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3 Necessary Business Functions That Cannot Be Outsourced

It always hurts to hear a brand-new “wantrepreneur” discussing their first steps when going into business. They typically say, “Well, if I’m going to go into business, I’m going to need to get an office, a production facility, and a warehouse. I’m also going to need a new car, a new truck, new furniture, and new machinery. Oh, and I’m going to need a full staff.”

For some reason, they think their success is based on acquiring those items. They love to hear about how similar startups get funded. Presumably, the main reason for all that funding is to support the massive overhead, instead of using income from sales. This is known as a “burn rate”. The goal here is to get the business started with enough money to pay your bills until sales “take off”, also known as a “runway”.

We can’t help but cringe when we hear this. Yes, businesses will eventually need these things, but until the buildup phase is complete, they will rack up monthly costs and are a giant millstone around their necks, weighing them down while they’re trying to push upward and achieve positive cash flow. As if it isn’t hard enough already! Putting precious time, energy, and money into building out a business before we even have positive cash flow? NO!

A few startups might know that sales will be the hardest part. They fear it takes too much energy for too little return, especially at first. They can put that to the side and do something that “shows”, like spending the cash on overhead and assets. Some other startups could simply underestimate the focus, energy, and time it actually takes to make a sale happen.

What’s plain crazy to us is how easy it is to borrow money when hard assets are involved. This lax lending policy tempts businesses to wear that millstone. It’s almost like investors and lenders believe they can take the assets back if you default. Even if they can, they’re difficult to move and won’t be able to return the cost in full.

Investing your time, energy, and money in staff and bricks and mortar could distract you from your main objective—sales! The majority of this stuff can be outsourced anyway. Once you get rid of your monthly millstone, you may realize you don’t want to drown yourself with overhead and assets, and instead put more energy into sales. We think that sales earn these assets—not the other way around.

When Barefoot Wine started, people asked us, “Oh, the wine business! Where are your vineyards and how many acres do you have?” We simply responded, “None! But we have sales – lots of sales!”

We couldn’t secure financing when we started, so we had to make sales early and often just to keep our heads above water. We couldn’t afford a millstone around our necks. We had no runway. So, to compensate, we outsourced everything we could. Now, we recommend this “beyond lean” startup approach to our clients.

We think you can outsource just about everything except accounting, sales, and quality control. When you do the sales yourself, especially to get your business going, you develop a deep respect for the customer and how your goods and services fit into the market. As you grow your company and train your own salespeople, this will be a priceless experience.

Accounting in-house is essential. Your numbers must be available now! You can’t wait weeks to see what’s happening in your business today. It’ll be far too late! The business plan you spent so much time creating is now replaced by a cash flow report. And cash flow management is a critical startup skill.

Yes, you can outsource production, but it isn’t possible to outsource quality control. Someone in your facilities needs to ensure quality. In your production contracts, you must specify all the necessary requirements before you pay for these goods and service. And you must specify in great detail.

But mostly everything else can be done by somebody else. In a lot of cases, maybe even better than you could do it yourself. Don’t crush your business with overhead, with bills hungry for your precious cash. Get the hardest job done first—sales! You’ll be shocked by how many vendors come out of the woodwork to help keep those sales going. After all, your sales pay their bills.

The next time a “wantrepreneur” shares their startup plans with us, we’d love to hear, “To get started, I’m outsourcing everything except for sales, accounting, and quality control!”

For more, read on: http://c-suitenetworkadvisors.com/advisor/michael-houlihan-and-bonnie-harvey/

MIchael and Bonnie Harvey
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