5 Outsourcing Tips for Building a Better Business
You may be a rookie start-up founder ready to dive headfirst into subcontracting opportunities or one of the Big Boys well familiar with outsourcing risks and benefits and service provider offerings – regardless of where you are in your journey, you will want to learn our top outsourcing tips and tricks before you plunge into a new business venture.
In the world where technology and immediacy are the need of the hour, IT outsourcing is increasingly getting a popular stead, especially for early-stage start-ups and small to mid-size businesses that operate with limited resources but aim to break into the tech industry in a big way. It’s an affordable, proven go-to strategy that provides relief to companies seeking to harness the best of digital technologies and deliver a superb customer service.
All too often business owners are challenged with communication issues with their vendors and struggle to learn how to build the outsourcing business case, negotiate the deal, and craft a long-term healthy relationship with their partners. Not only that but how can you put the future of your business at risk and place it into the hands of strangers after you have poured your heart and soul into it? Outsourcing might seem like a gamble and it does have potential pitfalls, especially if it’s your first time outsourcing.
Not so long ago, we shared our insights into the reasons for IT outsourcing. This time we’ll skip the details of outsourcing benefits and just cut straight to the core: how it actually gets done. Here are the top five outsourcing tips that, hopefully, will alleviate all your fears, unlock IT outsourcing best practices, help you get outsourcing right from the start, and make your business tick.
#1 Guidelines for Finding the Right Partner
Before even dipping your toes in the water, take the time to choose a capable and reliable contractor to work with.
Ask around for recommendations
A common criticism against outsourcing is the risk of receiving subpar work. Outsource providers come in all shapes and sizes, and identifying the right one means having access to the right information about potential candidates. You can start from your own network of contacts and get references from people you know and trust, usually other entrepreneurs who have had experience with companies in this field.
Visit virtual marketplaces
Spend time shopping around on outsourcing sites. Online hiring services, like Upwork, are a powerful tool for expanding your personal network. They allow you to see the detailed profiles and portfolios of prospective vendors and get the feedback on the value of their work from other employers. Testimonials from prior clients can significantly affect your decision when weighing one contractor against another, and lead you to the best one.
Choose between an agency and a freelancer
The advantages of an IT outsourcing agency are obvious. They usually hire highly-trained professionals that can be easily replaced if they don’t meet your expectations. Many firms also implement ‘checks and balances’ and handle the entire product development process, thus mitigating any risks. With so many skilled engineers and experienced managers on board, they take on the responsibility to check all work and resolve any issues, if things go haywire.
Two main hazards associated with hiring a freelancer are relying on a single engineer with no one to check their work, and the possibility of setbacks if your contractor fails to complete the project.
You can’t expect one developer to be ‘a jack-of-all-trades’. Things happen. Issues come up. One possible solution could be getting a second opinion from an independent freelancer or even a couple of them. Having someone review your contractor’s work can substantially reduce the risk and save you big bucks. Plus, if you put all your eggs in one basket, you may end up having to look for someone else. Freelancers often come and go. Some of them may get a fantastic full-time job offer and leave you the next day. So, hiring several engineers might save the day for you.
In either scenario, whether you decide on an agency or a freelancer, find out if they do the development themselves or outsource it to someone else. Doing business through resellers may thwart communication and thus the entire development process.
Hire the specific expertise you need
You don’t want to be ‘a guinea pig’, right? So, your vendor’s expertise and specialized skills should be factored into your final decision. Before engaging with a supplier, you have to be sure that there is a good match between what you need and what the provider specializes in, so that their strengths line up with your goals. Choose a reputable company that is well-established in their field and have proven experience working on the projects similar to yours. This especially holds true for complex, technically sophisticated projects.
The selection process can be tedious and time-consuming work. Vague job listings tend to attract tons of underqualified applicants, so make sure your job description is crystal clear. Identify exactly your key performance metrics, goals, and expectations. You also need to know how deep their skills go, whether they understand the business, best practices and latest tech trends.
