Why & What Small Businesses Should Outsource
Outsourcing. For small businesses, this word can spark heated debate. Should you keep everything in-house or send certain tasks outside your four walls?
Well, like most things in business, the answer lies somewhere in the middle. There are good reasons to outsource – and good reasons not to. The key is finding the right balance for your unique needs.
In this post, we’ll explore the pros and cons of outsourcing for small businesses. We’ll look at common tasks that are outsourced, as well as things best kept in-house. And we’ll discuss how to decide what, when, and how much to outsource.
Let’s dive in!
Why Small Businesses Outsource
First, why do small businesses outsource in the first place? There are a few key reasons:
Access to Expertise
Small teams can’t be experts at everything. Outsourcing lets you tap into specialized skills without having to hire full-time.
For example, small businesses often outsource IT work. A dedicated IT person isn’t usually feasible. So you can outsource IT tasks to an expert firm instead.
The same goes for other skills like HR, accounting, marketing and more. Outsourcing gives you on-demand access to proven capabilities.
Cost Savings
Outsourcing also offers potential cost savings. Depending on the task, it can be cheaper than hiring in-house staff.
You avoid expenses like employment taxes, benefits, training, office space, and equipment. For short-term or infrequent needs, outsourcing provides economy of scale.
Service providers also spread costs across multiple clients. This creates efficiency that can be passed along through lower fees.
Focus on Core Business
Outsourcing enables small business owners and staff to focus on core functions. Company time and energy gets channeled into what matters most.
For example, product developers can devote themselves fully to creating great products. They don’t have to get bogged down in secondary tasks like payroll or compliance.
Scalability
Outsourced workers can be scaled up or down as business needs change. This level of agility is hard to achieve with full-time hires.
For example, a marketing agency might add freelance content creators during busy campaign periods. Or an HR outsourcing partner can handle increased hiring demands.
The ability to flex capacity gives small businesses an advantage.
Why Small Businesses Don’t Outsource
Of course, outsourcing isn’t all rainbows and butterflies. There are also solid reasons why small businesses keep things in-house:
Loss of Control
Handing tasks off to third parties involves giving up some control. Outsourced workers operate outside the business and can’t be directly managed minute-to-minute.
This causes some small business owners discomfort. They prefer keeping everything under their watchful eye.
Questionable Quality
Spotty quality is another concern with outsourcing. When tasks get sent out-of-sight-out-of-mind, quality can slip through the cracks.
Business owners may have difficulty assessing capabilities upfront. And unchecked offshore workers often deliver subpar work.
Fears of poor quality lead some small businesses to only trust internal staff.
Learning Curve
Learning to outsource well involves a curve. It takes time to identify needs, evaluate partners, establish processes, and manage collaboration. Doing these steps poorly can negate many outsourcing benefits.
Some small businesses decide it’s not worth the hassle and avoid outsourcing altogether. Others start outsourcing but get frustrated by missteps and give up.
Cost Savings Unrealized
Another reality check – outsourcing doesn’t automatically equal cost savings. Hidden fees, inefficient practices, and incorrect pricing assumptions can eat away at potential savings.
Managing outsourcing relationships requires administrative time investment too. When costs balloon, companies question if outsourcing is worthwhile.
Security Risks
Finally, data security is often cited for avoiding outsourcing. When third parties access company systems and info, it can raise security concerns.
Financial data, trade secrets, and confidential documents may feel safer inside the company’s firewalls. A data breach with outsourced services could do real damage.
Evaluating What to Outsource
Given the pros and cons, how should small businesses decide what to outsource? Ask these key questions:
Is it a core competency?
Your unique capabilities – what sets you apart – should stay in-house. Don’t outsource this crown jewel work.
Does it require specialized expertise?
Tasks needing selective skills fit well for outsourcing. Marketing, IT, HR, and accounting are prime examples. Access expertise you lack.
Is it done infrequently?
Ad hoc or intermittent tasks that don’t warrant full-time staff are good outsourcing candidates. Think of one-off projects.
Does workload fluctuate?
Work that spikes and dips with seasons or campaigns lends itself to outsourcing. The flexibility helps manage changing capacity needs.
Can it be done with no supervision?
