Sticking to What You Know
If your small business is not performing the way you want it to, then you are doing something wrong. Now before you start sharpening your pitchfork and lighting your torch, I am not talking about outsourcing to China. So first of all, let’s step back for a minute and discuss this. I see this occur quite frequently – many small businesses try to master all aspects of their business models without getting any help from third parties. Rather than finding a corporate IT firm to partner with, they get an in-house IT department established that employs a full-time IT specialist who is paid a salary and benefits; or instead of hiring an experienced manufacturer, they instead pay to have their very own manufacturing facilities operationalized. These types of decisions may result in exceptional growth, but you must be willing to wait for a long-term payoff.
If you want to get your company off the ground sooner than that, then you will need to focus on what your specialty and focus on and begin to start outsourcing as soon as possible.
The main problem with the logic of “own-it-all” is this approach forces your business to develop in uncertain, incremental and slow stages. Unless you have been fortunate enough to have a large inheritance or some other means of having an endless source of capital and resource, that just simply is not practical. In any industry, long-term planning is an absolute necessity, but a lot of the delay can be circumvented by contracting with third-party companies to do your ancillary work. For example, perhaps you would like to increase the scope of your company’s public relations. At the current stage of your business, doesn’t it really make sense to start up a brand new Graphic Design department, with full-time employees and a whole new set of fixed costs and risks? Or would it make more sense to have a contractor handle all of your graphics needs for now? If you go with a contractor, that means you won’t need to put any of your existing capital into a new department, so over the short-term you will save lots of money.
When you outsource your company’s peripheral aspects, you give yourself a lot more room for investing in and focusing on the more unique and fundamental aspect of your company’s business model. An old English term for this principal is, ‘sticking to your knitting‘. TerraCycle is a company that develops proprietary waste recycling solutions for types of waste that usually are not recycled. The company has virtually no competition on this front and has found innovative ways to recycle things like chewing gum, dirty diapers, cigarette butts, and a wide range of post-consumer package waste due to its ingenious Product Design and Research and Development teams. However, as TerraCycle has continued to expand into new streams of waste, the level of waste material that organizations, families, and consumers sent in expanded as well. Although the company had the expertise and knowledge to develop the actual recycling methods, they didn’t have all of the necessary infrastructures to fully take on the rapid and massive influx of numerous kinds of waste.
The company partnered with existing facilities which allowed them to manage the inbound raw material stream and allowed them to continue expanding into new streams of waste without having to be afraid of overextending its resources. The develop and own their process, which is critical to their business model, and their partners own the facilities and warehouse, which reduces their overhead and means they are less exposed to market fluctuations (material costs, taxes, etc.) This has not only the company to operate at a much more efficient level, but also allowed them to develop niche expertise within their industry, while also expanding on a continuous basis. When one of their scientists develops a new recycling process for a material, for example, cigarette butts, they don’t need to wait for months or years to get facilities re-tooled or built. Instead, the new solution can be introduced to the market, since their partners already have the facilities established and they have the science.
Many Angels Stick to Their Knitting
Entrepreneurs: Stick With The Things You Know The Best
For Rockefeller, some vertical integration did work. However, in today’s world, there is much more competition, so it is important to grow fast to be able to stake your claim in your industry. When you focus on what is unique about your company and outsource your more peripheral functions, that allows you to develop a successful and strong brand and quickly track your growth. In time expansion can be made into the less critical areas, after revenue streams have been more developed based on the success that was built from staying focused on your core offerings.