A Primer to Live Free or DIY

Benefits of Outsourcing

Did Edison really invent the lightbulb?

Edison definitely had a hand in developing the incandescent lightbulb—as did many other inventors of the day—and Edison is the one who actually filed the patent. But his success, and his place in the history books, is actually the consequence of a different invention: the modern-day R&D lab. In other words, Edison was an entrepreneur. He had an idea, and he assembled an expert team, and the team delivered the product.

It doesn’t matter whether your business is a lightbulb or a law firm. Your job as CEO is to channel your passion into a product that adds value to your customer and then to assemble the team that will help you supply that product to ever more customers on an ever more efficient and effective scale.

And as if all of that weren’t bad enough, in the short term, bringing on new people is going to decrease your bottom line. All of a sudden, you’re paying good money to someone else for doing things you could have done yourself. That means you have less cash in your pocket and you’re worrying about your business more than you ever did before.

So, why outsource?

Even though it’s uncomfortable to bring on help, and even though it will temporarily decrease your bottom line, it’s the only way to turn your business into the success you know it can be.

Indeed, for many small-business owners, the business has become nothing more than a treadmill. You’re working eighty hours a week, every week, year after year. Maybe you thought it would get easier after a few years, but it doesn’t, and meanwhile, the business is just limping along. You’re basically bringing in the same amount of money you did last year, and the year before, even as you work yourself to exhaustion.

Why Outsource

That cycle will continue as long as you’re bogged down in the minutiae of daily operations. And there’s only one way to free yourself from that minutiae: Entrust it to others. Do what you do best and outsource the rest.

But I’m not suggesting that you simply hire whoever walks in the door. Just having warm bodies—at whatever wages, and at any quality of output—certainly isn’t the answer.

Instead, it’s time to build the kind of high-quality, high-performance team that you thought only the biggest companies could afford.

Think about the typical management structure at a Fortune 500 company. There’s a CEO sitting at the top; just below, there’s a small team of executive management. Below them, there’s middle management. And so on, all the way to the base of the pyramid, where there are perhaps thousands of employees handling the company’s frontline operations.

Most entrepreneurs picture themselves building that typical management structure and see themselves at the top as CEO. Except, on the shoestring budget of a typical start-up, there’s no money to support the CEO with layers of management below. So the entrepreneur finds himself with an upside-down pyramid: Instead of sitting at the top, the CEO is at the very bottom, beneath the dozens of different hats he’s wearing as he DIYs the entire business. He then gets crushed beneath the weight of that upside-down pyramid, and thinks his only hope is to grow the business over time so that he can eventually start taking those hats off, one by one, and putting them on other people. Until that happens, though, the CEO is the Hat Juggler in Chief.

The vast majority of start-ups fail, and one of the biggest reasons is an inefficient and unsustainable management structure like that upside-down pyramid. Meanwhile, the roughly 10 percent of start-ups that survive do so because they’ve built a winning team.

What does a winning team look like?

It looks like a flipped pyramid.

Instead of remaining a lone CEO crushed under the weight of all the different jobs you’re trying to perform, imagine turning that pyramid right side up, so that your business now has a team of experts whom you’re managing from the top. That’s your formula for success.

And that’s why one of your most important tasks as an entrepreneur is to build a strong team. That doesn’t necessarily mean you’re going to hire a dozen staff members right away (although you might be doing that sooner than you think). Even if your team is just you and one part-time employee, or you and a Web designer who works three hours a month, or you and a legal secretary who only works on Tuesdays, your job is to assemble a team that lifts you up and raises the value of each hour of whatever you’re doing.

So, why outsource? How does this whole idea of “flipping the pyramid” actually apply to your small business?

Let’s say for a second that your small business is a law firm.

Tons of lawyers start out their firms with nothing more than a home office and the simple goal of serving clients while developing expertise in their particular area of law. But soon, these lawyers—like most entrepreneurs—find themselves dividing their time between the key activities of their business (in this case, practicing law), and a host of other tasks, like marketing and bookkeeping, to keep the business running.

Then the firm grows a little bit. And suddenly, these solopreneur lawyers need to hire a legal secretary. That raises questions about how to attract qualified applicants and what kind of salary to offer, not to mention renting office space. Then come all the issues of office management, from IT to payroll to fixing the copy machine. Soon, these lawyers are working their butts off managing their business while doing anything but the practice of law—and they’re also just basically unhappy, because now they’re spending their time doing stuff they’re not very good at and never had any desire to do in the first place.

It’s generally estimated that between 80 and 90 percent of all start-ups fail. Top reasons include a lack of product-market fit (that is, building a product that no one wants), failure to assemble a strong team, and ineffective allocation of resources, including money and time.

Now consider the opposite approach. What if you, a lawyer with a small practice and just one employee in a little office space, brought on a partner with deep experience in operations management? Let’s get specific and say you brought in someone to act as your chief operating officer (COO). How would the expertise of a COO improve the situation?

