More outsourcing thoughts

[Matt]

I really think that this is the key to getting to the next level, so have been thinking more about how to decide when outsourcing is wise. My age old complaint with the people who chase after small deals or drive around to MS is that they don't value their time enough... but I'm wondering if that can be taken a step further.

The problem with the argument that 'you don't value your time enough' is that people retort with 'I can't make any more than this', 'I can make $200 in an hour...' etc... all good points. Outsourcing though, that allows you to be a pivot for great rewards.

The Sales Rep

Let's take an example I saw this week. A guy is hiring a sales rep for his company. The company sells $400 subscriptions, and the rep will earn $40-50K plus some bonus/bennies.

When is it the 'right time' to hire that rep?

If you are bootstrapping, or indeed if you are VC backed, too soon means you fail. Why?

The reason why you fail is that you don't fully understand the process, how long does it take to sell (the cycle) what is attrition, what is the market depth, etc... it may be that you start with a great idea, but it just doesn't work in reality.

Those early days of sales are not just going through the motion of selling, they are process building, data gathering steps. Once you have a system in place that works, you can then accurately forecast the revenue. From that point on, the decision to hire is the decision to outsource the management of the process, not the development of it.

What does this mean?
It means that you can look at things in isolation, and you can ignore your hourly rate. The outsourced event (the hire in this case) is in fact a standalone business, it has a P/L. You know the process, you know that you need to convert X, you pay the sales person enough that it covers X and incentivize (bonus commission) anything beyond what you were already capable of yourself.

• EG Annual Sales are $100,000
• Sales salary 40,000+employee costs (ER tax, bennies, etc) for gross cost of $50k

The employee takes the job from you, and there is a P/L equation of $50K gain on their expense.

At no point here have you mentioned your hourly rate, its all about 'does the employee make a profit'. Now, of course you need employee management systems in place to ensure that they perform, and you'll still have some costs of time to manage this, but you're getting 40hrs per week for perhaps 2hrs so a huge leverage point.

Now lets look at the value of your time
Rather than look backwards and say 'i'm worth $100 per hour' you look forward. You have freed up 38hrs of a 40hr week in exchange for income of $50K per year. Moving forward, you could replicate this another 19 times, or you could move on to something else entirely.

What's YOUR rate?
What would you give away for someone to take over an established process? What if we were to consider buying money orders at walmart on your behalf. Let's say you currently earn $10 for $5 in fees if you DIY, could you earn $2.50 if you just took profit, and others did all the work?

I think, until you can give up that $2.50 you are always going to be a low baller. Call yourself a heavy hitter if you wish, but you are limited to the extent of your own personal reach, which is limited by time. What's more... you're never going to be able to enjoy things because as soon as you take your foot off the gas to have some fun, you aren't earning anymore.

Find your own rate, and play with it.. give away too much and you lose out on some margin, give away too little and you lose out on opportunity.

 

[Phantom707]

This is not applicable to everyone, but one thing I've seen lacking in discussions of the value of time is an analysis of types of time. Many would have us believe that time is fungible, that five minutes here is the absolute equivalent of five minutes there (by the way, it's interesting that I can use language to order time by using spatial analogies). However, that's often not the case. Imagine a worker has completed a small project for the day ahead of time. If she were to try to start on the next project, very little would get done before she is required to head home (company rules regarding overtime and such). Further, even if she started on said subsequent project, she would have to restart much of the work the next day due to the intricate nature of the project (one which requires unbroken periods of concentration to create systemically progress). Instead, she realized that the time is better spent organizing her desk, making standard documents, etc. This block of time is of a different quality than longer periods of time simply because you cannot do long projects in it.

In the same way, certain activities, like MS, could be productive because they fill this otherwise unusable time. MS can be a rote activity in between longer periods of uninterrupted work. Of course, there are a great many number of peyote who devote too much time to MS. I won't deny that. However, it's a mistake to think of time as interchangeable.

I'm mobile, so I can hardly type. I hope that made sense.

