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This article discusses the 4 different business models used by outsourcing companies. Each of these has distinct advantages and risks. Which one is right for your next project? Read on and find out!

This is the second article in a 2 part series. You can find Part 1. The ‘3 Flavours of Freelancers’ here. It discusses the features and risks associated with the different types of freelancer.

Part 2. The 4 Flavours of Outsource Service Providers

So much choice... Does it really matter?

This article discusses outsource companies, as opposed to individual freelancers. Hiring a company to do your work can offer some significant advantages over a freelancer, but it does come at a cost.

Outsource Service Providers- General Information

Before we dive into their respective models, here are some of the general pros and cons of using a service provider/company instead of a freelancer.

Pros

• May apply more rigorous development and project management systems to the work, lowering the risk of failure
• May be able to offer a range of professionals. Diversity of skills allows for multiple tasks to be carried out simultaneously
• Scalability, can often add more people or remove people at short notice
• May appoint project managers or project leads to manage the team for you. This gives you a single point of contact and a single point of accountability if something goes wrong
• Can ‘crank out’ large quantities of work in very short period of time. The easiest way to get bigger projects done FAST!
• In-house infrastructure such as hosting/development environments can reduce your costs in the short term

Cons

• Less visibility of work (you’re likely to have groups of people doing your work, without knowing who they are or their skill sets)
• A greater tendency to ‘black box’ work. That is, hide the work from you until it is ‘finished’ in their opinion, and then ambush you to signoff on the project on the due date
• Can have trouble with communicating requirements because of ‘Chinese whispers’. Often there is a single representative appointed to act as a go between, screening you from direct interaction with the people doing the work
• Some companies are skilled at extracting more money for less work. Particularly if they control development environments, you could find yourself held to ransom by an unscrupulous provider
• May get lower skilled labour assigned to your project, resulting in lower quality output (the classic bait and switch)
• Larger companies may be less committed to your success if they have a high volume of work. One bad review can be buried very quickly, and may be less expensive than fixing the project. Sucks if it’s your project they decide to cut their losses on
• Jack of all trades mentality. ‘We’re experts at everything’ attitude can result in generally poorer quality product, and many companies are reluctant to admit which areas they are stronger or weaker in

Where do they come from?

Online, Outsource Service Providers come from just about everywhere. Like freelancers, they tend to be predominately from developing nations; however unlike freelancers, a large proportion of providers have created ‘local’ presences particularly in the US and UK. There are also a lot of locally based companies that do the opposite to compete in this space. In addition to their local business operations, they create a business unit offshore and send work there to be completed at lower cost, whilst charging you a premium rate.

Below, we’ll discuss the 4 distinct models that I’ve come across are:

• Type 1: Standard Full Service Providers
• Type 2: Specialised Service Providers
• Type 3: White Label ‘Full Service’ Middlemen
• Type 4: White Label ‘Hands Off’ Middlemen Read the rest of this entry

This article discusses the different models used by outsource service providers and freelancers. We will talk about the different types, as well as the pro’s and con’s associated with each. These differences can have a major impact on the success of your project, and it’s important that you select the right one for the right situation.

This is part 1 of a 2 part series. You can find ‘Part 2. The 4 Flavours of Outsource Service Providers’ here.

Note: to my North American friends.. I apologis(z)e for the repeated spelling of flavoUr… I just can’t give that up to U

Part 1, The 3 Flavours of a Freelancer.

More flavours than you care to know about

If you jump onto one of the many outsourcing/freelance websites you could be forgiven for thinking that all outsourcer’s are the same. Sure, there’s an obvious difference between a solo ‘freelancer’ and a company; some have a logo and a website, some don’t. But there are differences that run deeper than that.

Why should you care?

As we’ll discuss, if you want a successful outcome on your project you need to understand who you’re hiring and how they work. This will affect the:

• quality of their work and what they can offer,
• work they can do well, and what they will likely do poorly,
• how they interact with you,
• price they are likely to demand,
• ‘value for money’ that they can offer.

As always, I’ll start with a list, and then describe each in detail. In my descriptions below, I’m talking from my personal experience, and I’m not dealing in absolutes. So you may find someone who has all of these qualities or they may have none. I’ve broken the article into 2 parts, as it was a little on the long side. So here’s the list:

Article Part 1. 3 Flavours of Freelance Providers:

• Type 1: Casual Freelancers
• Type 2: Sleepless Professionals
• Type 3: Fulltime Professionals Read the rest of this entry

This article discusses why startup business plans should be short and action oriented. It is mostly intended for new entrepreneurs wondering ‘what makes a good business plan?’

