Memo to Tech Founders: Target Your Core (And Outsource the Rest)
Long before Airbnb disrupted the hospitality industry, two of its founders wrestled with an unusual startup decision: to hire photographers or not to hire photographers.
Brian Chesky and Joe Gebbia needed an excuse to interview Airbnb users in their homes. But the story they selected, that they were taking professional pictures for the site, required photographers. They wanted to avoid paying for photographers, and instead allocate Airbnb’s money to its core functions.
Their solution was flexible. Initially, they took the pictures themselves. Later, they outsourced. Their maxim? “Do everything by hand until it is painful.”
In truth, Airbnb’s decision was hardly that unusual. All tech companies—from unicorns to non-starters—face their “photographer moments.” Ultimately, outsourcing success will hinge on pitting the pain threshold against outsourcing gains.
An Entrepreneur’s Me Time
Time is a critical commodity in the tech space, and the pace continues to quicken. If you do not get your product to market first, the odds are that someone else will.
For tech entrepreneurs, a time crunch can interfere with your ability to lead. Instead of maintaining pinpoint focus on your strategy and its execution, or raising the next round of financing, you find yourself fighting fires on peripheral fronts. What’s more, the creativity that characterized your earliest days of your business is diluted by administrative duties.
Outsourcing non-core functions not only relieves that burden, it also drives efficiency. As your business moves through the Proof of Concept and Seed stages, you can scale to meet the growing demand for your product. And as long as you have chosen the right partner, outsourcing offers infinite resources to help your business grow.
Outsourcing Costs and Opportunity Costs
For tech startups racing against their burn rate, outsourcing may seem like an extra expense. However, it is best to consider the alternatives.
Compared to hiring a full-time employee, a third-party provider is far more cost-effective. And performing the work yourself raises other concerns. While paying for services does cost money, the time you spend on your business adds more value to the business.
Part of believing in your company is knowing your worth as a founder.
Targeting the Core
Choosing business operations to outsource can prove challenging. In my experience, though, companies are best served by outsourcing functions that are not core to their organization.
These are functions that:
- Consume a significant amount of administrative time;
- Cannot be performed by current employees; and
- Do not add immediate value to the product or service of the business.
Legal, Human Resources, and Finance functions are all non-core functions commonly outsourced by tech companies. Shareholder agreements drafted by attorneys; employee agreements handled by an HR service provider; myriad financial needs filled by your chosen financial professional: they do not directly evolve the product. At the same time, they can hurt the business if not managed professionally, depending on the stage of your company’s development.
Finance provides a helpful example. The tech space is known for metrics such as customer acquisition costs, monthly recurring revenue and total users. As a baseline, though, investors rely on quality accounting, books, and records to measure your performance. Companies sometimes overlook the Finance function, only to discover their error later on. Sourcing a reputable and reliable partner can save your business time and money.
Going the outsourcing route can be difficult for many tech entrepreneurs. By definition, it requires them to take a step back from their business and trust external partners to maintain the standards they have set.
But relinquishing control is also a time-honored step on the road to startup success. Far from showing weakness, it shows maturity—and confidence that your business will mature along with its founder.
Brion Hendry is the GTA Technology and Life Sciences Leader for BDO Canada.