Conduct an interview
Sift through all applications, narrow the list of potential suppliers to 4-5 candidates, and continue to the next stage, the interview. Getting a real feel for a prospect’s personality and what they can do, is core to understanding whether or not they will fit with your needs. Here are a couple of ‘dos’ during the interview:
- Be specific. Prepare a few technical questions to test the interviewee’s knowledge and skills.
- Ask for their role on previous projects. Were they involved in building the whole thing or just a few small features?
- Suggest a situation and ask how they would respond to it, or find out about issues they may have struggled with before, and how they handled them. Watch out for red flags, such as negative attitude, disrespect for customers, or inability to keep commitments to deliver on time.
- Resist the urge to hire the first applicant you interviewed, even if you liked them. You need to compare them with others.
- Now that you have a couple of great prospects, test them out. Assign a small trial task that will give you a rough concept of how they perform, and see who will be the best match for your business. It could be a quick mock-up or a basic outline of a work plan. If that simple test is a disaster, consider the next candidate. But if it turns out well, bingo! You’ve found what you’ve been looking for!
Developing relationships with a new service provider begins with getting a clue of how they work. Before entrusting your brainchild to them, start with a small simple project to give you an idea of their performance and capabilities.
#2 Cost Considerations
Cost is another important dimension in any outsourcing decision. So, how do you test the waters before you jump in?
It’s not about finding the cheapest vendor out there, though considering the one below your budget might be tempting. Never select a provider based solely on price – choose something you can reasonably afford while still receiving value. Low rates won’t do your business any good if your project gets stuck in the middle. Focus on the gains that an outsourcing deal can bring to your business. Shop around outsourcing sites for the rates for the task you want to outsource. If a job is worth doing well, be ready to pay for a proven supplier. You don’t have to splurge, but also don’t skimp too much. Rule out the highest-priced and the lowest-priced bidders. If a provider is a bit pricey, but has a lot of positive feedback from clients, then he’s probably worth it, while a contractor with negative or no feedback may be more trouble than they are worth. In contrast to freelancers, agencies usually come with a high price tag. You can still find a good bargain, though. Consider new non-traditional outsourcing destinations, like Eastern Europe, that offer less expensive resources and high levels of quality. For example, IT outsourcing to Ukraine allows you to get a quality product at a price point that will fit almost any budget.
Choose the right pricing model
If outsourcing arrangement offers you lower costs without compromising quality, then you’re better off in that business setup. Establish the pricing model that will encourage service providers to give it their all.
- We all hate hidden fees and surprises! Use an all-in flat fee pricing model for outsourced Scrum Teams or Agile software development. It’s a pricing structure that charges a single fixed fee for a service, instead of charging by the hour. It focuses on high productivity, and offers full cost transparency and flexibility to scale up or down, should a situation require.
- In a product or project-based outsourcing model, put a high value on outcomes rather than hours. If the team you hired can’t produce an output on par with your standards, it doesn’t matter how much time they have spent. Start with a task-based price model to see how this new partnership is working for you. Tie your provider’s payment to clearly defined project milestones that signal completion of important stages of the project. Schedule regular check-ins to review their work. It’s recommended to pay 20-30% of the total price upfront, and the rest is awarded after the task completion.
- Once your contractors demonstrate the ability to consistently deliver results, you can start transitioning to a fixed price model. There are still a bunch of things to be mindful of. A fixed-cost retainer works better for fully defined fixed scope projects rather than start-ups. With a fixed price model, you provide specs at the outset, have a fixed project budget and pay exactly what is documented. Once you entered into a contract, any changes are unwelcome and frowned upon. Start-ups, however, are volatile by nature. Their scope and specs are constantly changing. You have to be flexible, adopt new tech trends and continuously improve. So, a fixed price model isn’t likely to work for a start-up.
