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Knowing What and When to Outsource

Written by CT Moore on June 17, 2014. Posted in Uncategorized.

Competing in the digital landscape usually means competing on several fronts. You need good design (product or web), solid tech (frontend and backend), strong marketing (acquisition and retention), and the talent to help make it all come together. Indeed, even on the marketing front, you need to find the right balance of SEO, PPC, affiliate marketing, and content, to name just a few.

As the old saying goes, however, Jack of all trades, master of none. No one company can (solely) excel at everything it does, but that’s also why companies tend to outsource at leastsome of what they do. Of course, knowing exactly what you should outsource and when you should do so is another thing altogether.

Do you delegate it to a team member even though they don’t specialize in it? Or do you hire additional staff to take care of it? Or do you pay a bit more to an agency or consultant because there’s not enough work to justify a full-time hire?

These are all questions worth asking when deciding whether or not to outsource, and like all business decisions, it’s one that should be based on a cost-benefit analysis. Not all costs are easily quantified and entered into a ledger, however, and a proper cost-benefit analysis requires that you factor in some less tangible costs. And when trying to identify and assess some of these hidden, intangible costs of outsourcing, there are a few questions you should be asking yourself.

What’s the Oppotunity Cost?

The first question you should ask is “What would be the opportunity cost?”. In other words, “What’s gonna suffer if you try to take this on internally?”.

At any given point, you only have so many resources. More often than not, those resources already have goals, mandates, and timelines. And if you take on anything else internally, some of those resources will need to be diverted. So you need to decide whether the relevant resources can justifiably be diverted from whatever else they’re doing.

If it’s just a question of postponing the company newsletter to get up a banner ad that’s actually going to drive sales, then diverting those resources probably makes sense. However, if it’s a question of completely suspending all your ad campaigns while you find a replacement for that media buyer who just quit with no notice, then you’ll want to carefully consider whether saving on agency/consultant fees are really worth the foregone revenues.

Is it Your Core Business?

The next question you’ll want to ask yourself is whether the project or deliverable you’re thinking of outsourcing is part of your core business or not. Even if you’re looking at something that your business regularly needs, it might not be worth managing in-house if it’s not part of your core business. After all, by trying to develop the necessary resources in-house, you can end up getting completely distracted from your actual business, and end up hurting your bottom line in the long-run a lot more than you think.

For example, many companies require physical office space, and every office needs to be cleaned, right? Well, our office had a rotating cleaning schedule. That is, until we realized that the revenue or growth a team member could generate in the time it took them to tidy up the office far outweighed the cost of hiring something else to do it. So we ended up hiring one of my clients, Montreal Office Maintenance, not only because it made good financial sense, but because we’re in the marketing business, not the property management one.

What’s the Urgency?

The third question you need to consider has to do with how urgent something is. Especially if something is part of your core business, but arises suddenly, you might want to consider outsourcing it.

I mean, sure, maybe you (or one of your team members) should’ve anticipated the need, or maybe something that no one could’ve predicted popped up. But that’s not what matters. What matters is that it requires immediate attention (and execution), and diverting internal resources to deal with it will only completely disrupt some other part of your business.

As an agency man, I regularly get requests from clients to handle something that’s not part of our normal mandate with them. Simply put, the client ended up with overflow. It may be something we can handle, or we may refer them to someone else, but the point is that it’s something the client knows it can’t stall on and is better off paying a bit more to outsource it than to wait to get it done itself.

Counting More than Just the Beans

On paper, the idea of vertical integration sounds all fine and dandy, but like most things theoretical, it doesn’t always work in practice. Of course, there are cost efficiencies associated with taking things in-house, but there are still a slew of intangible, hard-to-quantify costs associated with them, too.

Just like you’re more likely to rent office space than try to build your own, you’ll want to rely on third-party service providers to support other aspects of your business. So don’t be pig-headed next time outsourcing is an option, and look beyond just the trees to see the big picture. Because even when costs aren’t tangible, the revenue/growth you can generate by being mindful of them are.