 

[Matt]

This is not applicable to everyone, but one thing I've seen lacking in discussions of the value of time is an analysis of types of time. Many would have us believe that time is fungible, that five minutes here is the absolute equivalent of five minutes there (by the way, it's interesting that I can use language to order time by using spatial analogies). However, that's often not the case. Imagine a worker has completed a small project for the day ahead of time. If she were to try to start on the next project, very little would get done before she is required to head home (company rules regarding overtime and such). Further, even if she started on said subsequent project, she would have to restart much of the work the next day due to the intricate nature of the project (one which requires unbroken periods of concentration to create systemically progress). Instead, she realized that the time is better spent organizing her desk, making standard documents, etc. This block of time is of a different quality than longer periods of time simply because you cannot do long projects in it.

In the same way, certain activities, like MS, could be productive because they fill this otherwise unusable time. MS can be a rote activity in between longer periods of uninterrupted work. Of course, there are a great many number of peyote who devote too much time to MS. I won't deny that. However, it's a mistake to think of time as interchangeable.

I'm mobile, so I can hardly type. I hope that made sense.

I've spoken about this, but from the perspective of people who say its OK to MS after work to earn $200 per hour when their job pays them <$200 per hour. My post was focused on the real value of that small slice of time between when work ends, and the night ends, and how using it to MS detracts from family and other important things. In my view, free time is by definition more valuable than 'work time' so you need to price that into your equations.

Can't for the life of me find the post though...

 

[Andrew Beall]

I've been thinking about this recently as well. I'm not sure how to actually implement it though. I've heard of others doing this and setting up the whole MS operation as an actual business. What aspects do you hire someone to handle and what aspects do you continue to work yourself? As far as outsourcing, you get what you pay for, so I think you would need to be making a substantial profit to be able to hire someone competent enough to do this without screwing everything up. The more you scale up the more complex it gets. At a certain point it isn't feasible to keep manually entering everything in a spreadsheet - it would become a full time job. Right now I'm working on trying to automate the tracking aspect as much as possible. I think my next step once that is optimized is to work towards outsourcing. I would certainly like to see more discussion on this.

 

[Maverick17]

I'm not a Leff fan at all, far from it. But his post on May 18, 2011 about craziest mileage earning schemes (don't remember link rules) recalls some of the early and aggressive outsourcing stories (probably familiar to many of us). Obviously miles rather than MS, but a good place to look at the power of scale and the method of finding the weak/sweet spot in a program. One of the guys is active in the comments.

 

[Phantom707]

I've spoken about this, but from the perspective of people who say its OK to MS after work to earn $200 per hour when their job pays them <$200 per hour. My post was focused on the real value of that small slice of time between when work ends, and the night ends, and how using it to MS detracts from family and other important things. In my view, free time is by definition more valuable than 'work time' so you need to price that into your equations.

Can't for the life of me find the post though...

As I said above, there are definitely people who fall under your description, but that's dependent upon the individual. For example, if I get off of work before the other people in my household are relieved from their daily tasks, then there's less of a trade off from spending time with family.

Further, there's an important issue in motives and means. Very often, people MS to be able to afford vacations [with family and/or friends] that they otherwise wouldn't have been able to take. Quality time can have different kinds of quality; yes, it's nice to spend time at home with family, but it can also be very fulfilling to spend a vacation with said family members. Yes, that may mean that you have to sacrifice home time to be able to get that vacation time, but for some individuals and their families, that may be worthwhile (I won't comment on the desirability of always "being on vacation" with family; this comment makes the assumption that there can be a decent balance).

Regarding "free time" being more valuable than work time, that really depends. I don't remember which blogger wrote this, but MS can be a form of diversion. It's not necessarily correct to make the contrast between fun and MS. Besides that, though, MS serves the purpose of being able to "create" more free time (obviously, you can't create time, but you get what I mean). This is basically a restatement of the above point: the ends may justify the means. Obviously, you sacrifice some free time to create better quality vacation time (another form of free time).

Whether any of that is good for the individual person is, as I've said, depend on their circumstances, and there are probably still a lot of people who spend too much time MSing.