The Hockeystick. My favourite work of fiction.

There’s no such thing as a perfect business plan, but that’s ok. You’re not going to win or lose on the back of it. All you really need is to describe your situation and what you plan to do. The intention is to organise your thoughts, and make sure you’re clear about what you want. Many academics and business analysts will have you believe that your plan should be 100+ pages long, define multiple scenarios, provide detailed resource allocations, and include hundreds of statistics or fancy charts from authoritative sources. This is a colossal waste of time for most if not all small startups. If you don’t have teams to coordinate and millions to spend, you’ll be better served by a lean simple plan.

It’s a business fantasy

By its’ very nature a startup business plan is attempting to predict the future; and we all know the future is unpredictable. So whilst it feels reassuring to write an enormous plan, the first two things you should consider are:

• No matter how hard you work on it or how much time you spend, your plan is fictitious. It’s just the story you’ll tell yourself and others.
• It can never include all possible outcomes or details.
• It is neither right nor wrong. Don’t get fixated by striving to make your plan ‘right’. Likewise, don’t worry about things not going as predicted. Remember it’s just a story, it’s too early to know if it will work as planned. Read the rest of this entry

This article discusses what I consider to be the most important rule for entrepreneurs and small business to successfully use outsourcers or freelance labour. It is part of a series of articles I will publish over the next few weeks outline what I think the key guidelines are for outsourcing success.

My first rule of outsourcing is never, ever, ever, ever, outsource a problem! It’s the number one rule because it’s by far the easiest and most dangerous one to break. Early on I broke this rule repeatedly, without even realising what I was doing wrong. I kept thinking that I just couldn’t find good people, or that foreign providers just weren’t skilled enough. But the problem wasn’t (always) a lack of their skill; it was often my application of that skill. My expectations were in some ways too high and I was asking them to perform above/beyond their capability. I’ll explain what I mean.

Traps for new punters…

The first few times you engage someone to do specialist work for you, it’s easy to fall into the trap of giving them too much responsibility. It feels nice to ‘hand over the reigns’, and we’re conditioned to doing this. For example, if you take your car to a mechanic and you tell them that it needs a service; you’re trusting the expert to take care of the details. Here you’ve just outsourced a problem, that is, your car is worn and needs maintenance. You don’t know what maintenance and you don’t care! It’s up to the mechanic and you trust him to work out the details.

This mentality will lead you to disaster if applied to a foreign provider. In the mechanic example, if you were to outsource this properly you would need to say “change the oil, change the plugs, change the air filter, check the break pads for wear and tell me how worn they are…” etc. You are actively limiting the freelancer’s discretion, which forces you to consider your problem and work out a solution. Read the rest of this entry

This article is a brief introduction on understanding supplier risk for outsourced projects. There are a lot of issues only just touched on here, but we’ll cover risks in more detail in future discussions.

You may have heard of the corruption scandal that has rocked the Indian IT scene over the past few weeks- the near collapse of Satyam (I think they’re negotiating a lifeline at this point). They’re a multi-billion dollar company who provide software and outsource solutions to the worlds biggest companies. You can read about the scandal here. Basically it seems that the founder and managing director fingered the books to the tune of $1.5 billion USD. Now there’s a lot of jobs at risk, some very upset shareholders and clients, and a big bruise on India’s international image. Many commentators have likened it to the Enron scandal that rocked the USA, a shining example of corporate greed and irresponsibility. If you’re not familiar with the Enron collapse you’ll find all you need here.

But what impact does it have for small business outsourcing?

Whilst it is a huge scandal, it is of very little significance if you’re considering outsourcing. If you mention outsourcing overseas to  your friends they may now respond with ‘No way man! Didn’t you hear about Satyam?’.

It has again stirred up the perception that overseas companies are somehow worse than the similarly dodgy businesses you can find at home. But those perceptions come and go… 10 years ago it was ‘India is going to steal the world’s IT jobs’ (which obviously didn’t happen :)), now it’s ‘Can we trust them with our customers and our money?’.  The same news outlets discussing corruption in foreign businesses this week, were discussing corruption in US financial institutions last week… so it should all be taken with a big grain of salt. Then there’s also the shady practice of ‘Pheonixing’ that is a problem in Australia and the UK (explanation here).

If anything, I’m more concerned about what this whole sad mess says about the accounting firm auditing the Satyam accounts. If you can’t trust the auditors to get it right… who can you trust?

