Outsourcing Tips for Startups


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Tips for entrepreneurs on what and how to outsource various business functions.

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  • Our advice is to outsource *everything*.That is, you should outsource everything that isn’t core to your long term success.Clayton Christensen Innovator’s Dilemma. Strategy goes in the direction of excess capacity.
  • You think that’s not possible? Did you know about Plenty of Fish?Founded by Markus FrindAfter long time hired3 customer support staffPlus many volunteers to monitor forums and sort through 50K photos per day!11 million registered users#1 dating site in UK, Canada…#2 in US by audience share$10MM / year in revenueOutsourcing allowed his low cost structure which became his competitive advantage (free online dating site).
  • A framework for how to think about what is core vs. support:Early days you may not know, BUTAnything that is key to your long term sustainable competitive advantage (e.g. barriers to entry for competitors or barriers to exit for customers) is coreAND anything that allows you to rapidly learn (e.g. customer support) should also be coreEverything else is supportASK A FEW OF THE AUDIENCE WHAT THEIR LONG TERM SUSTAINABLE ADVANTAGE IS
  • And of course for the very early stages of the company you have to balance your time vs. money.But you can outsource via barteringYou can do service for equity dealsOr service now for payment laterPoint being: just because you don’t have money today doesn’t mean you can’t outsourceOutsourcing isn’t all or none. You can start yourself (like legal) and handoff.You can also use outsourcing as a review step – write copy, outsource the editing
  • So you ought to go through for you business each of the functions and think about your long term competitive advantage, your resource constraints and whether you should outsource, keep inhouse or do a hybrid model.
  • Almost certainly accounting is a support service and should be outsourced.Pick one early.  Set up a process.  Don't be a "shoebox" client.  Get someone local.  Collard advisory group.You might think you can do this yourself, but it's not worth it.Think inexpensive bookkeeping first, then accounting. Accounting is more end of year and tax time related. Book keeping is what makes the trains run on time.
  • Believe it or not, banking is a core part of their business for some startups (think PayPal or Zopa).But for most of us, it’s a basic support service.There are a number of banks that cater to startups and can offer ancillary services like office space and introductions.Prior to funding, unless it’s a core part of your offering, it doesn’t matter much. After funding, investors may care.FN: Tell story about Silicon Valley Bank
  • They're like VCs...it matters less who's name is on the front door but rather who you work with.Most startup attorneys will do deferred payment plans. – Helps to know someone and in the valley they will often defer up to $25K until funding in return for .5%-.75% in equityA hybrid model makes sense for many types of agreements (NDAs, employment contracts, supplier agreements, etc.)You’ve got to run the show here (set clear limits) or even play money can get used up very quickly
  • Unless you’re a designer you’re going to outsource the graphical designYou get what you pay for.  99designs are simplistic. Guru/eLance are "transactional". Local free lancers offer quality but may not be available in the long run. Firms offer integrated support but cost money. UX is another beast altogether. It’s something that you probably need to have your hands on (or find someone to join the team who will).You can find UX rockstars like Robert Hoekman who are awesome buy they are very expensive.World class In-house UX is one of the most challenging hires you’ll make in Boston
  • Naming/branding.  Content is what makes or breaks a site.  Unless this is your forte, you should enlist help of experts. After friends/family, there are professionals that can make a huge difference. [Good example of Hybrid. You do review and get outsourced review.]
  • Internal vs onshore vs offshore. 2-man rule. We should probably expound on this one as it's probably the one people are most interested in.Offshoring is hard to do well. Management cost and challenges can easily out weigh the perceived savings. Contractors are a different story – still hard but local can make a big difference in communicationIf you are not a tech person, start with UX/design and validate that your idea is resonating with people before you write code
  • Recommend you 1099 employees as long as possible (even if they're full time).  When it comes time to do payroll, it's best to outsource until at least 10 or 20 employees.  Ideally you accountant can help you with this.  If not, there are many local firms that do this at a reasonable price.1099 is great but watch the state and federal guidelines, they are easy to be on the wrong side ofEnforcement may not be high but it’s a risk to be aware of.Sure payroll is cheap and turnkey
  • Don’t do this in the early days. And depending on the business, maybe never
  • Don't bother setting up a merchant account to start unless you have reason to expect heavy volume.  Paypal/Google et al have great online payments tools that have low setup costs (but relatively high variable costs) and easy to implement.  You can set up your own merchant account later when it become economically viable.
  • Depending upon your inventory (online, mobile, etc.) you should be able to find many options for an ad sales network.  Unfortunately they will be very expensive (30-50% or more).  But in the early days when you have limited inventory, the cost of building your own ad sales force is prohibitive.
  • For startups, PR firms are a waste of money.  Better to do personal outreach to blogs/local media.  Get Constant Contact or Mail Chimp. Start a blog. In the early days no one can tell your story better than you.Best early PR is a product that people actually love plus a genuine story to tell from the founder. Can get to know local media easily, they’re at the same events you are, all starts with relationships
  • Investors hate deals that come to them via brokers.  There's an adverse selection bias from their perspective. They're thinking, "how good can you be if you can't get to them yourself.”Go direct and network your way to the people you need to meet or find them directly in the local community.Plenty of people are willing to help you for free.
  • Channel salesHRCFO???
  • What to outsource depends upon whether it's core to your business or not AND whether there is an economically viable 3rd party solution.Cloud computing, open source and a global talent pool make outsourcing easier than ever before (even a few years ago).You must balance short term constraints (human, capital, etc.) with long term requirements.Anything is possible with hard work and the right attitude.Relationships make a difference.
  • Outsourcing Tips for Startups

    1. 1. Outsourcing<br />John Prendergast & Furqan Nazeeri<br />
    2. 2. Serialentrepreneur aerospace<br />engineer Harvard MBA founder/CEOPivot raised tensof millions ofVC investor/advisorto many startups<br />
    3. 3. Serialentrepreneur NOT an engineerKellogg MBA Lean Startup founder/Blueleaf CEOhundredsof millions in companiessold startup advisor<br />
    4. 4. Outsource everything<br />*<br />* that isn’t core to you long term success<br />
    5. 5. Plenty Of Fish<br />
    6. 6. CORE<br />SUPPORT<br />
    7. 7.
    8. 8.
    9. 9. Accounting<br />
    10. 10. Banking<br />
    11. 11. Law Firm<br />
    12. 12. Design / UX<br />
    13. 13. Branding / Copy<br />
    14. 14. Engineering / QA<br />
    15. 15. Payroll<br />
    16. 16. Customer Support<br />
    17. 17. Online Payments<br />
    18. 18. Advertising<br />
    19. 19. PR/Marketing<br />
    20. 20. Brokers<br />
    21. 21. Others?<br />
    22. 22. Tools<br />Skype<br />Basecamp<br />Highrise<br />SharePoint<br />QuickBooks<br />
    23. 23. Conclusions<br />Outsource everything<br />Core vs. support<br />Outsourcing is easier than ever before<br />Short-term vs. long-term<br />Anything is possible<br />Relationships make a difference.<br />
    24. 24. http://altgate.com/<br />fn@altgate.com<br />cell 617-372-2970<br />http://blueleaf.com/<br />john@blueleaf.com<br />cell 617-721-3195<br />
    25. 25. Thank you!<br />