When to outsource, and when to build your internal competencies

New expertise sheds light on this age-old question.

outsourcing thinkstock
Credit: Thinkstock

At many points in a company's life cycle, leaders must face the issue of whether to build or buy critical business services and tools. How do you know when it is better to keep things in-house, or outsource to a third party?

According to Jared Turner, CTO at internet services company Boostability, "Businesses are always asking about whether they should bring expertise inside, or hire it out. The build-versus-buy dilemma is alive and well in the internet marketing space, as in every industry." Turner uses a small set of filters when talking about this question. His list is a good starting place for entrepreneurs trying to efficiently grow their businesses.

1. What is your core business?

Whatever it is that creates value for your customers, you should probably concentrate on doing more of that, and less of everything else. "When we first started selling social media and SEO services, we thought our customers would want to do the actual work themselves, using our tools. But we quickly learned that they did not have the time or expertise. They were too busy serving their customers," remembers Turner. "When we changed our strategy and assumed all of the work, our customers were less distracted and more able to increase sales and effectively deliver their core offerings."

2. How big is your budget?

A lot of small or medium-size companies may struggle with finding the budget to bring in an outside expert. Ironically, it's common to spend even more time and money trying to tackle an area they know nothing about — hiring people for positions they don't understand and becoming disappointed when they fail to see desired results.

Ever complained about the exorbitant fees of your company's lawyer or accountant? No one likes parting with hard-earned cash. But it's pretty much accepted that a business without an accountant is like a canoe without a paddle — going nowhere fast. And failing to heed key legal advice is asking for a whole lot of trouble.

Like it or not, you find the budget for these necessary services because you know they will protect you from costly consequences in the long run, like an employee lawsuit, an incorrectly filed tax return, or an audit. The upfront costs of outsourcing may be difficult to bear in the beginning, but the money saved by doing things right the first time could more than pay for itself.

3. How important is your reputation?

This is an obvious question with a self-evident answer. Ask any business owner how important their company's reputation is and they'll emphatically answer, "extremely!" A business's success is directly tied to its reputation, yet too many entrepreneurs are willing to put it all at risk in order to save a few dollars by taking on too many tasks for which they are not qualified.

Let's say you've got global clients and are thinking about cornering foreign markets. You'll need your website localized into the target languages of your overseas customer bases. You can save a lot of money by using a plug-in like Google Translate (in-house). Or you could hire the services of a translation company (outsource).

A cautionary tale: There's a certain U.S.-based immigration law firm (which shall not be named). Its core customer base is made up of Latin Americans, so the firm translated its site into Spanish using the aforementioned plug-in. On the main page, "Lead Attorneys" in English became "abogados de plomo" in Spanish, meaning "Attorneys made out of lead" (the heavy metal). Not exactly the image of credibility and professionalism the firm was hoping to portray.

Sean Hopwood, president of language services provider Day Translations, explains, "Translations can't always be done word for word, and computers don't pick up errors the way that humans can." There's nothing more costly than having to go back and fix an advertising campaign gone awry. Just ask Ikea, Ford or Nike.

4. How deep is your bench?

If you try to keep all business functions in-house, what happens when key employees move on, taking a wealth of specialized information with them? Do you have a backup plan? If you opt to build in-house rather than buy from the outside, make sure that you have cross-trained people who can take over, and that your intellectual resources are not invested in just one or two employees.

As an entrepreneur, you are a problem-solver. Don't let that strength become a weakness by taking on too many processes that could be better addressed by outside experts who are more capable than you. After all, isn't that why your customers hire you — to do what you do best?

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