Outsourcing: if your small business isn't doing it, you're doing something wrong. Before you light the torches and sharpen the pitchforks, I don't mean outsourcing to China. Let's take a step back, I see it happen often - many small businesses attempt to master every corner of their business model without venturing outward to third parties for help. Instead of partnering with a corporate IT firm, they establish an in-house IT department that employs a full-time specialist with a salary and benefits; instead of contracting an experienced manufacturer, they pay to operationalize their own manufacturing facilities. Decisions like these can lead to exceptional growth, but only if you are willing to wait it out for the long-term pay offs. To get your company's feet off the ground sooner, you need to focus on your expertise, your specialty and look to start outsourcing right away.
The problem with the "own-it-all" logic is that it forces your company to develop in slow, incremental, uncertain stages. Unless something like an inheritance graced you with a bottomless pit of resources and capital that you can sit on, this simply isn't practical. Long-term planning is a necessity in any industry, but you can circumvent much of the delay by simply contracting ancillary work to third party companies. For example, let's say you want your small business to be more involved with public relations. At your current stage, does it make sense to establish a Graphic Design from the ground up, one with full-time employees and an entirely new package of risks and fixed costs? Or does it make sense to go to a contractor to handle your graphic needs for the time being? Going with the contractor means you won't have to pin existing capital onto a new department, so you save a lot of money in the short-term.
By outsourcing peripheral aspects of your business, you give yourself more room to invest in and focus on the more fundamental, unique parts of your business model. My company, TerraCycle, develops proprietary recycling solutions for waste that's not typically recycled. On this front, we have almost no competition - we've found ways to recycle cigarette butts, dirty diapers, chewing gum and a huge variety of post-consumer packaging waste thanks to our ingenious Research and Development or Product Design teams. But as TerraCycle expanded into new waste streams and grew, so too did the amount of waste material sent in by consumers, families and organizations. While we had the know-how and expertise to develop the recycling methods themselves, we didn't have the infrastructure in place to fully take on this massive, quickly influx of myriads types of waste.
Partnering with existing facilities not only let us manage that in-bound stream of raw materials, but let us continue to expand into new waste streams without fear of overextending our resources. We develop and own the process, which is vital to our business model, our partners own the warehouse and facilities, which reduces our overhead and creates less exposure to market fluctuations (taxes, material costs etc). Not only has this made us operate more efficiently, but it's allowed us to develop a niche expertise in our industry, while constantly expanding. When my scientists develop a recycling process for a new material, say cigarette butts, I don't have to wait months or years for the facilities to be built or re-tooled. Instead, I can take this new solution right to market, because my partners have the facilities in place and I have the science.
Sure vertical integration worked for Rockfeller, but there's a lot more competition in today's world, so you need to grow fast in order to stake your claim in any industry. Focusing on where your company is unique while outsourcing more peripheral functions is how you develop a strong, successful brand and growth track quickly. Expansion into those less crucial areas can come with time, once revenue streams are more developed by the success built from focusing on your core offerings. If you get hung up on investing into every possible aspect of operation, growth may only come to you in limited, sluggish strides.
This article is part of ICIC's Icons of Industry Growth series, highlighting the fastest-growing businesses located in America's inner cities. Small business owners are invited to join these successful entrepreneurs in Boston on October 15-16th at the Inner City 100 Symposium, a premier management education and networking event featuring leading CEOs and Harvard Business School faculty. Learn more here.
ICIC is the national outreach and selection partner for the Goldman Sachs 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.