A look at two companies, Air Taser and CFData, that became successful largely because they outsourced the technology-intensive aspects of their businesses.
Opportunities
When DIY doesn't make sense, small businesses send out their technology functions--or take others' in
Air Taser is a start-up based in Scottsdale, Ariz., that wants to bring criminals down without taking them out. CFData is a Dallas company dedicated to helping retailers get the rubber out of customers' checks. Both businesses are young. Both are successful. And both owe at least some of their success to the clever use of outsourcing.
Outsourcing, long a matter of megacontracts between megaplayers, is attracting a growing number of small businesses as well. While Fortune 1,000 companies bat around buzzwords like core competency to explain why they're shifting some of their functions to outside vendors, smaller firms generally focus on growing their businesses without adding resources. And while companies can outsource anything from payroll to maintenance, technology-intensive functions--given the requirements of capital and expertise--are among the likeliest candidates. "Companies want to invest in infrastructure," says Michael Corbett, president of Michael F. Corbett & Associates, an outsourcing consultant and market researcher in Poughkeepsie, N.Y. "But they can't invest in all the elements of infrastructure. They have to pick and choose."
Nor is the supply side solely the province of giants. But while companies like EDS offer soup-to-nuts technology management, small companies generally specialize. "Outsourcing is driven by skills and knowledge," says Corbett. "Smaller firms--if they select their niche carefully--can create as much value as the largest company in the world."
The benefits of good outsourcing arrangements are manifold. For customers, outsourcing can mean lower costs, a lighter load on management, and more capital for other investments. Vendors gain new markets, the opportunity to leverage technology investments over a number of clients, and the chance to compete against players that ordinarily are out of their league.
What follow are the stories of two small companies--one a customer, one a vendor--that are building their empires on outsourcing.
The Customer
Tom and Rick Smith were away at college in 1988, when their father cut short his retirement and took a job in San Francisco. That left their mother all alone in their spacious Phoenix home for weeks on end, a worrisome situation that became downright nerve-racking when a neighbor was smothered to death by an intruder. Frightened for their mother, the brothers sent her to a class to learn how to fire a .357 magnum. Mom, however, turned out not to be the gun-toting type.
Then, a few years later, two of Rick's high school football teammates were shot and killed in a parking lot. In the brothers' minds, that incident crystallized the need for a product that, as Rick describes it, would "help people protect themselves without killing someone in the process."
By that time both brothers had graduated from business school and were hankering to run their own company. Self-defense was going to be the industry; an alternative to pepper spray and mace, the product. During four months of research into various devices, one came up repeatedly: the taser. The taser is a kind of stun gun that temporarily incapacitates the target's nervous system without causing permanent damage. But there was a hitch. The taser uses gunpowder, which is classified as a concealed weapon and can't be sold to the general public. So the Smiths turned to the weapon's inventor for help. Four months later the air taser was born.
The air taser uses compressed air to fire tiny cartridges (called probes) that are attached to 15-foot lengths of wire. The probes latch onto the target's clothing and transmit an electronic pulse that zaps the nervous system, disabling the target for several minutes.
Satisfied that they had found their product, the Smiths created a company--Air Taser Inc.--to manufacture and market it. Because keeping air tasers out of the wrong hands was almost as important as getting them into the right ones, they needed a computerized registration system that could track every store selling the product and every customer buying it. The most sensible approach, the brothers thought, would be to tie that system into their as yet nonexistent warehousing, shipping, and delivery operation, which would let them centralize information on the product from assembly through sale.
Wanting some expert advice, the brothers visited Insight, a local company that does direct sales and marketing of microcomputer products and services. But when Insight laid out the problem in all its complexity, the Smiths felt as though they'd been struck by one of their own probes. "We were completely unprepared for the enormity of the job," says Rick.
The Smiths' tasers are packaged in kits. Each kit contains the device itself, several cartridges, a nine-volt battery, a practice target, an instructional video, and an owner's manual in one of seven languages. The system would have to track not only code numbers for every part but also the contents of every kit shipped--making sure, for example, that Portuguese manuals go into the same kits as Portuguese videos. It would also have to register the serial numbers and bar codes of every component shipped as part of the customer-tracking program.
In addition to tracking technology, Air Taser would need warehouse space, several forklifts, and labor. All told, Insight estimated that the Smiths would have to shell out $200,000 the first year and $100,000 every year after that. "And then," says Rick, "we'd have to manage the program."
