In-House or Outsource? 5 Things to Consider

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The good news is that your business is thriving. The potentially bad news is that your business may be thriving a little too much. As problems go, this is a great one to have, but it’s nonetheless a problem that needs to be resolved. When you have too many tasks to accomplish and too few people to accomplish them, something has to give. Outsourcing could be the solution.

At some point, nearly every successful business owner will need to consider the costs, risks, and benefits of outsourcing. Many entrepreneurs are reluctant to loosen their perfectionistic grasp on any aspect of daily operations. At some point, it becomes a necessity. Maintaining hands-on control over every little detail is one sure way to stifle future growth.

These days, almost any business function can be outsourced. For example, a smaller business might decide to stop keeping the office manager after hours. Paying them to sweep the floor and empty trash. Once the additional payroll hours hit a certain threshold, it’s time to hire a professional maintenance service instead.

Larger companies have more flexibility to pick and choose which functions to outsource. These days, everything from the call center to the C-suite is up for grabs. Some companies even entrusting their marketing to an outsourced CMO.

Before You Outsource, Consider These 5 Things

While any business decision involves unique variables, there are some basic principles to keep in mind as you consider outsourcing.

1. Be Clear On (and Protect) Your Key Competency

The one thing you won’t ever want to outsource is the core value proposition that makes your business successful. Always keep in mind that entering into any outsourcing arrangement will necessitate giving another company access to the inner workings of your business. Even when dealing with vendors of undisputed integrity, you’ll want to be careful not to give away the store

As just one example of where things tend to get thorny, consider patent and copyright law. Before offshoring business functions, recognize that the enforceability of U.S. intellectual property laws runs the gamut in other countries. If your core business model includes the development of proprietary software, hardware, or any other form of “secret sauce,” err on the side of caution.

2. Evaluate the Need to Expand or Innovate

Take a good look at your immediately available resources and assess them against projected spikes in demand. Will you have the available capacity to expand your business in a short amount of time? If you are adding products or services, will your existing infrastructure support the new offerings being successful beyond your projections?

Some keys to uncovering areas requiring innovation will be your ability to honestly assess where your business is running at — or past — full capacity. You’ll need to identify areas that are operating with outdated equipment. Also, processes or people are being asked to work longer hours. Before you invest in expensive new equipment, software, or personnel, you might decide it makes more sense to let someone else bear those financial burdens.

3. Assess the Outsourcing Vendor’s Track Record

Once you think you’ve settled on a vendor to, say, handle your payroll or your content marketing, it’s time to do some serious digging. Good word of mouth is a great start, and online reviews are helpful, but you’ll want to go a little deeper. You can often learn a lot about a potential business partner by gauging their response to a request for references.

You can learn even more by checking with the local Better Business Bureau, Chamber of Commerce, and even court records in the vendor’s jurisdiction. It’s OK to start with the assumption that all is well and that you are merely conducting some due diligence. Just make sure you don’t ignore potential red flags that pop up along the way.   

4. Carefully Review Your Service-Level Agreement (SLA)

Don’t take any shortcuts here. You must evaluate any proposed SLA against the actual needs, both current and anticipated, of your business. If you’re outsourcing a software development project, for example, how will the vendor deal with requirements changes? How about bug fixes? If you have a dispute with the outsourcing vendor down the road, the SLA will be the document to which both sides will be held accountable. 

Take the time to document all of your concerns and get questions answered to your satisfaction. The terms you’ve finalized need to show up in the SLA. You may trust your vendors, but a friendly handshake won’t cut it.

5. Take Liability Into Account

Any time you outsource, it’s a good idea to spend some time talking with both your attorney and insurance agent. It may be an added expense, yes, but it’s definitely worth the investment. If, for example, your business is planning to outsource some high-risk activity or product development, your insurance premiums should reflect that.

What happens if your company sells something that contains a vendor-supplied assembly that is later subject to recall? Who will pay for all of that hassle and expense? A business owner may make “common sense” assumptions about vendor liability only to find out later that they have been left holding the bag. Assume your outsourcing vendor has the best intentions, but make sure your business is protected just in case something goes sideways.

While any outsourcing arrangement presents potential risks, the benefits can be substantial. By offloading nonessential functions, you enable your employees to better focus on their actual jobs. Even high-value work can be outsourced to specialists who can complete those tasks with a degree of expertise your staff likely can’t. When approached thoughtfully, outsourcing can become a key component in your company’s future growth.

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