Starting a High Tech Business: Outsource Everything


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I’m starting a new business called Kynetx. As I go through some of the things I do, I’m planning to blog them. The whole series will be here. This is the tenth installment. You may find my efforts instructive. Or you may know a better way—if so, please let me know!

I have a friend who has a business he's been working on for a while. I was helping him with email, domain names, and so on. Not long ago he called me and said "I've hired a CTO; he'll be calling you about email." I figured he was going to call me so I could set up an address for him. Not so; he was calling to get the domain names changed to a new exchange server he was standing up.

Now, I've never met the guy, maybe he's a brilliant CTO and will be just what my friend needs, but this raised some red flags for me. If you hire a new CTO and the most important thing on his plate is getting an Exchange server running, you've made a bad choice. A CTO's job ought to be adding the most value possible to the company's products. The type of email server you're using is way down on the product value creation index.

I mentioned this because I've been contemplating things I could do to offload as many of the non-code tasks as possible--not to someone else inside my organization, but to people outside my organization. Here's one example.

Did you know you can out source everything about having employees except the direct management tasks (which are where you can derive real value)? I'm not just talking about outsourcing payroll--I'm talking about everything associated with having employees: hiring, benefits, payroll, worker's compensation--the works. The companies that do this are called professional employment organizations or PEOs.

Essentially the PEO hires the employees and then lease them to you. The PEO takes on certain responsibilities and employer risks. The company manages the employee. I know some companies that use a PEO and the employees don't seem to mind since they get a professional employment arrangement and great employee benefits from the PEO and at the same time get the upside and fun of working at a small start-up. The costs are surprisingly reasonable.

The rule of thumb for a start up ought to be: Keep anything that adds competitive advantage in-house and close by. Shed everything else as quickly as you can.