Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.

By Anthony Stevens

“Outsource everything.” – Tim Ferriss, The Four Hour Workweek

“Outsource nothing.” – most startups and small businesses.

Outsourcing is a tricky analytic proposition for startups.  Unless you’re one of the lucky few with angel or VC backing, you need to watch every penny. (Even if you are funded, you should still be watching every penny, but that’s a different post).  It costs money – typically cash, up front – to outsource.  How do you find the sweet spot between spending too much vs. trying to take on too much by yourself?

In the first place, why outsource at all?

  • Access to specific expertise.  You’re probably not an attorney, a CPA, or have the ability to translate your copy into 12 different languages.
  • Time savings.  You only have twenty-four hours each day, and can’t do everything.
  • Cost savings.  Your accountant can probably do your business taxes faster (and thus cheaper) than you could.  Your time is valuable.

As a startup CEO, it’s an open question as to whether time or cash is your most precious resource.  Let’s be realistic and say “both,”, which is why the outsourcing question is so vexing.

Let’s try to lay down some ground rules for startup outsourcing:

1. Don’t outsource your core competency.  Figure out the one thing you’re excellent at, the one thing that sets you apart from your competitors – and do not outsource that function.  For many startups, that may be product development.  For others, it may be marketing, or finance, or legal.  It doesn’t matter.  Keep that one thing in-house.

2. Consider outsourcing everything else.  I say consider because the practical realities of your cash flow situation will dictate how much you can outsource.  You’ll have to pick and choose.  My opinion on good candidates for outsourcing are very specialized, expert professional functions such as:

  • Legal
  • Accounting/Finance/Payroll
  • Investment Banking

These are almost no-brainers, but Intuit wouldn’t be a $3bn company if everyone decided to outsource their accounting function, for example.  And I’m still amazed when I walk into Staples and see row after row of do-it-yourself legal forms.

3. Don’t outsource your customer relationships.  As a startup, you need to be in your customers’ hip pockets, feeling their pain and offering creative solutions.  That’s why I don’t recommend outsourcing things like support and sales.  You – yes, you, the CEO – need to be out there on the front lines, listening, responding, and knowing firsthand what works for your customers and what doesn’t.

4. Resist reinventing the wheel. Many engineering-heavy startups fail on the buy-vs.-build decision.  I’m a software engineer at heart, so I understand the impulse to develop everything in-house.  But does that really make sense?  Do you really need to write your own CRM tool when there are plenty of awesome products already on the market?  Do you really need to write your own e-mail marketing tool?   Your own telephony engine?

5. Position yourself ahead of the trend.  We’re living in a world that gets cloudier every day.  More and more of your business’s functions will (and should be) running on EC2 or Azure or App Engine in the coming months and years.  Tom Peters, in his classic work Reimagine!, wrote about “Scintillating Professional Service Firms.”  Find them.  Use them.  The days of “we do everything in-house” are going, going…almost gone.

6. Get creative.   Take advantage of free trial periods.  Negotiate with vendors on pricing, payment terms, and cash vs. equity.  Comparison shop.

7. Slim down.  Avoid some of the cost of outsourcing by ruthlessly reevaluating whether you need that function in the first place.  Do you need to hire an expensive attorney to set up a stock-options plan when there are only three of you working out of a garage?  Do you need to hire a specialized HR professional to find good candidates, or should you continue to mine your personal network for leads for a bit longer?  Can you use free templates to create your blog and business cards, instead of shelling out cash for a designer?

What do you think? Are you part of a Seattle-area startup and have an outsourcing experience to share?  Let us know in the comments!

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