For the average service company, approximately 30% of all revenue goes to outside suppliers or workers. Think about it: an average of one-third of your business execution relies on people and services outside your company. Is that such a bad thing?
Many companies strive to avoid any outside costs such as subcontractors, short-term leasing, or professional services – and instead prefer to utilize only full-time employees, own all their resources, and rely on internal knowledge. However, these policies actually stagnate growth and increase overhead costs in slow months. Worse, such practices also force you to turn down business when there is plenty to be had. In other words, lack of outsourcing is the number one reason that some businesses aren’t able to grow or be consistently profitable.
In order to break this cycle, we first have to defuse the thinking that goes behind it. There are three myths about outsourcing (at as it applies to live events and rental) that stifle business growth.
Our People Are the Best
While I can admire companies that pride themselves on always placing employees in key project positions (or in some cases, ALL positions), it doesn’t make business sense in a highly seasonal business models or any service company model where demand fluctuates. In my experience, technical teams are only as good as the support system back at the office. Customers know this. They may smile when you talk about your wonderful people, but they are thinking, “You mean to tell me that in an industry with 11,000 event staging companies, you believe that your eight technicians are the only ones capable of doing a good job?” The sales pitch I have heard too often is that non-staff technicians are unreliable or inconsistent. This doesn’t instill much confidence in your ability to execute complex jobs – if you can’t properly choose and manage quality techs. Your people can only be the best if your entire business is the best.
We Don’t Have Time for Planning
While you may disagree, clients generally don’t sit around waiting till the last minute to call you. They have projects dumped on them too. If you find that once or twice a year that you have no choice but to say no to handling even one more project, that is probably forgivable. If saying no to profitable work is part of your business best practices, then you have made an active choice to stay the same size or get even smaller. Growth companies find reasons to say yes and maintain the resources do a good job even when things get busy. Clients want suppliers that can grow with them. If you can handle their last minute needs with grace and quality, why would they ever look anywhere else?
Planning is hard, which is why not everyone is good at it. Successful owners know when to hire outside support and when to wait. Trust me, the inherent risk in a short-term sub-contractor is far less than adding permanent infrastructure. When all the “best” teams and tools are slotted into the jobs you have confirmed, start planning on how to execute the “backup” job. Re-allocate some staff and inventory and provisionally contract suppliers. Be ready for one more job. If you want to grow, these steps are critical.
Outsiders cost too much
I know what your emails will say if I don’t acknowledge that increasing capacity this way is costly – on a per job basis only. As someone that studies financial statements and business processes for a living, I can tell you that companies that regularly rely on outside suppliers have significantly lower variable costs. Good planners also know when to push their team harder. Who pays for the higher cost? Customers will, if planning, flexibility, and resourcefulness are part of your value proposition.
If I have a client that only hires me because I am the cheapest, I can guarantee that when they call at the last minute during busy season that I will have nothing for them. If I don’t plan, I won’t be able to help my best customer either. In other words, you have to figure out how to service good customers in any business climate in order to earn the margins that cover the added costs of being an excellent partner. It is kind of a chicken and the egg thing – you have to start somewhere. An old friend of mine has a saying that captures the futility of not choosing where you want to start: “If we had some bacon, we could have bacon and eggs – if we had some eggs.” Choose to grow.
Tom Stimson MBA, CTS helps owners and management teams rediscover the fun and profit that comes from making better decisions about smarter goals. He is an expert on project-based selling and a thought leader for innovative business processes. Since 2006, Tom has successfully advised over two hundred companies and organizations on business strategy, process, marketing, and sales. Please send your questions to:firstname.lastname@example.org