Evidence is starting to emerge that new businesses aren’t as dynamic as they once were. Recently, a Brookings Institute report tracked new startups to find out how many were successful. They found that while startups continued to be formed in large numbers, far fewer were actually making it. The news seemed to throw a spanner in the works of today’s startup culture. We like to think that we live in the age of enterprise and entrepreneurship. But it turns out, entrepreneurs are having a seriously tough time out there.
Added to this mix is the interesting fact that venture capitalists and investments banks have never had more money to lend. In theory, there should be plenty of cash sloshing about for new startups to use. It just seems as if something is sapping entrepreneurs of their productivity and drive. Many place the blame on the sheer cost and barriers today to starting a business. Regulation and compliance costs are enormous. But so too are the time it takes to set up a business, as well as labor costs.
Costs for small businesses are traditionally broken up into key, distinct areas. There’s the cost of actually selling the good. This includes things like packing, shipping, paying for inventory and warehousing. Then there are professional fees. These include the cost of establishing a corporate structure, paying for trademarks and so on. Wages and employee benefits also take up a significant chunk of the business income, as do payroll taxes. Then there are sales and marketing and administrative costs, and the cost of technology.
Traditionally, firms performed all these functions themselves. The option of getting somebody else to do it for you just wasn’t there. But today, these costly functions can be passed over to another business for a lower overall cost. By the way, this isn’t just theoretical. Practically every large business today outsources some function to an external company. It might surprise you to learn that most companies don’t do their own audits or their own accounts. Some don’t even do their own packing or their own marketing. And that’s why you don’t have to go it alone in business. Almost every function that is not strategic to your business can be passed on to somebody else. Does that sound like a recipe for reducing costs? You bet it does.
So the question becomes, what can you outsource? And, if you can outsource it, should you? Let’s take a look.
Manufacturing is one of the most capital-intensive industries on the planet. That means that it’s incredibly expensive to set up your own manufacturing facility. For lean startups, it’s just not an option. So what should startups do? In the US, the trend is now to get manufacturing outfits overseas to do the manufacturing for you. Remember, there’s already a well-oiled global supply chain in place. So if you go down this route, you can expect good commercial availability. Manufacturing work will probably be carried out in China, or some other East Asian country. And it’ll be delivered to you fast.
By Mixabest (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
You can also look for options closer to home if you don’t want to deal internationally. Remember, US manufacturing is on the rise and automation is bringing factories back to the US mainland. So there are now more opportunities for SMEs to avoid costly international negotiations.
Finance And Fractional CFOs
Go back 20 years, and you couldn’t find a single company without a chief financial officer. The CFO was a full-time employee, responsible for all the financial matters at the enterprise. But here’s the problem: most smaller companies didn’t actually need a full-time CFO. They would have been okay with hiring a part-time CFO to do their accounts when they were required. The problem, however, was getting a CFO who didn’t mind working only a few hours a week.
It’s this issue that has become the driving force behind the trend towards the “fractional” CFO. Now companies can benefit from the services of a highly trained CFO. But they don’t have to pay them a full-time salary. They just pay them for the CFO services that they need. CFOs, therefore, are no longer as bound to individual companies as they once were. They’re branching out and working with many businesses, saving lots of money in the process.
Startups and small companies are also saving by replacing people with software. No longer are finance departments staffed by teams of accountants. Now a simple software tool will do. And we’re not just talking Quickbooks here either. Now there are platforms available that fully integrate payment into the accounting solution. Apps like Wave allow you to link merchant payment services with your business account and accounting software.
Packaging And Shipping
Packaging and shipping might sound like a simple process, but it’s not. There’s a lot of complexity involved in taking orders from customers, finding what they want and then shipping it to the right address. For most companies, packaging and shipping are just a byproduct of their processes. They’re not the primary focus on their business. And yet, packaging and shipping can become a nightmare for those who do not have the technical know-how.
This is where fulfillment services come in handy. Here an external company comes into your business and organizes packing and shipping for you. They’ll work alongside you, providing you with the knowledge you need to meet customer needs. The expertise of fulfillment companies is often vast once they’ve worked with clients with many different needs. And their experience of picking, packing, and shipping is often just the tip of the iceberg. Often, these companies can improve the way your business stores products and organize its warehousing.
Technology: Computing As A Service
Go into any older business, and you’ll find legacy computer systems. There will be old-fashioned, fixed computers, servers and physical networks in the office. But if you’ve been to a startup recently, you’ll notice a big difference. Where are all the big, bulky computers? Where are the servers for that matter? And why aren’t there legions of technicians working to keep the network alive?
Modern startups don’t bother with all these extras they don’t need. Most just carry a laptop, or even a tablet, depending on what they need. The reason they can do this is because of distributive computing, otherwise known as the cloud. Rather than having to build services at the location of their office, new businesses can just stream services over the internet. Need a CRM service? No problem. Just hook your computer up to the web, and grab one of the many CRM cloud packages out there on the web. Want a Software-as-a-Service platform only previously available to medium sized firms? Now you can, thanks to streaming services. And you don’t have to pay through the nose for them like you did in the past.
Right now, small businesses are leveraging cloud apps and generating incredible value. Apps, like InsightSquared, are enabling companies to collect real-time data on their performance. GetFeedback is another app where businesses can gather feedback on the quality of their customer service. Geopointe helps companies expand overseas by managing new territories and shipping routes. You can even have your own custom cloud app developed if you feel your business would benefit.
Professional Employer Organisations
Lastly, there are professional employer organizations. These companies help small businesses reduce the burden of their HR departments. They take over the cost of hiring, recruiting and even taxing employees that work at your business. All you need to do is go to the PEO and tell them what you want. And they’ll then go about finding the right candidate for the job.