One of the dilemmas facing growing businesses, at all scales, is whether to Do It Yourself or whether to Outsource.
Outsourcing gives you instant capability and capacity that you would otherwise lack, but it can also lead to unhealthy dependence.
Here are some tips from Founders of South West tech scale-up businesses, taken from the 2017 series of Threads meetups, helping you to make the best use of outsourcing.
Consider the knowledge that you won’t be amassing when you outsource
Start-ups must consider what they’re really good at in order to concentrate on this and extract maximum value. Consider what is core and/or critical to your business; you may like to keep these in-house, to remain fleet-of-foot. What’s core may not be fixed, may differ for each operation, and may become a commodity service as things evolve.
Any decision to outsource must be evidence-based. Don’t make it in the zeitgeist.
You can’t outsource responsibility. Chucking things over the fence and dealing with ramifications later will likely see your operation tanking if you have to divert attention and resources to remedy things
Consider the merit of getting an outsourcing partner involved when learning a new concept or domain, as this can be a fertile way of learning. Consider the knowledge that you won’t be amassing when you outsource. Consider placing a staff member at the outsourcing partner to boost knowledge transfer; make staff training part of the delivery agreement and process.
With contract staff, you are benefiting from their transferable skills. However, once they’ve completed their contract and moved on, you can rarely get them back again. Mitigate for this and capture the subtle knowledge that can otherwise be lost.
With outsourcing partners, you are more likely to be able to tap back into the individuals involved and access their knowledge later down the line.
Size, attitude and culture of a potential outsourcing partner often prove important. Trust is key. Asymmetric relationships often prove unhealthy. Compatibility of goals and timelines helps foster positive relations.
Think about the medium term; how best you can adapt and scale the arrangement. Start-ups are under pressure to make a positive initial splash but this shouldn’t become diffused or hamper your ability to grow.
Consider the nature of your requirement. If it’s lumpy or unpredictable, there’s a good chance outsourcing may make sense. If it’s a full-time function, it may be best to keep it in-house.
Aim to retain ownership of requirements and specifications. You may benefit from external input from the outsourcing partner to define them, but you should own the spec and what it means for your business.
Consider how you wrap a piece of work that’s being delivered by an outsourcer. The scope should be defined, with limitations identified. Implement mitigation measures. Avoid vagueness.
Ideally, the work package should be portable so you aren’t over-reliant. Consider the merit of building into the spec some components which use common or generic technology. Build in measures, controls and penalties and have alternatives readily available.
It’s beneficial to show that you do understand and respect the outsource partner’s expertise.
Have IP ownership clearly documented upfront in your contracts, so that it’s clear who owns what from the start, and who will own anything that is created. Consider whether your partner is looking to bring, or to build, their own IP.
Consider when and how ownership of IP is transferred back to you. It can be a fine line between know-how and IP. It isn’t difficult to get proper documentation in place.
A clear understanding of IP ownership will foster good relationships with your outsourcing partner. You want to avoid sudden surprises. It’s beneficial to show that you do understand and respect the outsource partner’s expertise.
Watch that open source or reusable software components usage doesn’t contravene licence agreements. Audit and keep an inventory.
Investors will seek comprehensive due diligence on your IP. They will want to establish where it originated; e.g. any patents, contributions from staff, contractors or outsourcing partners. They will request to see the contracts involved.
In addition to any hidden charges, watch out for hidden costs of managing your outsourcing partner.
You’re more likely to be critical of an external supplier than of the same output from an in-house function.
Threads meetups are a way for founders and department heads of technology companies to share learning, experiences and conundrums. These roundtable discussions unpack topics around leadership, business and operations. Most people find at least one improvement to take away and implement.
Threads is held at 6:00 – 8.30pm on the first Wednesday of each month. To RSVP, head to the Threads South West meetup page.
For more Founder’s scaleup tips, follow Threads on twitter.
Keep an eye out for more Threads guest blogs coming to TechSPARK soon.
