Author Topic: Insourcing vs. Outsourcing  (Read 416 times)

Genevieve

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Insourcing vs. Outsourcing
« on: March 08, 2017, 04:47:28 PM »
One of the key ways people can save money is by DIYing.

How does that thinking change when you're a business owner? A business owner that never outsources ... aka never hires, never pays for software that makes doing business easier, and so on ... will limit the growth of their business.

A financial planner I know does investment management, prepares taxes, and does financial planning. He has refused to specialise and struggles with hiring an assistant even to do easy Excel stuff. After 5 years in the business, he's completely maxed out with very little revenue.

When your time is maxed out, hiring something out at home might be simpler than hiring in the business.

Thoughts?

This Michael Kitches/ Paula Pant podcast has some good thoughts on it.
http://podcast.affordanything.com/64-michael-kitces-mind-powerful-money/

J Boogie

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Re: Insourcing vs. Outsourcing
« Reply #1 on: March 09, 2017, 08:32:31 AM »
I think this is a phenomenon that's got a dead simple formula for assessing whether to outsource or insource - even if your goal isn't JUST maximizing profits.

Probably plenty of people out there running businesses that don't make the assessment though.

If you currently insource, it would go like this: Would it make long-term financial sense to outsource, and would you still enjoy operating the business if you outsourced?

If you currently outsource, would it make long-term financial sense to insource (hire permanent employees or do it yourself) and would you still enjoy operating the business this way?

Oftentimes, people run "lifestyle" businesses and I would suspect most here are interested in that - especially for their post FI years.  That's what I'm interested in.  Growing the business in a way that involves hiring would no doubt increase stress - and I'd only be interested in that if I believed my business is VERY beneficial to society.




CargoBiker

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Re: Insourcing vs. Outsourcing
« Reply #2 on: March 09, 2017, 12:45:02 PM »
One of the key ways people can save money is by DIYing.

You touched on some good points.

I like the Covey 4 quadrant task management system.



Most business growth occurs in Quadrant 2. Important tasks that are not urgent. Your financial planner friend is spending all his time in Quadrant 1 and 3 (hopefully not 4!), so he has no time to work in Quadrant 2.  He's constantly putting out the fires of the day to day operation of his business.  His growth is limited by his available time.

In comparison, most of my daily tasks have been automated or outsourced. I didn't personally pack and ship the hundreds of orders that have come in this week. I didn't personally respond to the dozens of customer service emails. I didn't personally manufacture any of the product. So, instead, I was able to spend all yesterday working on my next project, which is landing a couple of big distributors. This is a task that will take X number of hours upfront, but will grow my business exponentially.  Landing one distributor will get my products in dozens of more stores.

Every week, I try to complete one big task that adds more revenue to my bottom line.  A new marketing campaign. A new ad channel. A new distribution channel. Developing new products. This is challenging, creative work, that is best done when you're fresh. It's hard to do any of this when you're worn out and frazzled with the day to day.

CargoBiker

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Re: Insourcing vs. Outsourcing
« Reply #3 on: March 09, 2017, 12:51:36 PM »
When your time is maxed out, hiring something out at home might be simpler than hiring in the business.

Ah, I misunderstood the question in your post.

You mean hiring out tasks around the home.

It's worth doing if you use the freed up time to make more money than you're spending to have that time freed up.

If you have the time to do something at home, and have someone else do it instead, then it's just a cost, which you have to weigh against the benefits of not having to do that task.

Genevieve

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Re: Insourcing vs. Outsourcing
« Reply #4 on: March 09, 2017, 06:50:40 PM »
CargoBiker, I meant both, so thanks for your response.

I love Stephen Covey's stuff.

It's really theoretical for me at this point, so this is just a fun mental exercise for me. Hiring in the business is probably an easier decision.

But I do think you have to think carefully about too much DIY at home if you are a business owner. If renovating your whole house takes up your mental energy, it better be worth the time away from the business. If getting some household help means you're able to spend Sunday working on big projects, it might be worth it. Probably depends on a case by case basis.

SeattleCPA

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Re: Insourcing vs. Outsourcing
« Reply #5 on: March 10, 2017, 06:12:17 AM »
Sort of on topic, sort of off topic...

Eliyahu Goldratt, a writer and management professor, talked in his books about how critical it is to manage your bottlenecks. (The phrase he used was "constraint theory".)

In his mind, one worries about bottlenecks in your process and not efficiency or capacity utilization or any of the other stuff you would think matter.

This line of thinking is pretty relevant for small service businesses. Your bottlenecks kill you. Link below points to the Wikipedia article about Goldratt, but I highly recommend Goldratt's book, "The Goal"
 
https://en.wikipedia.org/wiki/Eliyahu_M._Goldratt

Genevieve

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Re: Insourcing vs. Outsourcing
« Reply #6 on: March 10, 2017, 02:43:43 PM »
I'll put it on my wishlist. Someday : )

Definitely found that to be true when I worked at a small manufacturing facility. Adding capacity or fixing a workflow problem would create a new constraint.