The CEO of a young 100-plus person company was stressed. ?I?m finding it impossible to deal with so many things in the company. I have to worry about whether there?s diesel in the generator and to dealing with employee issues. Performance appraisals and variable payouts have not been done as the paperwork hasn?t been completed. I?ve just received a letter from the service tax department about non-payment. I?m beginning to wonder if I?m the right person to run this company.?
?If you ask me questions about my receivables and payments situation, I cannot give you a precise answer. I do not know the exact amounts that leave and enter my bank accounts each day. In addition, the other day I had to spend a lot of time with a listless junior colleague due to his marital problems. Am also not sure if I?m in compliance with all the statutory obligations of my company. So much of my time goes in fire-fighting and in such stuff that I cannot focus enough on customers and on building my business? said the CEO of a 30-plus person company.
The response to both the situations would seem to be quite obvious: hire the right people and put the right internal systems in place. Unfortunately, this is easier said than done as the above examples from two VC-funded startups demonstrate. And both these companies had attempted to find the ?right person? but without much success. For one, getting the ?right? person for important functions like human resources and finance?getting the combination of right experience, right attitude and at the right compensation?for a young no-name company can be extremely challenging. Second, given the dynamic and ever changing environment that most start-ups operate in, it is important to have flexibility to scale resources up or down in a timely and efficient manner. There are other areas like legal, PR and even Web site technology development that can pose difficult challenges for many start-ups.
So, what?s a start-up to do in such situations? The trade-off one has to make is the obvious?build versus buy. What is required however is access to the required skills and capabilities as and when required with a certain minimum quality of service. As the start-up evolves, it needs to constantly evaluate what skills and capabilities are core to its success at different points and therefore important to ?own? and what can be best done by partners. For example, building of a Web site as another sales & marketing channel for a business can initially be outsourced to a partner but, over time as the web-site becomes the most dominant sales and marketing channel, it would be prudent to have the technical capabilities in-house. On the other hand, if the Web site were to be just for informational purposes rather than a critical sales and marketing channel, then it would be perhaps be useful to continue to partner.
In many cases, interventions by partners are transactional in nature. Legal assistance is a case in point. Legal assistance is sought only in specific and defined instances. In other cases, having partners can be part of the company?s strategy and business model. For example, companies operate in certain sectors and geographies only through sales & marketing partners who for all practical purposes behave and act like they were employees of the company.
No one company can do it all. Several start-ups, including the two examples quoted here, now outsource some or many of their functions. This has allowed them to focus on company and business building activities.
While outsourcing has now become a way of life for large established companies, it is important for start-ups to also learn its virtues. However, the pitfalls can be many as well. Does the start-up have the management ability to select the partner, oversee deliverables and manage the relationship? Does the start-up know what it wants, when and how? Does the start-up have the right contracts in place to govern the relationship? How will the start-up be impacted if the relationship sours? Successful partnerships and outsourcing requires good leadership. And unfortunately, leadership cannot be outsourced!
What do you think?
Sanjay Anandaram is a passionate advocate of entrepreneurship in India. He?s involved with Nasscom, TiE, IIM-Bangalore, and Insead business school. He can be reached at sanjay@jumpstartup.net