As successful CPG global brand builders, we are often asked, “What is the biggest single mistake that new consumer product brand builders make?” Our answer is always the same, “They focus on production and not on sales!”
Unfortunately, the first thing that goes through most startups’ heads is something like, “Oh, if I’m going to produce and sell a new branded product, I need a factory, an office, a big staff, trucks, warehouses, and several in-house professionals.” Then they write up a business plan and try to get financing to pay for the whole thing. Plus, they cover a runway for six months to a year to achieve a positive cash flow.
Even if they do get the money, there is a good chance they will fail. Why? Because they left out the essential ingredient, sales! They focused on production and not on sales! Sales justifies investments in bricks, mortar, machinery, offices, and overhead, not the other way around. Most startups actually believe that with a good idea and production and office facilities in place, that somehow sales will take care of themselves. They won’t!
Outsource Everything But Sales
We like to say you can outsource everything but sales, accounting, and quality control. We built the famous Barefoot Wine brand by doing just that. We had no vineyards, no winery, no offices of our own, and a very spartan staff. Most of whom were managing outsourced contracts.
As a startup without financing, we simply couldn’t afford to purchase all the business services and facilities we required. And it’s a good thing we didn’t because we discovered a model which became a case study in many top business schools. Barefoot was a model for strategic outsourcing.
We were able to find growers with excess grapes, wineries with surplus wine, production facilities with more capacity than they used, and many professional services and suppliers vying for our business. We found that business process outsourcing was actually preferable to doing it in-house. As long as we had our own people managing very narrowly written outsourced contracts, we could hold our suppliers to a level of quality they had to achieve in order to get paid.
Plus, by outsourcing, we were able to avoid the monthly costs of supporting bricks and mortar and overhead that go on whether or not you have sufficient income from sales. Most businesses fold because they have too much overhead and not enough sales. They simply run out of time and money! By outsourcing, you can control your costs by balancing them with your sales.
Here are some of the risks and benefits of strategic outsourcing for 5 important services:
1. Legal and Compliance
No need to have in-house people to tell you what the rules are. Outsource this function as needed. The risk is being overcharged and not getting answers in time. The benefit is that you only pay when you need it and a licensed professional is responsible.
You don’t need a factory. You need products that meet your specs and are produced in someone else’s facility who has already invested in the bricks and mortar, someone who needs your business to justify their investment in equipment and personnel. This only works well with very tight performance contracts. Plus, you need your person in their facility on the day your products are produced. The risk is that companies with excess production capacity may be marginal and could fold, leaving you scrambling. The benefit is that you can reduce your inventory, reduce your overhead, and reduce your management, in addition to avoiding this major capital investment.
3. CPA Services
You need to have an in-house accountant to produce timely reports that are relevant, dashboard tailored, and actionable. You can’t wait for an outsourced accounting service to get back to you with critical data you need to run your business. However, you can certainly outsource CPA services. Get a qualified CPA with whom you build a relationship with to do your annual books, taxes, audits, and other financial records. The risk is that you lose your CPA and have to start over with a new one. The benefit is that you are able to use them on a batch basis, take a big annual load off your own accountant, and give your own accountant the time they need to focus on cost accounting, projections, and analysis.
4. Printing and Marketing Production Services
Whenever you have a print job for any of your marketing materials make sure that someone on your salary is there to do a press check on the day your job is being run. Additionally, there are certain aspects of creative marketing that you can outsource. The risks are communication breakdowns, misunderstandings, and false starts. The benefit is that you pay as needed for these services, significantly reducing your overhead.
5. Social Media Marketing Agencies
Unless you are selling direct to consumer from your website, your web presence, especially for CPG branded products should be focused on features, benefits, other product information, and especially where to buy. Consumers are interested in product information and access. Social media can be a great way to market your products through the use of couponing and other promotional programs. Research and find a professional social media marketing agency and interview their clients. The risk is that you’ll pay for a lot of metrics that don’t result in sales but the agency gets you to buy into to justify their fees. The benefit is that effective social media campaigns change radically and it’s too difficult to have someone in-house who can stay on top of the latest strategies.
To be sure, there are other business services that a startup can outsource. Rent office space. Don’t try to own a building. Watch your hiring! Ask yourself this question, “Can I get an outside agency or self-employed person to do this job?” The gig economy provides endless possibilities. Focus on sales and remember overhead kills businesses. You are still responsible for sales, accounting, and quality control!