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Should a Startup Outsource Its Processes?

As a startup looking to grow your business and gain traction in the marketplace, should you or should you not outsource your business processes? Like any issue that must consider several crucial factors and weigh the accompanying advantages and disadvantages, this question can give rise to valid arguments for either side. And so, here’s the quick-and-dirty, 100% correct answer: It depends.

I recently wrote that outsourcing can be a strategic competitive advantage, particularly for startups. And the reasons I mentioned in that article include cost savings (or at least deferred costs), access to expertise, and reduction of mistakes. These remain compelling arguments. Startups should consider these as they strategise and plan for growth and create market traction. But outsourcing does not automatically translate to success. The advantages it offers are real and have been demonstrated to work. That the business process outsourcing (BPO) industry generates billions of dollars in revenue worldwide is a solid indication of the soundness of this approach. And yet outsourcing is not a guarantee that all will end well for the startup.

And while this approach has many enthusiastic evangelists proclaiming its virtues, there are those who consider outsourcing with cautious, and even cynical, eyes. And the arguments against contracting for outside help are equally persuasive. These objections include:

  • Outsourced work is often of lesser quality than that produced in-house. It may be difficult assuring the quality of contracted work. Managing outside agents often requires more time and effort.
  • Confidentiality could be an issue. Sure, you can have outside contractors sign a non-disclosure agreement. But it’s no guarantee that your or your clients’ trade secrets won’t leak out.
  • Outsourcing sacrifices flexibility. When shifts happen in the marketplace, a startup’s ability to quickly change direction can spell the difference between survival and suffering. Outsourcing key areas of the business could affect how quickly the company reacts to such changes.
  • Any negative effects of outsourced work could be a liability for your company. This is especially critical if the outsourced provider produces work for your clients. Your startup could be legally accountable for any damage such work results in.
  • Costs can escalate. Your startup business will be at the mercy of your outsourced provider’s pricing.

So, does this mean that outsourcing is out of the question for a startup? Of course not. It just means that utmost care and diligence needs to be applied. There will always be pros and cons to any approach. The key is to weigh the advantages versus the disadvantages and choose the path that provides a net gain for the company.

Here are a few things to consider before you decide whether or not your startup should outsource.

  • Startups, in particular, it may be difficult and expensive to hire the talent needed for administrative tasks. If the rates are reasonable, outsourcing accounting, payroll, and legal services, for example, could be a cost-effective option.
  • Consider outsourcing for non-strategic, non-mission-critical activities. Anything that is client-facing and requires delivering output for them should certainly be treated as strategic. So you’ll need to carefully consider whether you can entrust this part of your business to outside help.
  • A general rule of thumb is that the company’s core competence should remain in-house.
  • Outsourcing could help lower overall operational costs. But be mindful that it could also add complexity to your operations as it introduces a third party into your value chain. You need to make certain that your organisation is prepared to deal with this additional layer of complexity.
  • What value does outsourcing provide your startup? Is it access to technology? Is it making expertise and talent available? Is it market presence? Consider these advantages and decide if they are worth having to deal with the other side of the coin – additional complexity, demand for more management and governance, and the danger of liability, among other disadvantages.

So, should your startup consider outsourcing? It really depends. Figure all these factors into the equation, then calculate if the balance favours going for outsourcing, or if the results say otherwise.

Written by our Head of People, Mustafa Shreet.

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