- Another approach is based on incentives that are rewarded to suppliers after the desired outcomes are achieved. This is when a vendor charges below market rates but gets paid 2-3 times market rates after delivering results. This is a true win-win because both parties are deeply interested in each other’s success.
Consider all outsourcing costs
While outsourcing allows businesses to cut down on operational costs, the actual and projected savings rarely match. Outsourcing partnership may involve possible time loss, legal fees, travel expenses, and other factors.
#3 A Word of Warning
Even if you’ve found a moderately priced rockstar contractor, you’re not done yet. You will need to probe the depths of outsourcing risks and make some extra effort to secure your business and facilitate a smooth working relationship.
Write a solid contract
A contract should outline, with as much precision as possible, specifics about the scope of the project or profile definitions for outsourced Scrum Teams, expected performance, roles, working procedures, payment terms, deadlines, support, copyright, and an exit strategy. It sets expectations from the word go, and serves as a record to refer to in future. When drafting a contract, make sure it lays out all the details to avoid confusion and misinterpretations.
Clearly state your expectations, requirements and instructions. Leave nothing to assumption. Providers can’t read your mind. If there is a total disconnect between what the supplier is doing and what the customer really needs, this may be the result of poorly defined desired outcomes.
Consider legal issues
Privacy and security assurance is an absolute must to lower risks involved with knowledge sharing. To protect your business from intellectual property theft, build in a non-disclosure provision into your contract, and copyright or patent your intellectual property. The contract should state that all Intellectual Property Rights and the source code remain under your exceptional ownership. Do your due diligence on the service provider, and don’t lose your sleep. Have a lawyer review the contract before you sign it. Also, keep a record of all changes and save all email correspondence.
Yet, having your provider sign an agreement not to use your code is still not enough to be protected. Some of the precautions to be taken are splitting your source code into sections, limiting access to databases, not letting a supplier own your domain name, and forbidding the sharing of any resources. The biggest thing you can do to keep your business information secure is to provide the contractor with the minimum data necessary for them to do their work.
Plan for a disaster
Like in any business relationships, issues may arise in outsourcing partnerships, and things may not always work to plan. Hope for the best, but be prepared for the worst. If your supplier doesn’t meet your quality expectations, your contract should provide you with the option to terminate this partnership, or at least, set the expiration date when the contract may be either renewed or terminated.
Now, what if your provider goes out of business? Always have a Plan B up your sleeve. Are there any other vendors interviewed and shortlisted by you that you feel can take on this work? Can your in-house team take the responsibility for that project?
It’s also a good idea to develop conflict resolution processes. Some of the questions to be addressed, who is set up to handle disagreements, how are complaints realized, and whose decision is final.
Allow for flexibility
An outsourcing partnership is all about you and your service provider working hand in hand to create a win-win scenario. Once you have agreed on the contract details, be ready to seek balance and allow room for adjustments and compromises on your part or on the part of your supplier. Build flexibility into your partnership in the form of accommodating requests, expanding the scope, and finding trade-offs.
#4 Outsourcing Tips For Successful Business Partnership
The coast is clear now. You have established a sturdy contract with your provider. However, great partnerships go far beyond a contract. They don’t just happen by themselves. Here are the most critical components for building a strong business relationship.
Create a successful onboarding process
Any successful project begins with understanding business processes and objectives, specifically defined requirements, and a clear picture of the final product. You don’t want to find yourself in a project nightmare just because you didn’t properly relay the tasks to the outsource team. Provide them with the context of the project, so that your vision aligns with their output. Set the tone early with a comprehensive discussion about the project details, such as metrics, timelines, quality expectations, and procedures. The better you communicate your goals, the higher your chances are for success.
You probably won’t have very much face-to-face contact with the team, so make up for that by putting transparency practices into place. Keep the lines of communication open by setting regular Skype meetings to touch base with your team on the current situation. And remember to write a meeting summary email highlighting the key points of the discussion. Anything you want them to remember needs to be communicated in writing, as it leaves behind a clear record of feedback, guidelines or expectations.
