Common Outsourcing Mistakes That Could Cost You $10,000+
The cost of hiring an employee can really burden a budding entrepreneur.
You not only have the costs of vacation time, benefits, and payroll taxes…
You also have the added cash flow pressure of adding a salary to your expense line each and every week!
Outsourcing to contractors is a great way to keep your labour costs and risk low. This is especially true for maturing businesses who are just starting to build their dream team…
And there are a number of mistakes founders often make when hiring contractors which could cost you upwards of $10,000!
Mistake #1 – Hunting for “Unicorns”
A Unicorn contractor is someone who is an expert in their field.
Everyone in the business world nowadays are spouting “you have to hire experts!”. And, while this sounds great in theory, it couldn’t be further from the truth…
First off, most businesses can’t afford true experts to outsource to (notice I say TRUE experts, not just people who play experts on the internet)… and this is noble!
After all, we all start our businesses as seeds…
The bigger problem with only hiring Unicorns is it puts your business in grave risk.
You see, when your team is made up of Unicorns, your businesses becomes dependent on their knowledge and expertise…
For example, say you ran a marketing agency and you hired a Unicorn to run your client’s ads.
At first it may seem fantastic that they can run successful campaigns right from day one with little guidance…
In fact, you’d be relieved knowing your client accounts are being taken care of!
It feels like a win-win. You don’t have to worry about account performance. Instead you’re free to work ON your business instead of IN it. However…
Consider what happens as your business grows and the Unicorn realizes you can’t run without them. So they demand a significant pay raise (or else!)…
Or when the Unicorn suddenly falls ill…
Or when they leave to start a competing business…
And you’re royally screwed.
What if instead of hiring Unicorns, you took some extra time to break down your business into simple procedures. These processes could be followed by almost anyone!
All of a sudden, you wouldn’t need to find a Unicorn…
Instead, you could hire someone of average skill and above average enthusiasm. Their work would be just as good (sometimes better!) than that of a Unicorn.
Mistake #2 – Outsourcing Something You Don't Understand
It might make sense that if you don’t understand how to do something you should just hire it out. This is a BIG mistake which must be avoided!
Clear setting and managing of results between the business owner and the contractor is important to your success. However, when you don’t understand the task you’re delegating, the expectations you have may be too low or too high.
This sets you and the contractor up for failure right from day one.
There are a slew of online courses out there nowadays which teach an array of different business topics. You don’t need to become an expert in all areas of business… However, if you’re going to be outsourcing, a basic understanding is essential!
Spending the extra few hours getting up-to-speed before hiring will avoid errors in judgment. This could save you thousands!
Mistake #3 – Skipping Contractor Development
Every entrepreneur needs to build a dream team. So, it’s important to keep contractors long-term.
But what person is content doing the same thing day-in and day-out with no growth?
Most founders understand the importance of personal development. Yet, if you assume your team will take their own personal development under their wing, you’re in for a shocking surprise!
The truth is, most contractors will lose passion for their job when they aren’t being challenged. They don’t see the link between lost love and poor self development. Instead, they often see their loss of lust as being a problem with their business itself.
Or they blame the clients they work for! However…
If they were consistently challenged via personal development, contractors are far less likely to get bored and move on. Which means they’ll stay around longer and you’ll save on costly turnover!!!
Mistake #4 – Relying on Written Communication
Tone of voice makes up 38% of communication. Body language is another 55%.
Therefore, communicating with contractors solely via email misses 93% of communication!
It’s no wonder business owners and contractors have such a difficult time communicating clearly when your primary form of contact is email…
I once had a wise contractor tell me “paper keeps friends”…
What he meant was when things are in writing, a relationship is less likely to go sour because the contract clearly defines each person’s roles. But…
So much of what you do day in and day out has nuance. When you send a short email, it can seem that YOU’RE being short with the contractor.
When you send a long email, it can come off as a rant.
Some people interpret “blue” as a navy hue when you meant more of a sky colour.
Ultimately, this is so costly because it racks up unnecessary hours in revisions, communication time, and contractor turnover. All easily avoidable!
Mistake #5 – Creating ‘Stories'
I just spent an entire day unravelling two client’s stories to fix an ongoing issue between a business owners and her right-hand employee.
The founder felt like her employee was initiating an exit. The employee felt her boss was unhappy with her performance.
Both were dead wrong.
Confirmation bias is the human tendency to believe new information supports what you believe… even when it doesn’t.
In this case, the employee had been worried she wasn’t doing enough to justify her salary. She had expressed this to the business owner over and over again, each time coming up with a suggestion of what else she could do.
Really, she was looking for confirmation that what she was doing is enough. On the other hand, the boss trusted her employee’s judgment and always took her suggestions into consideration.
The fact her trusted boss considered the options lead the employee to feel confirmed in her belief that she wasn’t doing enough (even though she was the highest performer on the team!)
And, because the boss values this employee, she saw the employee’s constant questioning of her effort as confirmation of the beginning of a break-up.
Both the employee and the boss love the company and the work they do. However, their stories created a week-long communication rift that took an outside party to solve. Expensive!
Mistake #6 – The Final Destination
Everything good must come to an end. Sometimes our contractors will outgrow their position and you’ll promote them. Or they’ll move a different direction in life. Not having an exit plan for a contractor or employee is just like not having a will…
Risky AND pricey! So, there are a number of things to consider when creating the initial contract to help prepare you for the eventual parting of ways.
The first thing to consider is how knowledge will be transferred. Who is on the hook for the transition period? Who will train the replacement? How will you ensure this commitment is kept?
You’ll also want to consider whether the contractor had contact with customers. How will you protect the client relationships?
How will the relationship end? Is there a set end date? An automatic renewal period? Thinking through the exit strategy is a simple way to avoid re-hiring, training, or unhappy customers who feel they’ve shuffled around. All avoidable BIG expenses.
Mistake #7 – Misclassification
This common error can mean owing tens of thousands of dollars AND get you in hot water with the government!
As your business grows, you may need more time from your contractors. You may even need them to be available during specific hours.
This often causes the line between independent contractor and employee to become blurred.
And, when misclassification happens, if the contractor wanted a pay raise in the future they could argue there was an employee relationship. In many countries and states you’ll then be on the hook for penalties, back taxes, and fees which can add up quickly!
I’m not a lawyer (nor do I play one on the internet), but I have seen founders burned on how they structure agreements with their contractors.
I spoke with an entrepreneur once who had a successful Virtual Assistant business. The government reclassified her contractors as employees and it almost put her out of business. This mistake cost tens of thousands of dollars in back taxes and penalties! Even if you trust your contractors not to open argument, you still may be on the hook with governments cracking down.
Choosing to hire contractors over employees can seem attractive. You’ll escape paying payroll taxes, benefits, and unemployment contributions which can mean big savings. However it’s important to understand the laws behind employee compensation before you hire.
It’s also key to be aware of how classification may change as your relationship grows. This will avoid unexpected future costs down the road.
These are the common pitfalls entrepreneurs with high performance teams are avoiding in order to keep their business safe.
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