Fight the Firing at Start-ups

A recent article in Inc. notes that “start-ups fire nearly 25% of their employees during the company’s first year of existence,” compared with less than 7% “let go annually by larger, more-established companies.” The Inc. piece sites a Wall Street Journal article that provides four drivers of this trend:

“Startups’ needs change quickly. Often the skills sought in the beginning of the year aren’t needed six months later when the company’s strategic plan has changed.

First time founders lack hiring experience. When staffing a company for the first time, rookie founders might have no idea which qualities they should really be looking for in employees.

Employees from the corporate world can’t adjust. These hires don’t realize how quickly they’re expected to move on projects, since they might have been used to a slower pace at their corporate job.

Getting fired is viewed as not such a big deal. Since it’s well known that turnover at startups is high, getting fired from a startup is not perceived as a career-ruining moment. This might be how some startups morally justify letting lots of employees go.”

The first three are real challenges for start-ups, but each can be easily solved by outsourcing – while also avoiding the human, financial and societal cost associated with such rapid terminations:

Startups’ needs change quickly. Outsourcing provides scalable solutions that can keep pace with growth, and allows access to a breadth and depth of skills that can be added, deleted or substituted as the start-up’s needs evolve.

First time founders lack hiring experience. An outsourcing firm that provides a fully-managed outsourcing solution for a particular process or functional area – such as finance/accounting, human resources, logistics, or marketing – takes this issue off the table. The entrepreneur does not have to worry about hiring, managing, or firing for non-core functions, and does not have to endure the costs associated with recruiting or the lost productivity from bad hiring decisions.

Employees from the corporate world can’t adjust. Outsourcing providers that work with start-ups have professionals with the required skill sets and sense of urgency. Moreover, they can leverage additional resources when needed to accelerate projects.

These three factors are challenges to start-up entrepreneurs, and outsourcing can solve all of them. The fourth driver, “getting fired (from a start-up) is viewed as not such a big deal,” is not actually a challenge to the entrepreneur, and it is not a perception that outsourcing can eliminate. But it is most certainly a challenge to the people that are fired. I would venture to say that those terminated from start-ups do not agree that it is “not such a big deal,” especially if they are past a certain age… This is a case where outsourcing can help the workforce in addition to the start-up: Join an outsourcing firm, where you are a revenue-producing part of the provider’s core competency, and enjoy a career path that is more stable and progressive, not dependent upon the vagaries of one particular start-up.

Virtual Reality

On Tuesday, February 12, 2013 I had the privilege of moderating a panel discussion on outsourcing at an event held by the Entrepreneurs Forum of Greater Philadelphia (EFGP). The program was entitled “Virtual Reality: Using Outsourcing & Virtual Business Models to Achieve Peak Performance.” The objective of the panel discussion was to give potential buyers and providers of outsourcing services an overview of trends, opportunities and challenges in outsourcing. Particularly for the growth companies that the EFGP serves, we hoped to provide an overview of the resources available through outsourcing as a company grows and evolves, and to provide guidance in navigating the decision of whether to outsource and how to outsource.

Key discussion points included:

  • The value proposition of outsourcing: While there are many benefits, the overarching value proposition is to be able to focus on your core competency. As Tom Peters said, “Do what you do best, and outsource the rest.” This might have been expanded to say, “Do what you do best, and outsource the rest TO WHOEVER DOES THOSE THINGS BEST.” Patrick Gibbons, co-founding partner of The Emerson Group, eloquently described Emerson’s wildly successful business model that provides outsourced services while itself relying upon outsourcing for non-core functions.
  • Outsourcing levels the playing field and enables smaller, earlier-stage businesses to successfully compete with larger encumbents. Joel Cardis, Inhouse-Counsel.net, described several examples he has seen in his role as outsourced general counsel, while explaining how his proactive role with his clients is a modern twist on contracting out for traditional legal services.
  • Outsourcing is continually evolving, and within each functional area (finance, IT, marketing, logistics, etc.) outsourcing is at a different stage of maturity. Outsourcing services are moving up the ladder from handling routine or transactional tasks to more value-added, knowledge-based and strategic activities. Staffing, a form of outsourcing, has progressed from temporary factory workers, to temporary office workers, to interim executives, and now to “fractional” executives, or “executives as a service,” evangelized by panelist Sue Cyliax of Chief Outsiders. Similarly, staffing solutions have evolved into managed services, whereby the management of an entire business process or functional area is outsourced, such as recruiting process outsourcing, represented by panelist Emily Biscardi, founder of Xelerate.
  • Advances in information technology – namely, cloud-based and mobile applications – have made outsourcing more practical and pervasive. As Anthony Mongeluzo, President of ProComputer Services (and EFGP President) noted, the “cloud” is really just a new name for something that has been around for a long time, but broadband technology has made it possible to move vast amounts of data digitally and wirelessly to and from the cloud. Sam Vinovich, a colleague of mine at Fesnak and Associates LLP, described Fesnak’s use of cloud accounting technologies Intacct and Bill.com to remotely provide a robust accounting and financial management solution.
  • Outsourcing is not a job-killing practice and should not be confused with offshoring. It is creating whole new career paths for professionals. For example, a controller in a middle-market company may have no upward mobility if the CFO she reports to stays in her job for a long period of time. But at a firm that provides outsourced accounting services – where her area of expertise lies within the firm’s own core competency and reason for being – she has unlimited opportunities for advancement. And outsourcing provides a wide spectrum of experiences to the professionals delivering the services, which in turn adds to the value proposition for buyers of those services. To use Mongeluzo’s metaphor, an IT professional at an IT outsourcing firm is an “alley cat” that has been exposed to all sorts of ever-changing experiences in the outside world. An in-house IT professional, in contrast, is a “house cat”: limited to the experiences seen inside his or her company, confined by that one company’s vision, resources, budget and existing technologies.

It was a dynamic panel discussion that I was pleased to be a part of. Judging from the audience questions and feedback surveys, it was well-received. Being in the outsourcing field, it is easy to forget that outsourcing is still not necessarily mainstream, at least not in all functional areas, and business professionals still have a number of questions about how it all works and can best be leveraged in their organizations. The panel discussion was a great opportunity to continue to educate the marketplace and evangelize the benefits of outsourcing. Thanks to EFGP, the panelists, and all who attended the event!