Out-sourcing and Risk Management

A recent project was a real learning experience about the risks associated with out-sourcing. Not that it would stop me from out sourcing any other work, but rather it taught me how to manage the risks of using someone outside your company.

The project began with everyone positive and upbeat, but then things began ton deteriorate. The schedule began to slip, and the quality of the project began to slide as well. Once this was realized, action was taken to remedy the situation, but it might have been too late. Trust with the client had begun to falter, and action was needed.

As part of the effort to rebuild trust, I drafted up an outline of the things that went wrong in the project, and how I might avoid at from happening in the future.

  • If you cannot see the person working, then make sure that you can communicate on a regular basis, and that you are seeing their handiwork often to ensure that progress is being made.
  • Never assume anything about the project. Always ask about every little detail, so that you truly know where the project stands.
  • When budgeting, make sure that you use a buffer sufficiently large that were things to go severely downhill, you could still deliver within budget.
  • Use milestones to cap the amount of work that needs to be done at any one point in time. That way, if any pArt of the project falls bend, there’s a limit on the amount of damage to the entire project it can cause.
  • A tiny percentage of projects in IT finish both on time and on budget. Don’t stick to one to the absolute exclusion of the other.

There are other lessons, but theism I feel, real get to the gist if what can go wrong. Sometimes you need to sacrifice part of a project to meet a successful conclusion, and sometimes, the decisions that need to be made are tough.

That’s why not everyone is cut out for this kind of work – you can become a pretty unpopular person at times, but if you’re patient, the reward will come.

Diversity and Focus

In last week’s episode of Dragons’ Den, there were two pitches that were of particular interest, since both had the same issue, but from the exact opposite perspective. In one case, the issue was in regard to too much diversity and not enough focus, in the other, it was the lack of diversity which drove the dragons away.

The first pitch was from a pair of entrepreneurs from Vancouver, pitching their clothing line, Skyler Clothing, which they said would soon be the next Lululemon. Having worked at their business for four years, it came as a surprise that Christina Marcano and Hayley Gregg were still in debt, and perhaps because of some hard lessons learned.

During the recession, their diversification into having their own stores, rather than focus on online sales and use of various shopping channels turned the business’ finances into a nightmare. Three of the stores were eventually closed, with the fourth, their headquarters, being kept. While the products were good, and they learned much about how they could have handled the recession better, the company was under severe financial strain.

While they did not get a deal, they did get a piece of advice from Jim Treliving – close the last store and focus on getting the wholesale marketm selling to distributors, rather than trying to create their own shops, a rather expensive proposition.

In the other case, the entrepreneur had been in business for fourteen years, and had a solid product. Olivier Soap made creams and lotions that when presented by Pierre Pelletier and Clarence LeBlanc were well-received, but despite his strong business, they failed to get a deal.

The business had several stores, and was looking to move into the business model like Arbonne, in which people pay a small fee to represent the company, and then earn a commission from any sales they make. The problem was that such a strategic move required a significant amount of cash, something the business seemed to have in short supply.

While the model might work, and the products seemed to hold up under scrutiny, the dragons were still not interested. The reason, perhaps, is that the business is in a stage of transition, which makes the investment more risky than most. With a business using an established model, while there is risk that the model might not work, the business can be assessed based on past performance with that model. When, however, a business starts to tread new ground, investors may shy away for the simple reason that they have no means to assess the current owner’s ability to run such a business.

Is diversification a good thing, or a bad thing? It really depends on what stage your business is in, and what you are trying to do with your business.

When times are tough, it may be better ton focus on one or two models that are known tone profitable. While this may hinder your ability to act on new opportunities, it can also limit your exposure to risk.

Alternatively, if your business is stable and profitable, then looking to diversify, whether in the form of new products or services, or to try new marketing and distribution models, may be a wise strategic move. Finding an investor at the same time, though, may be difficult.

Don’t Confuse Me with the Facts

I was reading the book All Marketers are Liars by Seth Godin, in which he discusses the approach to marketing that has been rapidly made into the norm for successful businesses – learning to tell a story. That is, a successful marketer will connect with their audience by telling them a story, which, as a side effect, results in the purchase of a particular product or service. They will not put any emphasis on the logical meris of their product, but on the emotional merits.

While I thought the book was quite good and made sense, it didn’t really hit home with me until I did a product demo for one of my clients. At the demo, I was showing their main salesman how he could present the product I had built for them to his prospective clients.

I made a first presentation in which I outlined the technical merits of the product, and how it satisfied all the needs of the client. I showed how it addressed both the needs and the wants of the prospective buyers. However, while the salesman listened patiently, he clearly could not use my presentation as the basis for his own sales pitch.

After a break in which we discussed other aspects to the product and project, I decided to present the pitch again, and this time, I presented on the basis of emotion.

I touched on the problems, the pains, the established feelings of existing products. I discussed the concerns, the wants of the eventual users. I talked about the people involved in the decision. Finally, I demonstrated the answer in the newly developed product.

