Categorized | Introduction

Core Competencies and Outsourcing

Shoestring Venture: The Startup Bible

In the MBA world, they call “what you do best,” core competencies.

Corporations understand that they succeed by doing what they do best and letting other folks, like suppliers or vendors, do the other stuff.

For instance, most hotel chains do not actually own their hotels. Why?
Any moron can own a hotel. The owning part is easy; it doesn’t take tons of
talent or business acumen. In fact, it doesn’t even take ounces of talent or
business acumen. In the hotel business, the hard part is a.) figuring out the
best places to locate hotels; b.) cutting favorable real estate deals; c.) managing
the construction of the hotel; and d.) administering and marketing the hotel.
Being able to do these things better than everyone else is what makes one
hotel chain more successful than others. But owning the hotels . . . no hotel
chain is “better” at owning hotels than any other hotel chain. So they often
don’t waste their time on the owning part of the hotel business. This frees
them up for the business activities that make the big bucks.

For instance, most hotel chains do not actually own their hotels. Why? Any moron can own a hotel. The owning part is easy; it doesn’t take tons of talent or business acumen. In fact, it doesn’t even take ounces of talent or business acumen. In the hotel business, the hard part is a.) figuring out the best places to locate hotels; b.) cutting favorable real estate deals; c.) managing the construction of the hotel; and d.) administering and marketing the hotel. Being able to do these things better than everyone else is what makes one hotel chain more successful than others. But owning the hotels . . . no hotel chain is “better” at owning hotels than any other hotel chain. So they often don’t waste their time on the owning part of the hotel business. This frees them up for the business activities that make the big bucks.

The same applies to building the hotel’s Web site. Hotel chains do not build Web sites better than other hotel chains, so they pay someone else to build their Web sites. What hotel chains do well is use their Web sites to find and build a loyal customer base. So they spend their valuable time and money trying to do that better than any other hotel chain. The better a hotel chain is at filling hotels through their Web sites, the more they “beat” their competition. But actually designing, coding, and programming the site? No hotel can “beat” other hotels by designing, coding, or programming their Web site.

When doing what you do best allows you to beat your competition, MBAs like to call that a competitive advantage.

Just because you’re a small business venture on a shoestring budget doesn’t mean that you, too, shouldn’t focus exclusively on your core competencies in order to gain a competitive advantage. In fact, because you’re a small business venture on a shoestring budget, you must focus exclusively on your core competencies to gain a competitive advantage! And you must outsource the rest! You have neither the time nor money to waste performing activities that others can do just as well as you can at a fraction of the cost.

If you don’t want to join the Start-Up Failure Club—and nine out of ten start-ups join this club in relatively short order—you need to focus on the things that you do better than anyone else. These core competencies, if you do them well, will give you a competitive advantage over all other businesses, including the big guns that don’t even know, or care, that you exist. To stay focused, you, more than any other kind of business, need to find vendors and suppliers to do all the other stuff.

You may be an off-the-charts salesperson or networker. You may be a megawatt idea generator. Or you’re the best engineer this side of the Mississippi. Or an inspiring leader. Or someone loaded with consumer insight.

The reality is this: the more time you spend doing tasks related to what you do best, the more competitive your business will be and the more likely your venture will succeed. The more time you spend doing tasks that you’re not good at, like bookkeeping, HTML, or word processing, the less competitive your business will be and the less likely your venture will take off. It’s a simple principle that doesn’t take a $60,000 MBA degree to figure out.

But why outsource when you can do it yourself more cheaply? After all, you have to pay someone when you outsource and, for all practical purposes, you don’t have to “pay” yourself. Isn’t “free” a better deal than outsourcing, especially since “lots of money” is your goal?

Wrong.

Money flows in two directions in a business. It flows out, which we call expenses, and it flows in, which we call revenues. A business spends money and it makes money. Yes, if you do all your own word processing and project management and advertising, your expenses will be technically zero (if you’re not paying yourself). In that sense, you are, indeed, “free.” However, diverting your attention and focus away from the things that make money for your business, like managing your business, building strategy, developing ideas, or networking, means that your business will have less money coming in. In fact, diverting your focus away from your core competencies usually means that not enough money will come into the business to even pay for “free.” Businesses make money when people spend their time doing the things that make money. Businesses never make money by saving money. Never.

It’s hard to let go, though. The hardest thing for a manager to do is delegate. The hardest thing for a business owner to do is have other people perform the activities of the business . . . and pay them for it. When, not if, a vendor or employee goes wrong, owners see their money being flushed down the toilet—and that’s anything but a warm and fuzzy feeling. I once worked at a restaurant where the owner would go through the garbage and pull out food he thought was still good. And it would end up on some customer’s plate. That’s right, ladies and gentleman. At Quality Cafeteria (that’s the name), we would serve our valued customers food right out of the garbage. Now, normal people would consider this a few miles south of bonkers, but when the owner saw perfectly good food in the garbage, he saw his money in the garbage.

Remember: a business spends money and a business makes money. As a business owner, you can lose money in two ways: by spending badly or by not making money. Money you don’t make is just as lost as money that’s badly spent.

Inevitably, when a business spends money, it sometimes gets a bad deal—perfectly good food gets thrown away, employees talk on the phone rather than work, vendors screw up. But you don’t make money by pulling food out of the garbage. And you almost never make money by doing the work yourself.

Okay, you’re convinced. But what should you outsource?

Well, you can sit down with your business and determine all the activities that need to be performed in order for your business to succeed. You then look at this list of activities and determine where your time and effort will maximize your business’ success. You outsource the rest.

But you don’t necessarily have to do this. When your business needs to perform some activity, just ask yourself a simple question. We call it the “ Hire Yourself Question.”

When you see that your business requires a certain “job,” ask yourself: “Would I hire myself to do this job?”

In other words, if your business needs someone to do word processing, would you hire someone exactly like you to do the job? If your business needs a bookkeeper, and someone exactly like you walked in the door for an interview, would you think that person was the right for the job?

If the answer is “You bet! I’m the best person for that job!” you probably should perform the task yourself. If, instead, your answer is, “Whoa! I’m way underqualified for that job!” or “No way, I’m way overqualified for that job,” you should probably think about outsourcing that task. Why? You want to focus all your efforts on the jobs you would only hire yourself to do.

As a marketer and consultant, I have seen thousands of small businesses come and go. And I have seen thousands of entrepreneurs essentially “hire” themselves to do jobs they were magnificently under- or over-qualified to do. And that, my friends, is why many of them came and went.

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