The Benefits of Outsourcing: Understanding How it can Help Your Business
The Benefits of Outsourcing: Understanding How it can Help Your Business
Love it, hate it or completely clueless about it, outsourcing and its benefits have been the buzzword in the entrepreneurial world since Tim Ferriss blew it open in his infamous book The 4 Hour Work Week, which became a bestseller in 2007.
While outsourcing is a simple concept, it still baffles many of us – even the savviest of business owners who already engage in it! The myths and misconceptions surrounding it are many.
So, let’s just cut to the chase and clarify what exactly outsourcing is (and what it’s not!) and explain why it’s an absolute no brainer for business growth … if you do it right that is.
What Is Outsourcing?
Simply put, “outsourcing” involves hiring a third party, a ‘non-employee’ if you will, to perform certain business functions. This third party can be an individual or another company and can be totally arms length from your business (pure outsourcing) or more integrated with your business and internal team.
For example, clients of The Virtual Hub hire our company as a third party that integrates our virtual assistants into their businesses to run various digital marketing and operational business processes and tasks.
It’s something that’s been around forever but only became a recognized ‘thing’ in the late 1980s, when major corporations began outsourcing their IT systems.
It has become a no brainer business strategy, the ‘secret sauce’ to successful business profits for so many companies. There many advantages of outsourcing. It’s a strategy that’s been silently fueling growth around the world and is only gathering more pace, notoriety and momentum.
The word outsourcing is often used synonymously with offshoring, but this is one of the misperceptions. We’ll come back to that.
Who Is Outsourcing Their Business Functions?
In fact, you’re more than likely outsourcing, whether you realize it or not.
Many people don’t recognize all forms of outsourcing because of those misperceptions around it. For example, it’s often associated with huge companies, with massive budgets, that can afford to sign long-term contracts for tens or even hundreds of thousands of dollars. . But they are not the only ones capitalizing on it.
Most solopreneurs who haven’t yet built a team for their business are outsourcing something.
You’re already outsourcing if you:
- Hired a freelancer or digital agency to create your website.
- Invested in a graphic designer to create your logo.
- Pay someone else to do your bookkeeping or tax prep.
- Have worked with a copywriter to create content for your sales page.
- Hired a virtual assistant or VA Company to help with business processes
No matter how much a new business owner is bootstrapping, no one can do everything on their own! Nearly everyone is outsourcing something, even if their business is brand new.
What Can Be Outsourced?
Although just about anything can be outsourced these days, outsourcing is most effective when it’s done strategically, through hiring subcontractors to execute non-primary, non-revenue-generating functions. Also, both product- and service-related business functions can be outsourced to third parties.
So, let’s take a look at the different possibilities for outsourcing.
Types of Outsourcing
Depending upon where you look, you’ll find different ways to categorize the types of outsourcing. But the two major ways to break down outsourcing are by process function and by location.
Outsourcing Categories Based Upon Type of Product or Service
For example, some sources identify four types of outsourcing:
- Professional Outsourcing (e.g., a lawyer or an accountant)
- IT Outsourcing (e.g., an app developer)
- Manufacturing Outsourcing (e.g., a factory in a foreign country)
- Project Outsourcing (e.g., a website designer)
Another perspective breaks outsourcing down into the following process categories:
- Business Process Outsourcing (BPO) – Hiring a third party to take responsibility for the operations of a specific business process represents this type of outsourcing. It breaks down further into back-office and front-office functions.
- Back-Office Operations – These functions are essential to running the business but aren’t seen by the customers. Back-office functions include accounting, HR, and planning. For online entrepreneurs, tasks like social media automation, project management, and website maintenance are back-office processes that are commonly outsourced.
- Front-Office Operations – Anything the business’ customers experience directly, such as sales, customer service, and service or product delivery, falls into front-office operations. Managing emails and phone calls would be among the front-office tasks that virtual businesses often outsource
- Knowledge Process Outsourcing (KPO)- This refers to outsourcing research and information gathering.
- Information Technology Outsourcing (ITO) – Creating and supporting computer-based information systems (hardware and software) falls into this category.
Outsourcing Categories Based Upon the Location of the Third Party
Another way to break down outsourcing is to divide it into categories based on whether or not the third party is in the same or another country. (offshoring vs outsourcing)
- Onshoring refers to outsourcing to a third party located within the same country as your business.
- Nearshoring is outsourcing to a third party in a bordering or otherwise nearby country.
- Offshoring means outsourcing to a third party in a far away country, typically one on another continent. When the term “offshoring” is used, it usually refers to Western countries outsourcing to companies in Asia or South America. However, a U.S. company working with a contractor in the U.K. is also, technically, offshoring.