Take into account time zone differences and language barriers
Farming out work to outsourcing providers often means experiencing communication challenges, such as language barriers and time zone issues.
When outsourcing globally, the English language proficiency level of candidates should be checked before you hire them. It’s crucial that the people you work with really get what you are saying, especially when it comes to software development. A communication breakdown can be costly. It does take effort to slow down, articulate and learn to communicate your ideas more effectively to non-native English speakers. And there will also be a learning curve on the vendor’s side. Hang in there! Both of you will get better soon.
With your team composed of people scattered across different locations and time zones, things can often get out of sync. You may be waiting for a reply from your team members for the whole day. Or some urgent issues may only be resolved the next morning. While these delays create obstacles to an efficient work process, you can also benefit from those time differences and avoid holdups. For example, with smart scheduling, your business day can be even extended. When you go to bed, it’s just the beginning of a workday on the other side of the globe. So, if you assign a task at night, your providers will be working while you’ll be sleeping, and the next day you’ll wake up to your task complete and ready for review. If your project requires working in real time, you can either adjust a schedule so that it allows for overlap time, or hire freelancers who can work the same hours as you.
Build healthy relationships
Clients often tend to overlook the significance of healthy long-term relationships with their outsourcing partners. The more open and frequent your communication is, the more you can expect from that relationship.
- Stay connected with your outsourced team, and keep your finger on the pulse. Provide feedback on their work, set direction, and make suggestions for improvement.
- Set up a project management system to assign tasks, track hours, and get everyone updated.
- Schedule regular check-ins with your outsourcing partners to maintain good communication throughout the project.
- Be prepared to negotiate through difficult issues.
- Treat a contractor as an integral member of your team. Invite them to act as your strategic partner and leverage their unique knowledge, skills, and expertise to drive your business forward.
- Be the client people would like to work for. Establish a good rapport with your providers by being respectful, appreciative, and open to advice.
Watch out for bad communication signals
Setting up effective communication channels is crucial to your project progress. Your outsourced team should have an experienced Project Manager who knows the team well, can monitor their work to ensure it’s in line with your vision, is ready for a detailed and transparent reporting, and willing to facilitate the development process in any possible way. If a PM forgets about his weekly reports and is constantly unavailable, this may be a signal to part ways with that vendor.
#5 Recommendations for Letting Go
Taking the first steps in outsourcing and handing over the reins to someone else can be a daunting experience. Your strong sense of ownership may drive you to wear all the different hats and put out all fires, leaving you on your last legs, sooner or later. So, how can you step back and leave room for trust?
Always stay in the loop
Let’s make this clear, outsourcing doesn’t mean you throw things over the fence and eliminate yourself from the process. You have envisioned your product. You’re passionate about it like no one else. You should guide its development, make sure all is going well, and push it forward. All you need is a sound governance structure that will outline how the business will be managed. But you don’t have to carry the weight of the world on your shoulders. Don’t miss out on the opportunity to get more done with less of your own time and money. This is what outsourcing is all about!
Don’t become a control freak
In other words, give your team members the freedom to do the job you’ve hired them to do. Don’t micromanage every step and never stymie their creativity. Allow them to exceed your expectations by bringing innovative approaches from multiple brands and industries. Trust your service providers to be competent and do their job well. After all, you’ve done so much to find your stellar team of pros. Now keep calm and let them work.
Growing Your Business
Finding the right provider and figuring out how to build a competitive business with greater potential for profitability does get tough at times! As a new player in the world of IT outsourcing or someone who already has an existing partnership, you might want to learn from outsourcing best practices and tap into these outsourcing tips for building a better business. Partner relationships don’t come easy. Like any other business relationships, they require nourishing and smart management, but once this partnership gets rolling, it will all pay off in the end.
So, go ahead, make a splash and win!