Gaining leverage: outsourcing & delegating

Leverage

A key issue for any founder is putting together the resources to develop, market, sell, and support their product. The number one resource, and the number one expense, is staff: engineers, product managers, marketeers, sales people, and support or service technicians. Not only do founders need to pay staff salaries, but also benefits, which can run 20% to 30% or more of salaries.

While any startup needs full time staff, whether working in the company’s office or remotely, a founder has to figure out what type of staff they need and how to recruit them. Recruiting can be another expense, whether Facebook ads or paying contingency or retained search recruiters.

The majority of founders will need outside investment to ramp up staffing if they plan to be a growth company, not a sole proprietorship or boutique company. But as I was told my one of my VC investors “You need to stretch the dollar!” And what I would tell my hiring managers, “You are not spending money on staff, you are investing it. Think carefully about the return on that investment.”

So what’s founder to do with a fixed amount of capital and growing demands for staff, equipment, marketing spend, and other expenses? As Jason Aten points out in his article about Amazon in Inc., growth is hard.

Here’s what I mean. When you’re a small startup, outsourcing enables fast growth, since it allows you to focus your limited bandwidth of time and energy on the things that matter most to your business. Or, as author Paul Sloane says, “only do what only you can do.”  At this stage, it’s almost always cheaper to pay someone else to do the rest.

Outsourcing means contracting for human resources, not hiring employees. Contractors may be paid a fixed hourly fee or may be paid on a per project basis. But in neither case are they paid fringe benefits and often use their own equipment and office space. Hiring contractors is a skill not that dissimilar from hiring and employees: you need to know clearly what type of work you are outsourcing, perform your due diligence on the individual contractors or firm, and negotiate a contract that protects your firm. While there’s a lot more to this subject,  the thing I’ll say here is to make sure your contract includes the fact that any work product is owned by your firm and that you can terminate the contract for cause immediately or with thirty days notice. By outsourcing tasks that your staff may not have the skills to perform, such as social media marketing, you gain several advantages. For one, you can spin up quickly. It’s almost always the case that you can hire contractors more quickly than full time staff. For two, you can save money, as full time staff are expensive! My rule on outsourcing was that we should focus on our core competencies and outsource everything else. At Course Technology, Inc. which published textbook/software packages for higher education, our core competencies were product development, production, marketing, and sales. But we lacked the capacity for textbook printing, disk duplication (yep that’s how software used to be distributed, on floppy disks!), packaging, warehousing, and shipping. We outsourced the last three of these tasks to NACSCORP (the National Association of College Stores Corp.) who were experienced experts in performing these tasks for the college market. They ended up being so impressed with our venture that they became one of our early strategic investors!

But there is more to stretching the dollar and managing your venture efficiently (doing things right) and effectively (doing the right things). There’s a dangerous tendency amongst founders to want to “do it all.” Many operate on the old saying, “If you want something done right, do it yourself.” Well first of all this is just wrong, as no founder possesses all necessary skills in a startup at a world class level, and even if they did, this doesn’t scale. No matter how talented a founder is, they just have 24 hours a day, just like everyone else. The second way to gain leverage is through delegation. The definition of delegate is interesting: entrust (a task or responsibility) to another person, typically but not always, one who is less senior.  Note that the verb entrust contains the word trust. Trust is the key to delegation. When you delegate a task or responsibility to another member of your team you have to trust that they will perform up to the venture’s standards. Delegation is a key skill in management as it determines a manager’s reach, which is how many staff he or she can effectively manage. By increasing your reach you can maintain a much flatter organization with fewer middle managers. A flat organization cut costs and reduces communication overhead. My rule of thumb was not unlike Paul Sloane’s: I only did what I could do, including recruiting managers and staff and managing product development and production. Any other tasks such as providing managing our vendors, I delegated. Delegation is tough for first time managers as typically they fear that what they delegated what will not get done right, on time, on budget or even all three. So start small, by delegating a single task with a short time frame. Develop ways to check in on progress, preferably by using an online tool. Then expand to other, more complex, individual tasks. Once you are comfortable delegating individual tasks, for example as a marketing director, delegating the writing of the company’s press releases, you can then move onwards to delegating an entire are of responsibility, such as marketing communications.

Fast growing startups, will by their nature, always be strapped for resources. There is always more work to be done than hands available. But by harnessing the twin powers of outsourcing and delegation a founder can gain terrific leverage which provides mechanical advantage, where the output far exceeds the input. In other words, what gets accomplished for the venture is far more than the effort you expend to either outsource or delegate a task or area  of responsibility.

And if you really want to grow fast, once you have mastered outsourcing and delegation, teach it to your managers!

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s