 

[Phantom707]

While apparently effective, that seems like a very risky strategy. Obviously, giving thousands of dollars of gift cards to others to liquidate for you should only be done with the most trustworthy of people.

 

[Gloobnib]

While apparently effective, that seems like a very risky strategy. Obviously, giving thousands of dollars of gift cards to others to liquidate for you should only be done with the most trustworthy of people.

This is my thinking as well. Or, alternatively, what's to keep your minion 'on staff' once you show them how to do the MS?

One possibility is that you can leverage your own credit-worthiness by making it possible for someone with poor credit to do MS (such as the aforementioned VGC->MO method). Then you agree to split the profits. But the main drawback is that you have to trust the other person to A) not screw it up, and B) not obscond with your funds, and C) not to screw up your credit. I suppose you could put mitigating controls in place for each of those. One variation of this (which many of us are already doing) is to leverage younger family members who aren't as financially established: "Here, do this and I'll help you build up a solid credit score". That might also work for extended family who are also trying to establish themselves.

OK, so my next thought was maybe doing MS via reselling physical goods. You can have your minions go out to B&M stores and buy up all of the 'limited to 2 per person" deals and then resell. You'd be paying them a flat (hourly) fee, maybe? Still, there's a major trust issue here. I suppose one way of adressing that is to make the hourly rate high enough that it is in their long-term best interests to stay on your payroll vs a one-time score by double-crossing you. Of course if you go this route (reselling goods), congratulations - you are now a distributor! IOW, you could probably do this a more traditional way with less risk and headache.

Not sure I've contributed anything here; just thinking out loud I suppose.

 

[janol]

What about the time we all spend reading all this talk about the value of time

 

[PurpleSquirrel]

What about the time we all spend reading all this talk about the value of time

that too in your pajamas.

 

[Haley]

So what is this 'next level' you speak of?

 

[craig d]

This is something I've been thinking about lately as I just recently been ramping up with reselling. For me, so far I find it a bit enjoyable to go to a store on the way home from work and find a good reselling margin. But that's the thing, I may find a 200% roi opportunity one day and walk away with nothing another.

But in the same sense I can't think about $ per hour spent doing this because it's like hypothetically if I got 200% roi each time RA'ing, would I substitute that in place of family time? Of course not, that's priceless. But taking a quick stop here and there to get some extra beer money I don't think is such a bad thing. The key is to just not neglect the ones you love and to have balance. Sometimes it can be hard though.

 

[Risk]

I struggle with this issue. Unlike most forum members, I am new and on the steep side of the learning curve. Here are some thoughts:

1. Time is not completely fungible. Energy levels vary throughout the day. The value of down time in the office is different from the fun time after work.

2. Outsourcing is work. You have to work on finding right people and you have to work on supervising them. Anecdotally, some prominent bloggers offer booking services but the work is done by less capable subcontractors.

3. Acquiring experience is work, but it pays off in the long run. It took me a long time to figure out how to apply for my first credit card with bonus miles, and later to book my first flight with miles. The second time, each of these was much easier.

4. Activities suck you in. You plan to spend an hour reviewing travel forums and blogs, and find yourself still reading them four hours later.

 

[Unifer]

I think if done well there are enormous benefits to outsourcing but if done poorly it is disastrous and you end up doing twice the work to fix mistakes, manage, all that jazz.

As @Risk pointed out, you need to acquire the relevant experience, and really you can't outsource until you can do the exact same job yourself. You can't skip steps.

However, the scariness of the disaster part of it all is what keeps people from really starting outsourcing/delegating at all, whether as leaders in their workplace or in their own life. Fear of one thing or another affects most of the population, whether we like to talk about it or not. Those that can overcome the fear, implement processes to delegate, and really get a system setup are prolific. Think about what you could accomplish if outsourcing is run well - all the extra free time you'd have. (I have no idea when I turned into the 4HWW, but it happened). Knowing when to delegate and empowering those underneath you to act autonomously is also a key leadership trait, IMO.


My goal is to begin outsourcing but find someone who's already doing it to be my mentor and guide me through the process (any takers?).