Self-contained tasks that don’t require hand-holding are easier to outsource. The provider can deliver with minimal oversight.
Are in-house costs high?
Weigh the fully loaded costs of internal staff against potential outsourcing savings. Tasks like customer service may be cheaper to outsource.
Analyze each process through the above lens. Look at where outsourcing matches well versus where keeping in-house makes sense.
What Should Small Businesses Outsource?
Now let’s look at specific business functions that small companies commonly outsource:
IT Services
Outsourcing IT is a prime option for small businesses. An external provider delivers expertise hard to achieve internally. thinks like managing systems, networks, and hardware can be outsourced cost-effectively.
Cloud services have made IT outsourcing even more appealing. Cloud-based tools are more scalable and affordable than traditional IT infrastructure.
HR Functions
HR outsourcing lets small companies offload time-consuming tasks like:
- Benefits administration
- Payroll
- Compliance
- Recruiting
- Background checks
Leaving these complex requirements to HR specialists brings peace of mind.
Customer Service
Outsourced call centers can professionally handle customer inquiries. They offer economies of scale a small business can’t achieve alone.
Many companies outsource first-tier support to cover routine questions. In-house staff handles escalated issues.
Finance & Accounting
Accounting tasks like payroll, bookkeeping, tax prep, and auditing are commonly outsourced. Experts handle financial processes the business likely lacks.
Marketing Services
Specialized marketing functions like search engine optimization (SEO), paid advertising, and content creation are often outsourced. Marketing agencies and freelancers deliver these results.
Bringing in outside help allows in-house marketers to focus on strategy. Tactical execution gets outsourced cost-effectively.
How to Make Outsourcing Work
Done right, outsourcing helps small businesses punch above their weight. But it isn’t a magic wand you can just wave to make benefits materialize.
Outsourcing takes work – selecting providers, establishing processes, managing collaboration, monitoring work, etc.
Here are tips to make outsourcing work for your small business:
Clearly Define Needs
Get crystal clear on why you’re outsourcing. What specific pain points or gaps are you looking to address?
Understand how outsourcing fits into bigger business goals before evaluating partners. This focus helps you outsource strategically.
Thoroughly Vet Providers
Not all outsourcing partners are created equal. Take time to thoroughly assess capabilities and fit.
Check portfolios and references to verify expertise. Interview reps about specific plans for your work. Compare pricing models and SLAs across providers.
Don’t just default to the cheapest option. Make sure there’s track record of success.
Start Small
When first outsourcing a function, start small. Initiate a well-defined pilot project first.
This lets you evaluate capabilities and quality before increasing scope. Success with the trial run gives the confidence to scale up.
Define Scope & Expectations
Create a detailed statement of work for outsourced projects. Clarify exact deliverables, timelines, formats, and requirements.
Define what success looks like. Establish measurable KPIs to track performance.
Maintain Involvement
Don’t hand off tasks entirely and check out. Stay involved to safeguard quality and provide the context needed to deliver excellence.
For example, review key milestone drafts even if you’re outsourcing content creation. Provide feedback to keep work on track.
Create Governance
Implement structures to govern the outsourcing relationship and work. For example, conduct regular status calls to discuss progress and issues.
Use project management software to collaborate on tasks and track work. Automated workflows and notifications enable better oversight.
Monitor ROI
Regularly examine costs of outsourcing and resulting business impact. Are you getting ROI as expected? If not, can the provider improve – or should you source an alternative?
Be ready to course correct if outsourcing agreements aren’t paying off.
Finding the Right Balance
Outsourcing provides powerful leverage for small businesses to punch above their weight class. It opens access to capabilities and cost structures otherwise out of reach.
But it also involves relinquishing control and added coordination work. Blindly sending everything outside the walls can backfire.
Carefully evaluate what should stay in-house versus outsourcing. Take it slow to start. Do due diligence when selecting partners. And, maintain involvement to ensure excellence.
By finding the right balance and approach, outsourcing lets small businesses compete at higher levels. The key is determining what mix provides the best leverage for your unique needs and priorities.
So take a fresh look at your business. Which functions could outsourcing help amplify? And what core areas want to keep your close control? Find this sweet spot, and outsourcing will become a strategic advantage.
