A startup begins with an idea. One or more like-minded, enthusiastic and ambitious individuals come together to take a concept from the drawing board all the way to tangible product or service. Of course, the process is easier said than done. In fact, nine out of 10 startups will fail, so it’s no wonder why entrepreneurs look to outside resources, mentors and outsourced services for help.
Outsourcing allows leaders to focus on areas of their business that need critical attention. The value of using third parties as strategic partners is that they run day to day operations that tend to bog down progress. However, handing off the basics can be problematic. Whether you’re the CEO, co-founder, or lead-engineer, when you entrust others with part of your business, you run the risk of diluting your power. #LeadersatWork spoke with John Friar, Executive Professor of Entrepreneurship at D’Amore-McKim, about the downside of outsourced partners working with startups and why entrepreneurs should proceed with caution.
“There are plenty of great reasons why a company in its infant stages would look to outsource work,” said Friar. “In most cases, R&D timelines for these ideas are very long. It takes years to develop an idea, turn an idea into a product, figure out the product’s market and actually get it there. Outsourcing is cheaper than running everything yourself; Rather than hiring the help, you’re more or less renting partners who probably have more advanced capabilities than you.”
But rent with caution, says Friar. In some cases, the boundaries can blur between entrepreneur and partner, steering the idea away from the original path and hindering innovation.
“We’ve seen situations where the outsourced partners become very excited about the project, which in some cases can be bad for the business’ development,” explained Friar. “If the founder agrees with some of the suggested strategies, they may start relying more and more on the partner for judgement.”
When this happens, they’re actually transitioning power away from the core of the business and over to outside partners.
“At the same time, it’s important to understand that as the entrepreneur and founder, you shouldn’t be relying on a third party for everything,” Friar added. “The relationship is a two way street. The founder is responsible for preventing an over-dependency on outsourced support and having the final say.”
This isn’t to say that outsourcing is a bad idea. It’s a great way to optimize efficiency and contract help as you need it. Nevertheless, there is a right and a wrong way to outsource, so before you look outside your organization for help, make sure you have a plan in place. Check your company’s goals and strategy to make sure that any outsourced functions and processes do not conflict with your company’s platform, and be sure to frequently evaluate to make sure the balance doesn’t change as your company grows. This will help keep the lines between founder and partner as clear as possible.
What are your thoughts or experiences with outsourcing as an entrepreneur? What success or failures can you share?