Coming out of a recession, companies who cut staff as a survival strategy, today find themselves short on in-house talent. Even before the recession, many companies turned to outside suppliers of basic services to augment their in-house capabilities, cut costs and get into the market faster with their products. Should your company outsource parts of its operations? Which ones? When should you consider doing this? This Tuesday’s TON session, featuring a panel of outsourcing experts, helped answer these questions and more. The panel:

• Matt Massey, owner of drive2 Inc., helps customers drive sales and revenue goals through integrated marketing and demand generation strategies. www.drive-2.com
• Francis Liska, owner of OTUS Group, is a CGA who focuses on helping his customers improve their operations through sound business strategies and the ‘virtual CFOs’ he provides. www.otusgroup.com
• Frédéric Boulanger, President of Macadamian Technologies, provides his clients with software development from various branches world wide.  www.macadamian.com

The panel was kept in check and on track by moderator Janet Eastman who, with more than 20 years in media and communications, was more than up to the challenge with grace and good humour. Janet kicked off the discussion by informing the audience that a recent survey of US businesses with less than 100 employees actually have less than 5 employees…perhaps a great motivator for outsourcing!

The Benefits of Outsourcing

The work of running a business is time consuming and, as an entrepreneur or innovator, we aren’t necessarily the best choice for that particular role. Francis’ advice, “Find someone who is better at the task than you are.” Free yourself to run with what you are best at. “With so much information coming in from so many sources, plus the tasks you’ve got to move forward on…” there is just too much for one person to do, and you have to be able to hand it off to qualified experts.

“Money is a huge reason for outsourcing,” comments Frédéric, “but if that’s the only reason it’s not going to work.” The key is qualified experts: discover the skill level, the delivery time frames and that should all be part of the due diligence process. “Yes, cash is king,” says Frédéric, “but the right people have to be focused on the goal.” 

Getting value for every dollar is the start-ups challenge. “Outsource and find talented marketing specialists,” explains Matt, “and you’ll find a couple of times the value for your dollar.” Another benefit to an outside marketing resource is that they bring fresh eyes to your product. “If you’ve been involved with your technology for a long time you can be blinded by love… leverage outside eyes and experience.”

Do You Need a Virtual CFO?

A very good book keeper focuses on the day-to-day needs of banking and accounting. A skilled accountant will focus on reporting and what you need to comply with regulatory-wise. “80% of businesses fail because they don’t focus on financial information that is relevant to the objective.” points out Francis. “For example, if receivables are up,  is that because you have more sales or does that mean your collections are lagging?” The idea behind the virtual CFO is that you’ll have an interpretation of your financial data that will help you reduce costs, re-focus your spending, present your company in a good way to bankers and, if you are a start-up, it’ll get you off on the right foot.

Reinforcing this point, Frédéric adds, “I’m an entrepreneur, not an accountant. Dealing with raising capital, meeting CRA’s demands, complying with rules and regulations…” these are all critical to your success and if you don’t have it under control you should find talent that will help you reign it in.

When Should a Company Outsource?

Sooner is better! “They always come too late… when the problem is about to burst!” says Frédéric. “Spend an hour or two with an outside consulting company and they’ll help you ask better questions and make better decisions that will save you a ton of cash down the road. A problem caught before product release is far less costly.”

Deciding when to outsource is a balancing act of timing and budget. “Size is not the issue,” explains Matt. “if (your outsource resource) provides value, if you trust them and if they’ve saved you money, why change this relationship?” Entrepreneurs have to look at long term strategy and short term tactics and determine if developing in-house talent is worth the pain. “Go outside for expertise, nimbleness and cost,” says Frederic. “Think of these partners as more of a team.”

“Don’t reverse-engineer your finances.” recommends Francis. Thinking about your credibility with financers, a virtual CFO can help you prepare. “Put the right infrastructure in place from the start. We see organizations struggling with investing and we help them become more attractive.”

How Do You Find and Work With the Right Outsource Talent?

It’s easy to find a supplier – finding the RIGHT supplier is what you must do to have a successful outsourcing relationship. The key points:

1. Get Referrals:  “Reputation is everything, especially in our business.” explains Frédéric. “People love to work with people they know, or people who have been referred to them. Ask for help!”
2. Communicate: Trust in your outsource partner is a huge factor to the success of the relationship. Each of the panel expressed the need for openness, honesty – that transparency in the relationship where you feel your outsource partner will tell you the truth, even if you don’t want to hear it. “Clarity about the expectations and the delivery…you need candid answers when things aren’t going as expected.” Stresses Francis. Matt adds, “It is critical that both sides are able to have a back-and-forth, without avoidance on either side.” Frédéric recommends you put aside email or text messages and go for a more direct approach. “The manager of the outsource relationship has to have the ability to pick up the phone and communicate directly with the provider. In an email, only a tiny bit of the communications come through.”
3. Establish an Accountable Partner Relationship: “In the development world, I strongly advise an accountability-based relationship.” Says Francis. “Everything needs to be done in stages…get benchmarks on a regular basis so you can correct issues early in the process.” Matt stresses the need for the partners to follow the plan. Tweaking is allowed, but changing everything in reaction to a bad report in the press, for example, distracts from the plan and delays results. “The client has to value the direction you are taking them.” says Matt.

What is the Budget for Outsourcing Marketing and Finance?

It comes down to needs. Francis advises companies to look objectively at the senior management team and infrastructure and be honest about the strengths and weaknesses. Identifying what a company needs in order to be able to advance to the next level of business growth, then budgeting around that need.

In marketing, you can budget several different ways from the cost of the product to the revenue being generated to the projected revenue.  “At drive2,” says Matt, “We pro-rate up-front costs and look for a % of gross revenue as successes happen. Most CEOs like to know that if they’re outsourcing, they are partnering with someone who is compensated based on success.”  Understanding the metrics helps you identify a budget and Matt advises companies to think about allocating marketing funds in terms of percentages of revenue.

Special Note: No TON Tuesday on June 8, but a Summer Cocktail Reception is planned for June 27.