Outside contractors can provide a flexible alternative to hiring full-time employees
You have a growing business, and your employees and managers are scrambling to keep up. It's reached the point where many projects aren't being handled, certainly not with the attention they deserve. At many companies, the first thought is to add people -- to hire an extra set of hands for this department or that. Failing that, they muddle through. But not Harry Saal, founder and president of Network General Corp., in Mountain View, Calif. His answer is to use outside contractors -- self-employed individuals who work on a project-by-project basis.
Saal's motivation is partly economic. By working with outsiders, Network General is able to operate, he says, with a minimum of overhead. Currently, for example, the $12.9-million company has about 40 full-time people and contractual relationships with around 20 others; they work from a few hours total to a week or two every month, in areas as diverse as product development, employee benefits, and finance.
Yet there's a strategic side to Saal's thinking as well. Using outsiders, he says, allows the business to meet short-term needs whenever they arise. "We don't have to wait for one of our employees or managers to find time -- or to get up to speed in a technical area. We can do something when it makes sense." And with more and more professionals working on their own, finding the right person is that much easier.
Flexibility and careful allocation of resources have been important to Saal ever since he and his cofounder, Leonard Shustek, started the business in 1986. At their previous company, Nestar Systems Inc., they had been forced to initiate layoffs when sales didn't materialize as quickly as expected. "It made me appreciate all the negatives of having a lot of overhead," says Saal, 45. Working on their product, a tool for sniffing out problems in local area computer networks, they wanted to hold the line on staffing and other fixed costs. But at the same time, they didn't want to put off doing things they felt needed to be done.
Employing a core of full-time people and flexing up to meet special needs seemed the most intelligent way to go. In fact, Saal says, some of their most basic organizational decisions -- to use independent sales reps instead of hiring a full-time sales force, for example, and to farm out manufacturing -- were shaped by this philosophy.
One of the first contractual relationships, Saal recalls, was in the area of technical writing. The company needed a user manual for its new product, but no one in-house (there were only four employees back then) had the time to do it. To handle the project, Network General cut a deal with an experienced writer Saal had known more than a decade earlier at IBM. The writer, who was working as a free-lancer, completed the assignment in three months.
Since then, Network General has tapped outsiders for other kinds of services. Sometimes it's to gain access to special expertise, be it technical or administrative. In 1987, for instance, the company wanted to explore selling overseas. At the time, says George Comstock, vice-president of sales and marketing, nobody knew what was involved, so they hired someone with a lot of experience to set up a system for processing foreign sales. In many cases, though, the goal is simply to help managers through a difficult period. "When a busy person takes on an extra work load," says Saal, "we know there are costs. It means that they stop doing what they were doing. Or quality suffers."
At Network General, contractors typically work on a project basis and are paid from $50 to $120 per hour. In research and development, for instance, the company buys time from four or five programmers who work on specific assignments. Although the ranks of employees have grown in recent months, the company's need for outside services is growing as well. Earlier this summer, for example, a benefits specialist spent a few days helping to reorganize its 401(k) savings plan. Originally the program had been structured around the company's fiscal year, notes Honor Huntington, the newly hired controller, but it was an administrative headache. Every year, records had to be converted from fiscal to calendar year. "The alternative to bringing someone in," she says, "would have been clearing off my desk and doing it myself. But I didn't see that happening for quite a while." Under this system, Huntington remained the manager: she both defined the problem and oversaw its solution.
Another outsider has been helping management with the details surrounding the company's first shareholders' meeting, following its initial public offering last February. And yet another has been working with chief financial officer Roger Ferguson on Network General's upcoming relocation into new office space, slated for this fall. Self-contained projects like these are ideally suited for outsiders, Ferguson says, because of the time pressures and because there are hundreds of details to juggle. "The person we're using on the company move has been through it many times before. He understands the things you can get hung up on a lot better than we do."
Individually, the relationships Saal and his managers have set up may not seem that unusual. After all, lots of companies use consultants. But taken together they amount to a different way of organizing a business. "We've found," Saal says, "that you really don't have to increase your staff in one-unit increments. When your requirements are changing, you're frequently better off buying a portion of someone's time."
Running a business that depends on free-lancers might strike some managers as a bit foolhardy. The big fear, of course, is that contractors will surprise you at the last minute -- either that or they won't have time for you just when you need them most. But Saal claims that neither has been a problem for Network General. "The fact is that your own employees can drop a bomb on you, too," he says. "It has nothing to do with their being inside or outside. It's just a matter of communication."
As for availability, it's true, he says, that you don't have full claim on a contractor's time. To compensate for this, managers have to be realistic about their needs and plan accordingly. With a handful of key contractors, for instance, Network General commits several months ahead of time to a certain level of use. And when "one-time blips" become regular needs, the company creates full-time positions. That's what eventually happened in both the technical-writing and export-sales departments.
And what about commitment? Can free-lancers be as attentive to the company's needs as full-time employees? Saal says yes. For one thing, he notes, "Their livelihood depends on repeat business and referrals." So, as a practical matter, they need to be productive and service minded to survive. To meet sudden demands, contractors have been willing to work extra days and weekends. (According to Saal, several contractors identify with the company so strongly that they bought shares in the company's initial public offering.) And Saal argues that if you're not happy with their work -- or if business softens -- you have an advantage with contractors that you don't have with full-time employees. "With an outsider, there's a natural way to end the relationship."
Now that Network General is off and running, the pressure to save pennies is certainly less acute than it used to be -- in the fiscal year ending March 31, 1989, the company earned $2.6 million. But Saal thinks the arguments in favor of tapping outsiders are as strong as they ever were. "One of our greatest strengths," he says, "continues to be our ability to do things quickly. And this is one of the best ways we know of to get lots of leverage."
WHERE DO YOU FIND THEM?
Identifying the right people for the job
Using outsiders to help manage "blips" of activity sounds logical in theory. But practically speaking, it's only as effective as your ability to find the right people when you need them. There's nothing unique about the way the managers of Network General Corp. go about identifying contractors. Mostly it's common sense. Here's what they do:
* Keep track of former associates. Several managers at Network General maintain extensive records of people they have worked with over the years. (Company president Harry Saal, for instance, has a big box of alphabetized business cards.) So when a need for extra help arises, they frequently have a place to start. A number of Network General's past and present contractors -- including the free-lance technical writer who wrote the company's first product-user manual -- worked with Saal or other managers at other companies.
* Solicit referrals. When managers can't think of anyone to handle a piece of work, the company's lawyers, accountants, or bankers often can help. The person organizing Network General's annual meeting, for example, was recommended by its attorney. Occasionally managers will ask others -- say, a banker at another bank -- for names of prospective contractors. "But to keep things from getting out of hand, we try to work with people we know -- or people whom individuals we trust know," Saal says.
* Pay attention. Sometimes finding a good contractor involves more than asking around about who's good. It requires your figuring out what kind of work you like -- and who's doing it. A few years ago, Saal was so impressed with the promotional pieces his former company was distributing at trade shows that he tracked down the advertising and public-relations people it was using. Network General currently uses both of them.