When to Use an Agency

Written by CT Moore on June 13, 2014. Posted in Uncategorized.

If you’ve ever been in a position where you’ve had to choose between hiring an employee or hiring an agency, to do something in-house or to outsource it to a third-party, then you should probably read this blog post.

Why? Well, partially because I want your eye-balls and attention (and your validation via comments and Likes, and the like). But mostly because when it comes to choosing whether to outsource a project or deliverable, or not, it’s a question of costs, and I’m about to tell you how to do a cost-benefit analysis that takes into account more than just the line-items in your budget or expenses.

Basically, the costs of doing business transcend the checks you write. Depending on the project, deliverable, or resource you’re looking considering, there are often other, hidden costs, and you have to take these into account if you want to make the right choice for your business. And there are couple questions you should be asking if you want to uncover some of those hidden costs.

Is it part of your core business?

The first question you need to be asking yourself is whether the project/deliverable/resource you’re considering is part of your core business. If it’s not, trying to develop the necessary resources in-house can be a complete distraction and diversion of resources from your actual business, and end up hurting your growth and/or your bottom line a lot more than you think.

For instance, most businesses require office or retail space, but that doesn’t mean they build it themselves. Rather, they rent real estate from a real estate company because they don’t have the expertise to build or manage brick and mortar space.

The same reasoning can be applied to any other project/deliverable you’re considering. If you’re a small ecommerce store with only a few dozen SKUs, for example, then you’re probably more of an online retail company than a technology one, so it probably makes a lot more sense to outsource a lot of your web development needs and IT infrastructure than to build up internally.

Amazon, on the other hand, has a couple hundred million SKUs, and deals with such a staggering volume of traffic that it is a technology company, because any amount of downtime can mean millions of dollars in lost revenue. For that reason, it does make sense for them to maintain the infrastructure and engineering support staff that it does.

Where the line between something that is part of your core business and something that isn’t can be murky, and that’s up to you to decide. But it’s certainly something you should be considering before deciding whether to actually invest in developing the resources in-house, because doing so can end up changing your core business model in (undesirable) ways you did not anticipate.

What are the opportunity costs?

Another thing you need to consider is what you will not be able to get done while you’re working on a project in-house. In other words, what would be the opportunity costs?

For instance, even if something is routine, it often doesn’t make sense to divert resources to getting something done when you can simply outsource it to someone who specializes in it. For example, at the Brendan & Brendan office where I rent desk space, we used to have a rotating cleaning schedule where two team members would take a couple hours every Friday to tidy up the office. Not only was this a bit of inconvenience for whoever was scheduled on any given week, but the combined 3-4 hours those team members were spending on cleaning would’ve been better spent on getting things done. What we ended up doing was hiring one of my clients, Montreal Office Maintenance, to come in once a week to handle the cleaning, because even though this was an extra expense for the business, the revenue that could be generated in those extra 3-4 hours of productivity every week more than offset the cost of using a janitorial service provider.

Similarly, if a very urgent project or deliverable comes up, it could really disrupt your business or productivity to pause other operations to divert resources to doing it in-house. If that’s the case, you might want to consider using your agency or a freelancer to handle that overflow while you focus on keeping the other parts of your business running at full capacity.

Not Making Pigheaded Decisions

Whenever you’re making a business decision, it’s important to remember that counting beans is not the same as looking at the bottom line. If you’re really going to be strategic or proactive (or whatever) with how you choose to spend money, you have to look beyond the decimal points, because sometimes what looks like a cost-saving on paper manifest as a lost revenue down the road.

So the next time you’re trying to decide whether to use your agency (or hire one) for a project, don’t forget to consider those other (sometimes hidden) costs that your accounting department doesn’t see because they’re not yet on paper. Your job, after all, is to grow your business, and that means (1) focusing on what it actually does, and (2) anticipating the opportunities and pitfalls that haven’t yet been committed to the books.