This is a three-part series introducing a business practice embraced by many successful companies – How to leverage outside workforce to generate more growth and profit for your business. Relax, I am not going to tell you to ship jobs overseas or move your payroll to a professional employer organization (PEO). The real opportunity is to become more nimble, responsive, and creative in the pursuit of profitable growth. A key to that success is the effective use of third-party intellect and execution.
Part 1: What Do Successful Integrators Have in Common?
To begin, let’s define business success as a state of ongoing growth and profitability. You can argue that your version of success might be defined differently. For many owners, success is simply a state of self-satisfaction. However, when I talk to business investors and shareholders – I rarely find anyone that is completely satisfied with what they have accomplished. As long there is untapped potential, successful people will strive to do more.
For whatever level of growth and profitability you seek, the challenge is figuring out how to have both and live to tell about it.
Successful Pro AV Integrators maintain four skills that when leveraged together, are the keys to extraordinary business results. The first is Efficiency as measured by high revenue per employee or full time equivalent (FTE). However, not all companies with high revenue per FTE are successful. This is just one of four interdependent traits that we need to explore. The second quality is Scalability, which is the facility to accommodate variable business volumes gracefully and profitably. Some companies are scalable, but lack growth – so scalability by itself is helpful, but not a hallmark of success. The third quality is Cleverness. This is often referred to as “Outside the box” thinking, but cleverness is more accurately defined as the ability to leverage knowledge beyond your normal experience. The fourth quality is Resourcefulness. In business terms, resources are capital, intellect, and drive – a combination of tangible and intangible elements that are necessary to grow profitably.
Your company probably exhibits some or all of these qualities. In other words, you have something in common with the most successful Integrators. The next step is to apply all four traits together and harness their synergistic powers. Let’s examine each of these success components:
One indicator of success is a firm’s ability to generate and manage increasingly larger amounts of revenue per employee. Business volume is relative. A ten-million-dollar contractor is huge when there are twenty employees. A one hundred-million-dollar contractor is small when there are five thousand employees. In other words, the best size for you will depend on many factors, so finding your high efficiency metric is a top priority.
Companies that can add business faster than they need additional employees are efficient – provided they maintain standards. Likewise, an inefficient company cannot accommodate more volume without more employees, which is exactly why so many small businesses stop growing: They are constrained by management’s inability to direct more workers, which will invariably be coupled with process issues. Efficient companies will utilize outside resources whenever possible, which helps keep the delicate balance of revenue growth and overhead costs in check, while at the same time increasing the revenue per FTE.
Our breakthrough company can handle increasing amounts of business with fewer employees because it is efficient, but that means it has probably developed processes and invested in infrastructure that allow it to do so. Software is a major part of any scalable service business. So much of what integrators do involves information sharing and planning, and adding more employees to the mix rarely helps communications unless the proper tools are in place. Scalable businesses also have well-defined processes that evolve and expand as the system learns more. Repeatable tasks are standardized and employees generally undergo constant training. Perhaps more importantly, scalability is a management mindset. There must be a process for process change. The firm must make continuous capacity adjustments, which is why the topic of outsourcing is so important when discussing successful Pro AV integration models.
Cleverness is exceedingly hard to package, but it is definitely manifest in successful, growing enterprises. Shrewd leaders know when to say ‘yes’, when to invest capital, and when to bring in outside expertise. In essence, clever companies see opportunity where others see obstacles. In a broad discussion about what makes some companies more valuable than others, there will likely be a moment when that business successfully engaged a strategic partner who helped open up new opportunities.
Growing companies know how to manage cash flow, have the ability to borrow money to fuel growth, and are quick to makes moves that will accommodate new business. Indeed, a key resource for successful companies is management capacity. It’s hard to imagine the CEO from the biggest, most successful Pro AV company with his or her hands buried in an equipment rack, but it’s not uncommon to see something like that in struggling businesses. In order to leverage the other three success criteria, Managers have to be aware, prepared, and available to act – not bogged down in details. They need the freedom make decisions that will keep the company moving forward.
When one of the four traits starts to slip, growth will invariably slow.
Even when companies are Scalable, Resourceful, and Clever – inefficiencies will chip away at growth and profit – slowing business down over time and compromising profit along the way. Indeed, conceding any one of these traits undermines the firm’s ability to expand profitably, continuously. However, making better use of an existing trait is always better than exercising none at all.
In the discussion about leveraging outside workforce – efficient, scalable, resourceful, and clever companies all seem to embrace outsourcing for its ability to support these four success skills. In the next installment in this series, we will explore how your corporate mindset and brand image affects your ability to outsource and grow.
