan about what can be outsourced, when and where to outsource. Among the ongoing business activities, you can probably outsource the marketing, bookkeeping, accounting, support etc. This strategy lets you concentrate on your core business and activities. You need to carefully weigh your options such as training some of your staff, hiring new staff and outsourcing.

Simple and Flexible: Outsourcing is quite simple and flexible once you got to know about how it works and where you need to look for outsourcing partners. There are neither long term commitments nor huge orders that could prove to be a burden. Remember not to get into long-term relations with any outsourcing agency. Always break your work into smaller and manageable tasks and commission work only when required. You need to be agile and fast while defining your priorities. When it is required to scale, you can depend on your experience with one vendor to start with a new vendor. This way you can have a good number of suppliers ready to help you grow, and you can negotiate better and better.

Low-risk: There is no better method than outsourcing if you want to test your ideas or build something to see if it works or not. If you want to gather data via surveys, or need data for research, want to build an MVP, build a prototype, or check if there is a technology to support your ideas or product testing, taking help from freelancers will save you a lot of cost while giving immediate results to you. You can discard your ideas without the need to invest a lot into them. As a startup you can relate to this quite well.

Fresh perspectives: sometimes, you may even get useful insights which you never knew before, from your outsourcing agency, if you choose the right one.   Agencies that did a lot of similar projects may have a few things to share with you, which could enhance your product offering or improve your business processes.

Outsourcing models: There are several methods of outsourcing, and you can negotiate for the one that is most convenient to you. Some examples are setting up, offshore development centre, hiring entire remote teams, hiring on hourly or monthly basis, profit sharing basis, joint ventures, on project basis etc. There is every chance to minimize your risk to the lowest possible level while attracting the best talent to your business. You need to be aware that labour laws differ from country to country, and you have to stay away from such complications by negotiating for the best hiring model with your outsourcing agency.

As you can see the aim of outsourcing should be accessing the best talent, reducing costs, minimizing your risks and concentrating on your core business. You should plan your outsourcing activity accordingly.

We are into a global economy and companies can source products and services from wherever they found it to be cost-effective and efficient. The major reason behind this outsourcing is cost-reduction. If major companies are outsourcing their work, startups can definitely consider this option to increase business and cost efficiency in their early stages. Thanks to outsourcing platforms like Fiverr and Upwork, startups can employ top talent from any corner of the world.  Outsourcing can play a big role in startups.

Sometimes, cost reduction may not be the main concern for startups. Many startups struggle to find the required talent in their neighbourhood and short on manpower for some essential functions such as HR, accounting etc. Other times it’s the inability of startups to scale up according to the demand or requirements that makes outsourcing to be an attractive option. It needs to be understood that outsourcing by larger companies is a bit different from outsourcing by startups. Larger enterprises primarily look for reducing costs of redundant work or occasional excessive work. They don’t generally outsource their core business work. Large businesses have comfortably protected intellectual property and data. Entrepreneurs, due to the lack of internal resources, often faced with the risk of divulging their core business models and data to their outsourcing agencies. There are ways to mitigate such concerns if the entrepreneur do some homework and get answers to the following questions.

1. Which parts of your business, you would like to outsource because you can’t find resources? Technology advice, business functions, software development, human resources or something else
2. What are the efficiencies or enhancements you are trying to achieve? Cost reduction, technical expertise, team building or something else
3. Do you have to outsource 100% of a particular business activity? If yes, are there any sensitive issues that can jeopardize your company’s operations and data in the future
4. If you aren’t ready to outsource 100% of your business function, are you able to separate what can be safely outsourced
5. Do you prefer an individual freelancer or a company to outsource your work? Is this decision influenced by your budget?
6. Do you have any preferences as to which countries or regions you can outsource your work? What are the factors that are influencing you here? Language, culture, moral issues or something else
7. Are you able to select the outsourcing agency or freelancer yourself? Do you have enough knowledge of the business function you want to outsource, so you can interview and select your partner? If not, what are your plans to find the likely solution and the solution provider?
8. Can you judge the quality of the work that your outsourcing partner is providing to you? If not, what are your plans to make sure that you are getting the desired quality?

Outsourcing isn’t a small decision. It puts you in contact with new people, cultures and work ethics. It is absolutely necessary to do some homework regarding, how often and how long you can depend on the outsourcing agency before developing your internal capabilities. Outsourcing has several advantages, you can continue to operate within certain costs and your operations are highly scalable. It gives you an advantage over others. But there are certain drawbacks like low quality output and lack of control, if you are not able to choose the right partner.

If you can do some analysis and pose those above questions to yourself, you are in a much better position to take advantage of outsourcing, which is a highly flexible and an effective way of accelerating startup growth.