Over the past 20 years one of my major pain points in running my businesses has been hiring outside contractors. I can’t tell you how much money I’ve wasted with missed deadlines, over-charges, restarts and having to redo the same work I paid them to do. So often the agencies sound great while the smiling sales guy is flying through the PowerPoint slides, only to end up months later in frustration and poor performance.
After years of disappointment I developed five steps to prevent these problems. Today, my company outsources more than 50% of our core service activities and our margins and productivity are higher than any of our competitors as a result. Here are the 5 steps:
Take ownership of the process.
The first few times I was left disappointed in a company I had hired, I blamed them. They weren’t honest, they didn’t do what they said they would, were lazy, etc. However, as I gained experience and started to really analyze the failures, I began to realize I was also at fault.
The reason that I was having so much trouble was because I didn’t have a good system for hiring and managing outside teams. Once I accepted responsibility for the process I was able to take ownership and this made a world of difference. My first tip to you, take ownership of your own process when it comes to hiring and managing companies that are working for you.Get to know what great looks and feels like.
It is critical that you have someone on your team that can give you an understanding of what great performance looks like. This can be an advisor, or a friend who is an expert in the area you are looking to hire for. This person has led or managed highly successful teams for that specific type of work and understands how the process, metrics and workflow should function. Without someone like this on your side of the table, you are literally flying blind and will almost always lose in the end.
If you do not have someone like this on your team already, it’s time to find one. Ask a friend in the industry, get a referral, or hire a consultant. This person should know the services you are hiring for so they can get involved on the front end.
There are several advantages to having this person involved on the front end of the hiring process. Here are a couple:
- The contractor knows up front that you understand their business and can tell if they are completing tasks properly.
- By understanding their pricing models and margins you can negotiate for terms and preferences in the right areas and protect yourself against service failures.
Do you need help evaluating a vendor? We can help.
Personal Case Study:
I was close to signing a $100,000 hosting and IT agreement with a company recommended by a friend. I brought in an outside consultant to review the deal. He recommended a completely different strategy which reduced our hardware needs by 70% and cut the contract cost down to $65,000. I saved $35,000 and paid the consultant $2,500.
Interview multiple vendors.
Always interview at least two, preferably three companies for any contract job. It is important that they all know you are talking to their competitors. This seems like a simple one but it is often overlooked. It is easy to overlook this when the company you are interviewing is a referral but it is just as important to talk to more than one company. No matter who referred them or how much work they’ve done for friends and colleagues, talk to their competitors.
When talking to potential partners, don’t just ask them for pricing, ask them for their input on your project. Some good questions are:
- Given your experience, how would you approach this problem?
- How have you seen other companies successfully tackle this problem?
- What do you think will be our biggest challenge with the direction we’re taking on this?
Personal case study:
My team decided we needed to license a major database from an existing partner of ours for $45,000/year for a big insurance client we had. Before approving it I called 2 of their competitors to see if they had competing data sets and one said they could assemble the data from scratch for $10,000. In three weeks we owned all the data and saved $35,000 a year in fees.
Agree on metrics up front.
Once you know who you want for the job, engage them in a conversation about performance metrics. I like to start by asking them questions like :
- What do you think are the most critical metrics for success on this project?
- What metrics do you think we should hold you accountable for on this project?
- If you were me, how would you judge performance on this project?
Agree on a regular (usually monthly) reporting schedule, and if applicable, set up a series of milestones that you agree on in advanced. This way, if something is going wrong with the project you’ll know sooner rather than later.
Personal case study:
I had a major product launch scheduled and the team in charge kept telling us they would be ready on time. We had no metrics or performance benchmarks in place and took their word for it. 24 hours before the launch they told us they weren’t ready- in fact, they were weeks behind! Blown press coverage and mad customers because we hadn’t demanded regular progress updates and proof of work. Lesson learned!
Maintain a competitive environment.
If you have done the first 4 steps right then you’ve got a good contractor in place at a fair price with performance metrics that have been agreed upon. Not the trick it to maintain your edge over time. No matter how good a contractor is, human nature is to become complacent over time and start up-charging services once there’s no competition around.
A good way to avoid this is to have a few standard practices in place:
- Any time there are additional charges added to a contract, or the scope of the contract changes, get competitive pricing information. Let your vendors know that any price increases beyond the initial contract terms with trigger a re-bid (in other words, don’t raise prices on me).
- Have your expert from tip #2 regularly review progress reports and interact with the contractor to let them know that you have someone on your side of the table watching every detail.
- Set up an annual contract review where you go over performance metrics with the contractor and ask detailed questions about pricing and competition. Let them know you are always shopping.
Personal case study:
Before implementing this annual review process, our average cost increase on contracts was over 11%. With competitive annual reviews in place we have reduced our average annual contractor cost by 3%.