Well, right off the bat, your COO suggests that your firm is a great candidate for a virtual office. So you let your lease on a brick-and-mortar office space expire. In its place, you begin sharing a space designed specifically for virtual offices, something that will give you a very professional look for depositions and in-person meetings with clients, but that doesn’t cost you rent 365 days a year. Now you’ll only pay for what you use.

Then, to keep your files organized, your new COO suggests going paperless, deploying a cloud-based document-management system. You like that idea, and get started right away. You also get yourself a cloud-based PBX system, with a virtual receptionist to answer the phone during business hours.

And just by making these changes, the COO has already improved your bottom line by 15 percent; turns out, rent was one of your heftiest expenses, and managing the phone and doing paper filing was sucking up all of your legal secretary’s time.

Because of all that money you saved just by running a more efficient infrastructure, you now have some extra cash to play with. You and your COO decide it’s time to bring in some new talent. Specifically, you want a paralegal. But you don’t need someone full-time just yet, and anyway, a full-time paralegal would cost you a hefty $70,000. After talking it over with your COO, you realize you really only need about twenty hours a week of paralegal work, plus another fifteen hours of transcription work, which is something that pays around minimum wage. So instead of making a full-time hire, your COO encourages you to “break up the value chain.”

Do you know what is the all-around most common complaint I hear from small-business owners? That they can’t find good people.

It is hard to find good people; at least, it’s hard if you need to trust them with a ton of complex work and you’re not able to pay them much for that responsibility.

As it turns out, Henry Ford had the same problem. It was really difficult—or maybe downright impossible—to find a craftsman who could build an automobile from scratch. That’s when Ford had his big idea, and the assembly line was born.

Am I saying you should run your business like an assembly line? Actually, yes—though today it’s called breaking up the value chain, and it sure doesn’t mean turning your staff into a team of mindless drones. It’s the opposite, actually. By breaking up the value chain and hiring specialists—sometimes for only a few hours a month—you’ll build a rock-star team to help you grow your business in ways that are specific to their skill sets and to your needs, and payroll will fit comfortably within your budget.

“Breaking up the value chain” means separating responsibilities that used to be part of a single job description by assigning each distinct task to an appropriate specialist, and then compensating at rates specific to those tasks.

And since you’ve now made the switch to a virtual office, you can hire anyone with an Internet connection, instead of only those people who are in commuting distance of your office. Suddenly, a much deeper labor pool is available to you. You hire a talented paralegal for twenty hours a week, plus someone else at minimum wage to do transcription.

See, the benefits of outsourcing. Now, you’ve got yourself a great staff—and making payroll isn’t breaking the bank!

So now, on top of the 15 percent you saved by running more efficient infrastructure, you’ve also just saved a ton of money in labor costs. You’re better off yet again. With the savings starting to pile up, and at your COO’s encouragement, you’re beginning to think about hiring a chief financial officer (CFO) .

And I’m not talking about someone who just does your taxes. I’m talking about an outsourced CFO who will do the bookkeeping and who will give you quarterly reports to help you understand your business better. Someone who will introduce “Key Performance Indicators,” or KPIs, to establish your firm’s definition of success, and give you regular updates as you try to push toward your goals.

So now, with the help of your COO and CFO, you’re making shrewd business decisions that squeeze more profit from every revenue dollar.

And we haven’t even started talking about attracting new clients.

With everything going so well, you’re ready to focus on getting your name out there; you’re ready to really grow your firm.

But you realize that’s hard to do, so you decide to hire a marketing strategist—something you never would have considered before. Turns out, that strategist helps you laser focus on exactly whom your target clients are. Are they predominantly male or female? What age? What industry? And how can you demonstrate that you provide exactly the service they want and need?

So you get your customer archetype down to a science, and together with the marketing strategist and your talented paralegal, you start to create high-quality Web content with your target customer in mind. Plus, you bring on a very part-time expert who lives in the world of search engine optimization; literally all this person does is study Google’s algorithms to understand the best way to build a local Web presence.

And now all of a sudden, your client base is growing by 20 percent a year, and you’re making 20 percent more profit from every revenue dollar than you otherwise would have—not to mention that you’re finally having fun. After all, you never wanted to be a jack-of-all-trades who practices law only in the corners of your day. What you wanted was to own your own firm and to deliver great legal counsel to your clients, and now you’re doing exactly that.

And those are the benefits of outsourcing and the power of bringing on a team of experts who will help you run your business with the same level of efficiency and excellence as a firm that has a thousand employees—except without all that costly overhead. Do what you do best and outsource the rest. That’s what it means to flip the pyramid and break up the value chain.

But now that you’ve built an expert team to help make your business bigger and better than it’s ever been, what’s left for you to do? Plenty. That’s next.