I didn’t get involved in the facts (what are the margins, cost of distribution, market size, IP), because marketing doesn’t care about the facts, at least, not during the presentations. Marketing should be concerned with the story. If needed, the facts are available to back up the story, but it’s not part of the pitch.

How are you selling yourself and your products? Are you continuing to throw the facts at your prospective market, or are you connecting with your audience and telling them stories that happen to involve your product?

Plan for the Worst, Hope for the Best

I spent a few hours this week at a conference on family law, hosted by a law firm, and catering to accountants and financial advisors. The subject of the conference, which takes place annually, was succession planning, something that people don’t really want to talk about until it’s too late (and sometimes not even then).

A point raised by one of the presenters focused on why – that is, with people purchasing life insurance to protect their family in case the worst happens, and yet do little or nothing to protect their businesses. At first it may seem like perhaps they don’t care what happens, but usually this is not the case. Where family members are involved in the business, there is often the expectation that the business will remain in the family.

The psychology of what people go through when not planning for succession is quite interesting, as it often raises a variety of questions to reflect on. However, the focus of this article is not family-specific, but rather, businesses as a whole.

In any business, but especially small businesses, there is frequently a high density of knowledge residing in a very limited number of individuals. This has an inherent risk, as there is no assurance that the person with the critical knowledge will always be around, nor that they will have time to train their successor (imagine a car accident). To alleviate this risk, it is absolutely critical that businesses plan for this dreaded scenario.

In fact, this is no different than disaster planning, something larger businesses tend to plan for, though some do a better job of this than others. It’s merely another form of disaster planning.

In planning for this eventuality, the idea is to ensure that critical knowledge for the business has been recorded somewhere accessible in case it should ever be needed and the keeper of that information not be available for any reason. This can be done, ideally, with cross-training, which ensures that the information is disseminated in such a way as to be understandable to the people who would need that information. Alternatively, with confidential information, it can be placed under trust with a lawyer or a bank vault, only to be accessed under certain conditions.

That’s not to say every minute needs to be filled with dread that someone may be hit by a bus that particular morning. However, when no plans are made for such a scenario, should disaster ever strike, the business would have no one but itself to blame for its lack of foresight. Unfortunately, such lack of foresight can lead to the demise of the business, and as such, the risk should be managed in a timely manner.

Mixing Work and Home

By nature, I like to be around people, but I’m significantly more productive when I’m alone, or close to it. In a room filled with people I can relate to, I like to have conversations, and find myself easily distracted by what the people around me are doing.

For a variety of reasons, I don’t want to leave my current office space – besides getting along with all the other people working there, we’re great resources for one another, especially when a little bit of expertise is needed that can save hours of time. Additionally, with the number of projects being worked on which involve people from different businesses in the office, it’s more than a little convenient that we’re all in the same room.

However, productivity is the price paid for this convenience, as more frequently, I find myself being distracted, or, as often as not, the one doing the distraction. In an attempt to increase productivity without compromising the benefits of the shared office space, the alternatives were examined. This introspection I believe will benefit anyone looking to set up office, and wondering which of the alternatives below may best suit their needs.

Home Office

As I live in an apartment, this is something that was a moot point. My home computer can be used for work, but the environment is generally not productive, and so I try to keep the work at home to a minimum. A requirement for a home office is that the space designated for office be isolated from the space designated for home. This requires, among other things, the ability to visually block the two areas from intruding on one another.

If you have the space to create a home office, ensure that you are, in fact, able to isolate the office from the rest of the home. To this end, ensure that the room has a door, which, when closed, is considered a clear indication to the rest of the family that you are not to be disturbed.

Coffee Shop

The home of many starting businesses, coffee shops offer the convenience of a place to meet clients in what is perceived to be neutral ground. In an effort to have more people spend their days in their shops, many coffee shops offer Internet access, making it an even better place to work, not to mention the constant availability of your favorite form of caffeine.

The downside is that the shop is not your own space, and therefor imposes limitations on what you can and can’t do there. At the end of every day, you need to gather your notes, pack your bag, and leave, returning the next day to repeat the cycle. Additionally, the ambient noise can be pleasant at times, but it can also be a distraction, often when you most need it not to be.

Business Office

If your budget can afford it, a personal business office may be what you need. This will give the solitude that you need to be productive, a place where you can bring clients for meetings, and a place you can call your own. The downside is that you’re now responsible for the space, and the costs can be prohibitive. While this may be an eventual move, especially if you start bringing other employees into your business, it is, perhaps, the one to be avoided while it’s possible.

Shared Offices

This is most similar to the situation I described at the start of this article. Sharing space gives you the benefit of working with other people, but at the same time, reduces your overhead and responsibilities in terms of caring and maintaining the offices. The downside, though, is the same as that of coffee shops – when you need to focus, it can often be quite distracting.

My Balance

My situation is being resolved with a balance between a few of these options. While I continue to work primarily from a shared office space, I also have given myself the ability to work from anywhere – namely, a laptop set up as a desktop replacement. When I need to focus, I can always leave the shared space and find a quiet corner for a few hours or days. Since I’m leaving my comfort zone to do this, I can use a coffee shop as a temporary office.