Many businesses are under the impression that outsourcing saps credibility, limits growth, and reduces profit. It is also widely believed that only employees can deliver the quality outcome customers expect. There’s truth in that statement based on some anecdotal experience, but the underlying issue isn’t that outside support is inadequate. Indeed, consumers encounter effective outsourcing models everyday. In the first blog of this series, we explored how successful companies are efficient, scalable, resourceful, and clever. In this installment, let’s look at how these qualities allow those firms to define their strategies in much broader terms, opening the door to more opportunities.
Part 2: Your Brand Identity and the Customer Experience
In our ongoing exploration of successful Pro AV companies and the role of outsourcing, we need to address the issue of brand identity. Whether you see yourself as a Design-Build Integrator, a Value Added Reseller, or a Respected Contractor – that self-image is probably rooted in the type of transactions the company was founded upon. Historically, these three types of businesses are cost-plus transactional models. In other words, the supplier adds a profit margin to the cost of design, cost of product, and/or cost of installation. The formula is not incorrect, but the definition is self-limiting. For one thing, the marketplace has figured out that contractors and resellers will work for pretty thin margins, which has lead to a self-inflicted commoditization trend. To break this cycle of price-driven transactions, dealers have to champion the value of their intellect and establish a powerful brand identity.
Building a brand is primarily about establishing and reinforcing credibility. Someone that obviously knows what they are doing is worth more than someone that can only promise it. One thing that scares small businesses about outsourcing any part of project execution is the idea that someone other than their employee is going to do the work. There is a litany of concerns about control, image, accountability, process, and scheduling that circulate through their minds, but when I talk through these concerns with owners, their biggest worry is customer perception. They are afraid that the client is going to find out that they aren’t doing the work personally, that they don’t have the capacity, or worse, that they mislead the client about what they do. In other words, they are posers. The smaller the supplier, the greater this fear seems to be.
Smaller integrators may feel that their value proposition is the personalization they provide.
Companies that only sell a list of products or services are limiting what the customer can rely upon them to do. In small companies, the owner might be the designer and sales person. The project lead was the first employee. The apprentice is someone’s nephew. This level of personalization is presented as an asset, but how can you meet customer demand when this team is too busy? In this scenario, outsourcing would by definition be sub-optimal because the “team” doesn’t fulfill it.
For instance, if your product is a completed installation that fulfills customer needs, you are providing an outcome. However, if you have sold the customer on a specific process, person, and technique – as in, “Bob will arrive, setup a ladder, climb it, remove a ceiling tile, turn on his flashlight, etc…” then the results become secondary to the process. “We followed the process, delivered the scope, sorry if the outcome is not what you wanted.” In a price-driven process, the focus is on what the supplier does: design, draw, procure, and assemble. In theory the customer is not an expert on how these parts work together, but sees that every contractor seems to do the same thing. The net real result is that the buyer tends to deconstruct ‘sum of the part’ value and focus on price. Conversely, when the supplier focuses on project outcomes in customer terms, the buyer becomes the expert and the value becomes what it is worth to them.
The question of brand identity therefore centers on whether you identify your product or services as the sum of parts or as the solution to a problem or need. Integrators that present themselves as a cost-plus supplier still have to differentiate, and typically they will rely on the uniqueness of their team to set themselves apart. The weakness in this model is that customer knows that employees are imperfect agents and that the physical products are universally obtainable. The dealer can differentiate its processes, but proving that requires customer experience – not to mention that every other supplier is saying something similar about their brand.
That leaves contractors with few choices to set themselves apart other than customer-centric strategies in which the overall customer need for a solution is addressed even if it exceeds the supplier’s traditional expertise. Service-based businesses must shift their mindset to orchestrating an overall outcome rather than managing the traditional skillsets of their trade. In most cases, contractors will want to explore solutions that are outside of their current services and learn to manage adjacent trades. The benefit and challenge of this approach is having the resources to execute more types of projects successfully, which is why a deeper understanding of effective outsourcing is vital to the industry today.
Good work is a reasonable expectation and to be fair, we are all judged at some level on our finished work. What is important to understand and remember is that the outcome – the finished product – is not the only measure of success in buyer terms. Customers – not to mention employees and suppliers – assess the overall experience before making their final judgment as to whether the outcome was a success. This truth becomes an argument both for and against outsourcing as a means to expand one’s business. On one hand, using third-party services in your project delivery process might alter the customer experience, but on the other – it augments timing and availability, which helps meet customer expectations.
In the next installment we will focus on how best to embark your first (or next) outsourcing opportunity.
In our last installment of this series, we focus on the two main types of outsourcing: sub-contracting and third-party services and how to initiate a successful first project. In part one we examined what growing, profitable Pro AV companies all have in common. Part two stressed the importance of defining your brand in terms of outcomes instead of tactics. Now it is time to engage a trusted strategic partner in that first major step towards sustainable and profitable growth.
