When I’m meeting with founders and other executives, I am often asked for my thoughts on outsourcing various aspects of a growth company. I always start by asking what is fueling the interest in outsourcing. If the answer is predicated on the theory that outsourcing saves money, then I let them know it’s probably not the right choice.

Why? Because I believe outsourcing must focus on value creation versus cost savings. It’s fundamentally about finding strategic partners with specialized skills and knowledge that align with your goals and ethos. You might outsource a corporate function such as legal or accounting, or a portion of your business operations like delivery or customer service.

Think about painting a room in your house. You could do it yourself, but that will take time away from other things you might do better, and it may or may not result in the highest quality work. You could also outsource to a professional painter. If your primary criterion for choosing a painter is cost…well, you know the saying, you get what you pay for. If you choose a painting company based on expertise, reviews, and prior work, the experience will likely be better, and you’ll create more long-term value for your home.

Kate Vitasek, a well-known authority on supply chain management and outsourcing introduced the concept of “vested outsourcing” to describe the theory that outsourcing should focus on creating mutual value rather than merely cutting costs.  She teaches and writes about The Vested Way which shifts outsourcing relationships to a “What’s in it for we?” approach. What a fantastic mantra!

In my years as Founder and CEO of Unidine and Compass Community Living, I regularly had conversations with potential clients who were considering outsourcing aspects of their business that had been managed in-house. During these meetings, I always made it clear that we would not cut corners to save money or compromise our standards and emphasized our commitment to creating long-term value. This approach sometimes required me to flex my willpower and walk away from business opportunities that were not consistent with our brand, operating standards, and culture.

To be successful, founders must look at outsourcing as a strategic tool that can enhance operational efficiency, provide access to specialized expertise, and drive innovation.

Think about companies like Coca-Cola that outsource bottling operations or Amazon outsourcing third-party logistics for deliveries and fulfillment. These are core functions that drive the business and yet they are outsourcing and creating value for the customer, their shareholders, and the outsourced providers as well.

If you’re a founder considering areas of your company that may make sense to outsource, I suggest the following process:

1. Conduct a needs assessment by listing all functions and performing a SWOT analysis on in-house and outsourced options.
2. Evaluate potential outsourcing partners based on expertise, client retention rates, and alignment with your culture and values. Consider each outsource service’s ability to access talent, their speed-to-market capabilities, commitment to innovation in their business area, and quality ratings.
3. Establish clear service level agreements with measurable goals that are focused on desired outcomes versus processes.
4. Be sure real-time feedback mechanisms are in place to maintain alignment and address issues promptly.
5. Test, review and adapt based on performance and feedback. Commit to continuous improvement.

Let’s think beyond the balance sheet and recognize outsourcing for what it is – a strategic advantage that can drive growth, innovation, and superior service delivery. To truly harness the power of outsourcing, it is essential to establish a strong, strategic relationship with culturally aligned partners. At Phoenix3, we are committed to helping our portfolio companies achieve their goals through smart, effective outsourcing solutions.