Anyway, getting back to outsourcing..

No safety net means you need to manage risk carefully…

For the purposes of Internet based outsourcing, it is a timely reminder that suppliers of all kinds can do the wrong thing, whether they are across the street or across the globe. Anyone who’s been caught out before… like me… can tell you that having a water tight contract or government regulations on your side doesn’t fix the problem, and doesn’t make spilt milk any less spilt. If you naively believe that these things do offer protection from a supplier failure (like I did), one day you may be unpleasantly surprised. My advice, don’t ever sit on your thumbs thinking that the contract terms will ultimately be your safety net or that government regulations will protect you from a failed supplier.

When you outsource overseas, you will be without even these simple protections… Want to go to Croatia to dispute a $1000 contract? (yeah right) Are you familiar with consumer protection laws in Pakistan? I’m not I believe this is a good thing for the small business owner however. The realisation that you are playing without even the illusion of a safety net helps you stay focused on getting an effective outcome, and being careful about how you manage the project risk. One thing I recommend you always do is never, ever, ever, ever, pay in advance!

Good project management is the answer to problem suppliers. It will protect you, by minimising your chance of failure. And one aspect of that is planning what you will do if things do go wrong; so that if your project does go haywire, you can act quickly and decisively.

Always have a Plan B.

In your planning, consider the risk of total failure of the project or outsourcing company. If you’re using an individual, consider the ‘hit by a bus scenario’. What will you do if they stop responding to phone calls or email? What if a dispute arises that is simply not resolvable? You need your Plan B. Consider:

• what is the likely impact on your business/customers?
• what is the likely impact on other projects you may have running?
• who can pick it up and complete it? What needs to happen for that to occur?
• if it’s a work in progress, can you get access to what’s already completed?
• if you can get access to it, is it even useful to you? (it may not be!)
• is partial completion likely to mean total failure? If so, is there any way to structure the project into useful ‘chunks’ so that total failure is less likely or less significant? (more detail on this in future posts)
• can you afford to cut your losses, dump it, and walk away if need be?

Special note for software projects: If you’re paying someone to do a web or software project, insist on access to source code before payment. This means you can have it checked and verified (which is particularly important if you are not a coder monkey yourself!). They will not be happy to do this unless it is planned for and negotiated upfront, but it is the best protection on larger projects.

By taking these things into consideration, you can structure the project to limit your risk. For example, you may insist on daily or bi-weekly status reports. Or, you may decide that you’ll give half the work to company A, and half to Company B. Or you might appoint a manager from a different organisation to independently monitor performance and report to you. And remember, all of these controls are only minor cost increases, labour is quite inexpensive depending on where you are hiring from. But they do need to be considered during the planning.. not on the fly.

If the project is so important that there is no viable ‘plan B’ (it’s a ‘make or break’ piece of work) use project milestones to limit your exposure, and stick to them doggedly. Don’t release payment until your carefully considered milestones are met or exceeded (and independently verified if you can’t do this yourself). At least then you may get out with your shirt if the worst case scenario does occur.

Set a Stop-Loss…

This strategy is a similar concept to using a Stop-Loss when investing. It is the predetermined point in time at which you declare the project failure or are at an increased risk of failure should you no longer contribute money/time. Before the project is underway, you should (unemotionally) determine the success/failure criteria. Usually, you’d do this using project milestones. If the project can’t achieve a milestone within a particular cost/timeframe then the project is cancelled. Limiting your losses.

Doing this while the project is in play is difficult, as you’ll often have a very optimistic freelancer telling everything will be fine“just wait until next week…”. Combine this with the undesirable feeling that you’re going to lose money, and it becomes very easy to let the project run and run. So make these decisions during your planning, and if it eventuates stick to it.

The idea is to save you from your own blind optimism… if things have gone very badly and are getting worse, probability is NOT favoring a turnaround. It is unlikely that tomorrow is the day that everything will ‘come good’; that the quality issues will go away, or that the freelancer will miraculously start following instructions. It is therefore foolish or wasteful to continue burning time and money. If you have planned for this unlikely and unfortunate occurrence, then you’ll have a well considered point at which you will shut the project down. This will save you time and money, and should mean that you should still have the resources to finish it with someone else, scrap it and start again, or move on to something else entirely.

Despite the gloomy discussion, it’s been my experience that most projects work out just fine or are recoverable if you practice good project management. And this blog will give you the tools you need (eventually )