Remember when we noted above that many use the terms “outsourcing” and “offshoring’ synonymously? You should be able to see the difference by now.
“Offshoring is a specific category or subset of outsourcing. That is, all offshoring is outsourcing, but not all outsourcing is offshoring. “
Because of this incorrect association between the two words, outsourcing often gets a bad rap. What they’re not fully aware of are the many outsourcing benefits. But we’ll get into detail about outsourcing myths below.
The Benefits of Outsourcing
Here’s where we’re going to get into the details about the advantages of outsourcing and how it’s pretty much essential to business growth.
So, why are so many businesses outsourcing select business functions? Oh, let us count the ways!
Outsourcing Saves You Time
As we’ve discussed elsewhere, you can’t do everything in your business forever. At least not if you expect to grow! At some point, you need to start delegating effectively to other people so you can free up your time and energy to focus on growing the business.
Delegation involves bringing other people in to help and this can be costly when it comes to hiring and managing employees. Outsourcing, either onshore, near shore or offshore, can be a really effective way to get over this hiring roadblock that stops so many business’ growth plans.
You hire someone to do “their thing,” you gain more time to do “your thing,” and those pesky tasks that aren’t your thing get done quickly and effectively. Win-win!
Outsourcing Saves Money
One way to look at the money-savings offered by outsourcing is to compare it to the costs of hiring employees and/or investing in training in order to perform every function and process within your company.
Employees require benefits, equipment, and training to perform tasks within your business. Going outside your company to utilize someone who already has the equipment and expertise (and for whom you don’t have to provide benefits) is much more cost effective.
Remember too that certain types of outsourcing give you the look and feel of having employees without all the employee headaches and expenses. At The Virtual Hub we integrate our virtual assistants into our clients businesses so they look and feel like an employee in those businesses but, really, they are employees of ours.
On the other hand, outsourcing initially may seem like an expense, instead of a cost-savings measure, at least among newer entrepreneurs. But you should view the costs of outsourcing as an investment in your business. As noted above, outsourcing saves you time, and (say it with me!) time is money.
Consider what an hour of your time is worth when you’re “doing your thing.” Now think about how many hours a week you spend on business tasks that are not your thing, or are simply not a good use of your time as an entrepreneur (even if they are your thing!). Don’t you think you could find someone who could perform most of those tasks for you at an hourly rate that is less than – or even far less than – your hourly earning power?
We guarantee that you can!
Outsourcing Increases Focus
When you quit doing everything in your business, you spend less time “shifting gears” among all the functions and processes needed to keep your business running. Therefore, outsourcing means you have fewer distractions from the mission of your business. Also, because you then get to focus more on your core business offerings and differentiators, you’re increasing your capacity for your business’ specific strengths. You’re able to serve more people and do it with more impact, earning you more money and creating a competitive advantage.
Outsourcing Improves Quality
Let’s back up to the sections above about how outsourcing saves you time and increases focus. Doesn’t having more time and focus for “your thing” also allow you to create higher quality results in your business as a whole?
So, even if you simply outsource a bunch of routine, low-impact tasks (e.g., calendar management, blog post formatting) to a virtual assistant, you get the breathing room to produce higher-quality outcomes and work more ON the business than IN it.
“Therefore, outsourcing means you have fewer distractions from the mission of your business.”
Myths about Outsourcing
Within many other articles about outsourcing out there, this section is titled something along the lines of
- The Disadvantages of Outsourcing
- The Cons of Offshoring
- Outsourcing Risks.
However, The Virtual Hub thinks a bit differently on outsourcing in general and on offshoring specifically.
For starters, although you have to manage the risks that go with any business endeavor, the benefits, convenience, and cost-efficiency can really outweigh any challenges associated with outsourcing – IF you do it right! That rings true for both onshore or offshore resources.
Furthermore, delegating business tasks effectively is simply non-negotiable if you want to grow your business. You can delegate or you can stagnate. It’s impossible to grow and scale your business without effective delegation and outsourcing is a really cost effective way to achieve this. Period.
So why do others focus on the potential challenges of outsourcing? Because they don’t know how to do outsourcing right. Lucky for you, we do.
Myth #1: Quality will decline
We think we’ve already made our case above that quality typically improves, rather than declines, because you (and your team) gain more time and focus within your zone of genius. But we’ll also add here that we’ve found that this is often simply a block or a mindset issue among business owners.
Business owners are high achievers and can, therefore, fear that “losing” control of a task or function means that it won’t be – or even couldn’t be – done as well by someone else. Yet in reality, they gain more control over their business when they outsource because they have the time and energy they need to manage the business more effectively.