If you’re looking for some options, look at what co-working options are available in your area. If you can find two, then consider using one as a primary office, and the other for the days you’re just trying to buckle down and get some work done.

The Entrepreneur’s Prayer

A well known prayer, originally authored by Reinhold Niebuhr, reads as follows:

God, grant me the serenity
To accept the things I cannot change;
Courage to change the things I can;
And wisdom to know the difference.

This prayer, with it’s insight to perspective on life’s challenges, has been used by various organizations looking to facilitate change, including Alcoholics Anonymous. I propose an alternative version, though, which I believe applies to entrepreneurs, and those looking to strike out on their own. At a fundamental level, it remains the same as the original version from Niebuhr:

God, grant me the patience
To accept the things which will not be changed;
Perseverance to change the things I can;
And perception to know the difference.

In business, there are those factors of life which will not be changed, or at least, not in the near future. As a business opportunity, therefore, such factors are generally to be avoided when trying to create a new product or service. Then again, there are some factors which are equally disruptive to the status quo, and yet the world is ready for them.

Perception can identify the difference between the two. Simply because a product or service falls outside the realm of the status quo does not mean that it cannot be successful. At the same time, there is a need to understand that the world is not ready for every new gadget to hit the shelves, and products have been known to fail simply because they were too far ahead of their time.

If you are looking at creating something new, there is a desire to create change (perhaps this can be understood in the expression game changing in which a strategy is making claims of creating new rules for its environment). However, this desire must be tempered by a vision of what the world is ready to accept – not everything or everyone wants to change. An entrepreneur needs to have that perception to be able to distinguish between what changes are waiting to happen, and act on them, and what changes they want to make, but should not lift a finger to assist them.

It’s Not Nepotism, He’s My Brother

Okay, the joke is, perhaps, a poor one, though you likely laughed because you can think of people who would say exactly such a statement.

I was asked recently regarding an inherent bias toward hiring people from my community. While many of the people in my office are from my community, there was actually another reason for this that had little to do with nepotism. It was more a matter of convenience, which, after a few years of operating this way, has demonstrated certain limitations.

The convenience is the fact that these people are easy to find via existing community listings and mailing lists. An email to my network can produce several responses with resumes, usually within a couple hours. If background information on a candidate is needed, it’s usually pretty easy to get that information.

However, the cost is in regard to time away from work – as the employees all are from the same community, their holidays all coincide, and they will all have the same restrictions regarding when they will work.

That’s not to say that I would not hire within my community or network, or even that I would not give preference to someone from that group over a candidate from without. However, the evaluation, to avoid the accusation of nepotism, must start with qualifications for the job, and then the cost to the business of hiring each candidate. Only when those two qualities have been met can nepotism raise it’s head to make a choice.

Businesses do not succeed because of nepotism, but rather, despite nepotism. Success is found by hiring the best qualified people, factoring in their existing skills, their dollar cost, the amount of training they will need, and how they will fit into the culture of the business. Hiring family or friends will often (though not always) meet the last of these criteria, but this is only one of several factors to be considered.

Only once all factors have been considered, and the candidates have been found to be equal in all other respects, can you fairly say “It’s not nepotism, he’s my brother!”

Not Everyone is a Customer

In a recent article I wrote for a local organization, I discussed an approach to networking that involves whispering, not shouting. The article addressed a common issue with organized networking events in which people shamelessly self-promote without establishing connections, turning the event into a mass marketing forum.

What many people fail to realize at such events is that not everyone is a [potential] customer, but that does not mean they are not worthy of your time. The next big lead for your business can come from anywhere or anyone.

Once you realize this fact, though, your approach to networking may change significantly. Instead of trying to push a product or service, you might try to inform. Instead of trying to sell, you might start to listen and have conversations.

Networking is about establishing connections that will endure long beyond any short-term benefit. As an example, you might be able to close a sale with some aggressive marketing for a few cans of paint to someone who just moved into a new house. If you spent time to connect with that person, though, they may have referred you on to their contractor, who would continue to buy from you for many years. Does that mean that you should not sell to anyone who could use your service?

Not really – it just means that your approach might need to be fine-tuned. Listen, connect, interact. Eventually, the sale will come. If you provide paint, as in my previous example, then the person who moved might ask you if you sell privately, or only to contractors and professional painters. Not only have you opened yourself to the possibility of referrals, you have managed to close the immediate sale as well with far less effort.

Oddly enough, many people are well aware of this sales technique, and yet they persevere with the bullhorn approach to networking. Perhaps this is because when they enter the events, they are seeing other people behave this way, and they immediately try to fit in.

From personal experience, though, I’ve found that you’ll actually make more of an impact if you use the soft-sell approach – you’re at the event not to sell products or services, but to meet people. When you tell others this, they will be initially surprised, and try to find the ulterior motive. But if there truly isn’t one, you’ll have made great progress is establishing new connections that will have the potential for huge returns over the long-term.