The definition of outsourcing is using another company to perform tasks that a company can do themselves. Here is a summary of outsourcing observations I’ve made in the roofing industry today and some questions:

  • Phase 1: Start-ups and companies under $1 million in revenue. They’re typically short on cash and are trying to do everything themselves, often with the help of friends or family members. For example, are these hopeful entrepreneurs leaving for work at 5:30 a.m. having enjoyed only a few hours’ sleep? Will they then arrive home late that night absolutely exhausted because of a day trying to sell their services, order materials, get projects installed, collect money, and pay bills before getting to kiss the children goodnight? And will you find them trying to figure out how to build a website, utilize social media, and expand their digital footprint while figuring out accounting software during the early morning hours?
  • Phase 2: Companies that cleared the $1 million threshold are growing. Now, there are other people to support. What gets outsourced first? Website. Accounting. Social media and payroll. Why? They’re time-consuming processes, do not need full-time people yet, a specialty expertise, and doing it themselves has become much too painful, creating huge hassles and frustrations.
  • Phase 3: Now generating over $5 million annually and becoming remarkably successful. Surprisingly, many organizations have started phasing out outsourcing, believing that dedicated talent inside the organization will be less expensive and promote efficiency. This often includes a full-time team for marketing, sales leadership, accounting, and more. 

Looking overall, does this view of outsourcing make sense? 

In my opinion, no. Outsourcing often makes profound sense, whether you’re in phase 1, 2 or 3 as a company! 

What can we learn from the Fortune 500 about outsourcing? These sophisticated companies and their leadership avoid the attitude of "we can do everything in-house." Ninety percent of them outsource primary company functions and processes. 

The question then is not, can we do the function, but does it make sense to outsource rather than perform the activities internally? With often hundreds of millions of dollars in resources, Fortune 500 companies certainly could decide to do everything in-house, but they don’t.

When is Outsourcing ‘Better?’

Outsourcing becomes a better option to consider as generalized criteria when companies compartmentalize and focus on functions and processes that are not critical to the most crucial strategic value their company provides to clients. 

Consider outsourcing functions that require specialty expertise, which is rapidly changing and, therefore, challenging to stay current on. Remember that understanding the issues and the time and cost of staying informed with compliance can be overwhelming. 

Examples that are best outsourced, regardless of the size of the company, include: legal and financial reports and analysis beyond bookkeeping; human resources; payroll and benefits; and information technology. Do I often see companies bring these functions inside? Yes. Does it often result in regrets? Yes. 

For example, outsourcing labor to crews in roofing often makes sense but can be a bad idea. Simultaneously outsourcing the estimating, coordination, project and client management process can lead to communication and performance problems. These internal functions are critical to differentiating your company value from a client’s alternative options. Another example is the human resources function. Many entrepreneurs do not realize that through outsourcing these services with a company representing hundreds of organizations, they can offer benefits at costs far below what they can negotiate for themselves. The more complex your compensation systems are, the more benefit there is to using outsourced HR services.

I recently spoke with Nancy Gomez, president of Expert HR in Sebastian, Fla., who collaborates with small businesses nationally and connects outsourced options to client-specific human resource needs. 

Nancy shared that, surprisingly, even a roofing company with excellent safety management can be combined with other companies and obtain health care insurance, workers' compensation, payroll services and other benefits far below their current expenses. Even companies with only a few employees can take advantage of these extraordinary benefits.

She said that most of her clients engaged her after a reality check on their visible and hidden compliance costs, their limitations in providing competitive benefits, and the time and effort needed to ensure timely administration.

In summary, strategically utilizing outsourcing can help even the smallest organizations grow faster and more profitably. You can’t be an expert in everything. Align yourself with function experts who can do things cost-effectively, with superior expertise and insight into rapid changes and their implications.