The only trick is to ensure that you have clarity on what quality means to you and that your criteria for success are clearly relayed to the person or agency you hire.
Myth #2: We have to be in the same (or very close) time zone
There’s a misperception out there that working in different time zones creates all kinds of havoc, but that definitely doesn’t have to be a problem. Often, the tasks we need assistance with are not dependent upon location or even a specific time of day. They’re easily delegated, communicated, and executed electronically.
It doesn’t matter if they get completed during your working hours or if they happen while you’re sleeping. (And actually, we think waking up to completed tasks is rather a perk!)
Furthermore, in the Philippines and other parts of Asia, there is a thriving and lively late night work culture. Finding offshore workers willing to work when you’re working is 100% possible, even if they’re completely on the other side of the globe!
Myth #3: Westerners are taking advantage of lower-paid workers offshore
This one comes from a lack of understanding of global economics. Hiring an offshore virtual worker typically costs you significantly less than hiring one locally, because the offshore worker has a much lower cost of living. As such, your virtual position is a really good opportunity for offshore workers.
You might be surprised to learn this, but virtual assistants living in Asia often earn as much or even more than their counterparts in professional careers such as nursing! In addition, hiring offshore people creates wealth and growth in poorer nations, fueling their economies.
Using this strategy to help your business grow successfully means that your business will go on to pay tax revenues in your own country, hire local staff and other services and, in turn, drive your economy. Therefore, outsourcing overseas is really a win-win-win.
Myth #4: You get what you pay for
Although clichés are true, this one definitely doesn’t have to be. After Myth #3, it should be obvious that, although hiring offshore costs you less, you’re getting the professional equivalent of a local worker who commands a higher rate. That is, you can hire an offshore team member who is comparably trained, experienced, and effective to someone you could find locally but at a much lower hourly or project rate.
It may seem scary to hire someone so far away and feel confident about the work they will do for you. But there are very high-quality workers available.
You just need to carefully do your research when hiring and/or hire through an agency like The Virtual Hub that trains and manages its staff of virtual assistants.
Myth #5: Cultural and language differences create problems
As we’re sure you realize, even among English-speaking, Western nations, many cultural differences exist! Heck, there are cultural and language nuances even among different regions within a given country. So, when you think about it, this potential challenge is blown out of proportion.
Further, as countries’ economies become closer and closer to operating within one global economy, many large companies have offices in major cities all over the world. Those companies are successfully navigating any cultural differences among their offices.
Why can’t you?!
In addition, where there are virtual (or other) offshore workers looking to work for Western companies (e.g., throughout Asia, including India), English has been made a major part of their existing cultures and their populations are very in tune with Western culture. In fact, we’ve found that the culture in the Philippines, where our virtual assistants are located, is very Western in nature!
“Hiring offshore people creates wealth and growth in poorer nations, fueling their economies.”
When Outsourcing Is Most Effective
Our short answer would “now”! If you think you don’t “need” a VA or to outsource some functions of your business, we’d tell you that you simply don’t value your time. As we’ve repeatedly mentioned here, offloading your low-impact, time-intensive business tasks and freeing yourself up to focus on your zone of genius, “your thing,” is possibly the most effective way to earn more and to grow your business.
But as we also stated, outsourcing is most effective when it’s done strategically. First, consider what you want outsourcing to do to accelerate your business. Know specifically what you’ll do with the time you gain by outsourcing and establish your goals.
Identify the Tasks
Next, identify all of those tasks that you shouldn’t do – the ones you don’t like, the ones that take to much time, and the ones where you lack expertise. Get very clear on which tasks you’ll outsource, how you want them to be completed (set-by-step), the work hours required, and how you’ll establish communication channels.
Identify the Mix
Finally, ensure you find the right combination of onshore and offshore resources. Take a look at the tasks to be outsourced and consider which are basic, day-to-day tasks that could be done offshore and which might require a more local resource. For example, basic technical operations can easily be moved to offshore resources, but you likely need a native language speaker to write your ad copy. Also, consider hiring different people for different tasks. For example, you’ll probably have more luck hiring one, part-time person for customer service and a second, part-time person to manage your social media scheduling than you will have finding one, full-time resource who’s good at both of those functions.
Do Outsourcing Right and You Can’t Go Wrong
The myths we covered above truly are myths – if you do outsourcing right. The biggest potential downside of outsourcing is that it’s a bit easier to fall out of sync with your team member(s), especially if they’re offshore, because you don’t get to connect face-to-face as you would in a traditional work environment. This is why clarity is key.
But if you establish clarity and the right mindset, we believe outsourcing is the number one way to grow and scale your business and to have a bigger impact on the world.
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