Part 3: The First Steps Towards Effective Outsourcing
There are two key types of outsourcing: the execution of tasks and the application of expertise. In order for you, the reseller, to become an effective outsourcer, you must first understand your end of the transaction. Let’s start with a simple sub-contracted installation project where the product can be described as execution. A great way for any contractor to grow is to clear the way for more sales and that of course means more delivery of product and services. As a reseller, acquiring more product is not all that difficult, but adding human resources with the right skills, price, and availability is frequently problematic – unless you have prepared for the eventuality.
Hopefully you are warming up to the idea that an outsourced installation can in the right circumstance, help your company grow profitably. Before you embark on this adventure, let’s examine the type of project that is most easily outsourced. The goal is to do everything you can to guarantee great results by picking projects that already have a high level of potential success built-in.
A promising candidate for your first outsourced installation project will be:
- Standardized – The project tasks and products will conform to standardized best practices. There should be no proprietary solutions or promises that only a key employee can fulfill.
- Clear Scope of Work – The outsource-able project will be well documented, have a written scope of work, appropriate drawings and diagrams, and a clear definition of finished.
- Clear Timing – One of the biggest benefits of outsourcing is to free up staff for projects that seem to be “moving targets.” The best projects to outsource are the ones with a relatively fixed timeline. Think of outsourcing these easy jobs as a way to keep your staff on the more fiddly projects.
- Easily Managed – Be prepared to send a Project Manager or Lead tech on outsourced labor projects, but preferably not to supervise the supplier full-time. The best projects to outsource are ones where your PM can start-up, check-in, and then finalize the install. However, sub-contracting a crew out of town to work with your best Project Manager is also a manageable initial project.
- Priced Realistically – As you become more experienced in effective outsourcing, you will learn that individual job cost should not be a deciding factor on when to engage outside installation. You may exceed job cost expectations on an outsourced project, but remember that this decision is simultaneously augmenting a parallel job, allowing it to be more profitable with staff installers. However, for your first project – pick one that already has a good labor estimate built-in. In the short run it will make you feel better and allow you to focus on the outcome rather than a line in the job cost report.
Working with outside experts requires a more involved process than subcontracting an installation. When outsourcing intellect, be prepared to involve your third-party provider in the selling process. Using content creation and management as our example, a worthy project will have these three characteristics:
- High-level access within the end client to discuss Concepts, Ideas, and Goals: It may be difficult for transactional suppliers to immediately grasp the nuances of selling creative outcomes, but a key element for success is access to a high-level decision-maker. More importantly you will need to quickly connect this specifier with your outside expert in order to define an outcome before it can be quoted.
- Potential recurring revenue: Whether you earn an extended agreement or not, the potential for managed services greatly improves the likelihood of selling an intellectual services product. At a minimum, the idea needs to be introduced, as it will help bolster your credibility as a content provider.
- Opportunity to WOW: Selling intellect – particularly creative services – requires an opportunity to present the concepts, ideas, and goals that were discussed in the initial conversations. This creative reveal validates the value of the ideas as they relate to the customer’s goals. This precedes the proposal in most cases.
As an industry, Pro AV labor prices are often too low, which affects not only job cost, but also the customer’s perception of value. From a sales and planning point of view, the reseller must learn to price its installation services according to market rates, which is currently being redefined by third-party services as they become more readily available to everyone. Without a market benchmark, integrators run the risk of underpricing installation, which would cut sharply into gross profit when outsourcing. The alternative is to only utilize outsourced labor when it financially fits the project or when the reseller decides to accept lower margins in order to accommodate increased volume. All approaches are acceptable in the right circumstances, however introducing market pricing into your business model will greatly improve profitability for most suppliers across all jobs. Increasing labor prices is not going to make every customer happy, but the increased profit will more than make up for the lost revenue when you can’t win business from chronic price-shoppers. As we discussed in the previous piece on brand identity, your credibility has value.
Growing a profitable business can mean different things to different people. Your tolerance for risk and penchant for hard work will certainly affect your outlook on growth. But even if you are content to grow organically and reactively, becoming an effective outsourcer will make the road a little less bumpy and perhaps even reignite your entrepreneurial spirit.
Tom Stimson helps owners and management teams rediscover the fun and profit that comes from making better decisions about smarter goals. He is an expert on project-based selling and a thought leader for innovative business processes. Tom has successfully advised hundreds of organizations on business strategy, process, marketing, and sales. If you are ready to love your business again, email firstname.lastname@example.org or call 214-553-7077.
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