One of the most stressful and unanticipated challenges that comes with starting a new business is hiring and managing employees.
Many entrepreneurs I have mentored make big mistakes in this area, by hiring friends and family with minimal skills or training and expecting them to have the same work ethic, passion, and business knowledge as the founder.
A solution I often recommend, as least in early growth, is using outsourcing for critical tasks. While this approach might appear to cost more, it actually often costs you less when you consider the hidden costs of redoing work, poor customer satisfaction, employee management, and training you'd otherwise face. (As your business matures and stabilizes, hiring in-house employees makes more sense.)
I just finished reading a new book for entrepreneurs, Secrets to a Successful Startup by Trevor Blake, which makes the same points, based on Blake's own real-life experience with three successful startups.
Blake outlines the following benefits of outsourcing and freelancing:
1. Serving your business well is a competitive priority for workers.
With worldwide instant access to skills and alternatives via the Internet, I see a much more competitive and skilled remote workforce than ever before.
Contract employees know they have to perform well at your company or they will be quickly replaced. The terms are clear, and there is no entitlement to deal with.
Of course, it still pays to consider the impact of cultural norms and languages, as well as time zones, particularly in areas that present your image to customers, such as customer service. Direct customer-facing non-technical roles should be the last ones outsourced.
2. Outsourcing can give your startup a more mature image.
Customers won't know that vendors are not employees of your company. Outsource providers will adopt your company name when they interact with others, and their expertise can help you overcome the hesitation of some clients to do business with small and new businesses.
For example, if I'm a customer who needs help with product installation or customization, I don't want to deal with someone who is clearly new to their role or inexperienced. Most freelancers are already experts and confident from previous assignments, and that image will help your business.
3. You can contract expertise rather than train employees.
If you do your due diligence when hiring, the contractors you outsource will already be trained and experienced in their jobs.
Their careers depend on keeping up their skills, and they must have the confidence to work unsupervised. Training takes time and energy you may not have yet.
One of the first places that many entrepreneurs effectively use outsourcing is in the initial hiring of key employees, and the execution of key human resources functions. HR is easily done on a contract basis, and may not be a full-time function for early businesses.
4. You'll void employee-related expenses and management.
By using contractors and vendors, you'll avoid all the expenses and regulations that come with employees, including career management, worker's compensation, health insurance, and tax withholding.
In addition, you can reduce the "soft costs" of mentoring, relationship-building, and socializing.
According to a recent MIT study, the true costs of employees are typically in the 1.25 to 1.4 times base salary range, not including space and equipment requirements. This goes a long way in covering any premium that you might pay for comparable freelancers.
5. Freelancers are ready to go to work immediately.
Outsourcing vendors hire, train, and manage their own employees, using their own human resources, performance, and appraisal systems.
They need no office setup, since they have their own. By outsourcing to experienced staff, you can focus your time and energy on your business growth.
6. You can easily adjust services to control cash flow.
Services vendors typically offer a menu of services, so you can select what you want when you need it.
Outsourcing gives you the flexibility to add or cut back on services and volume according to demand, and meet your cash-flow management requirements. Startups need that flexibility.
It's usually impossible to predict your growth and service needs, since you have no experience or history to guide you. In addition, you'll often find the need to pivot as you learn more about your customers' needs and your solution's match to the market.
To be sure, there are potential negatives associated with outsourcing and freelancing, including threats to security and confidentiality, continuity issues, communication challenges, and impact on existing employee morale.
Yet, in my experience, the pros far outweigh the cons in modern startups, so don't let managing employees be the nemesis of your great new business.