Hiring employees versus outsourcing

Your online business is expanding. Should you hire employees or outsource? My business partner, Jay Stockwell, and I have strongly differing opinions on this. Here's why...

Over the past decade, I've experimented with a mix of outsourcing, part-time employees and full-time employees. Most of the time, members of our team in the U.S., Australia and New Zealand have worked from their own home.

For example, my longtime virtual assistant, Glennys, works from home in Dunedin, New Zealand. For years, she's been a really important part of our business, but we usually meet only once a year.

However, this year, Jay set up an office by the beach at Burleigh Heads, Queensland, Australia, and hired three employees to work there. I haven't met our new employees yet.

Here's our experience...


Advantages of outsourcing

One of the big benefits of outsourcing is that it can be done big or small. It can be a comfortable, little step you experiment with when you're not yet able to afford to hire your first full-time employee.

It enables you to delegate tedious recurring routines and concentrate on what you do best. The first outsourced work I arranged was contracting Wally to moderate our affiliate forum. Another task I outsourced was the processing of submissions to our affiliate directory.

Having remote workers gives you more freedom. You can run your online business from anywhere that Internet access is available. You can travel, spend time with relatives, have long weekends away from home, and so on. For example, my wife, Joanna, and I spend about half each year in Queensland, Australia, and the rest of the year in New Zealand. When you outsource, there's no office that you must go to every working day. To me, this freedom is the most powerful argument in favor of outsourcing.

You can quickly get access to specialist skills your business doesn't have, for example a programmer to create a database or a really talented copywriter to write a salesletter. You can outsource programming, website design, article writing, software creation, IT support, bookkeeping... There are even companies that do payroll outsourcing. (This year we outsourced our payroll handling.)

Hiring part-time workers who are efficient specialists can reduce your stress. One of the big benefits of outsourcing is that you can hire people who actually like doing fiddly stuff. Joanna and I used to hate entering affiliate commissions and PayPal payments etc into our QuickBooks accounting software. Doing data entry wasn't too bad until we made a mistake - and then had to waste frustrating hours trying to figure out where the error had occurred.

Now our bookkeeper, Tony, accurately enters our data for us and once a month uploads an updated QuickBooks file for us to access. Hiring a specialized expert like Tony, as well as freeing you for tasks you do best, gives you peace of mind because you know the task is being done accurately.

With outsourcing, you can reduce the impact of losing workers. On our forum, "Bright-eyed" says...

"I hired four different personal assistants ... because I didn't want to leave a majority of the responsibility all on one person. Should they become sick, pregnant, whatever, I'd be waiting for a long time. So if one person needs a vacation or whatever, I still have three left to pick up the slack."

Outsourcing work is very useful when you just have occasional tasks that need doing - you don't have to worry about trying to keep someone fully occupied in productive, revenue-generating activity every day.

You usually pay just for specific tasks, for example for a batch of articles to be written, for web design work, or for a script to be created. You get exactly what you're paying for.

Outsourcing is usually much cheaper. You pay a contracted rate, negotiated between you and the contractor. For example, Rentacoder and Elance attract an international crowd bidding for the jobs advertised, and bidding down the prices. You pay international rates, not U.S. or U.K. rates.

You don't have to calculate and pay sick pay, vacation pay, maternity leave, Workcover insurance, health insurance, compulsory superannuation, family leave or whatever complications apply in your country.

You don't have to wade through the red tape that having employees involves. Joanna, who handled this stuff when we hired our first full-time employee in 1999, was unpleasantly surprised to discover how much extra "bookwork" was involved when an employee simply wanted to arrange a long weekend off and take one day's vacation pay.

You don't have to provide desks and office space. You avoid office overhead costs, such as office rent and phone charges, and all the other little things than having an office involves.

You can keep confidential business methods secret by splitting up tasks among a bunch of remote workers, so that each one sees and understands only a very small proportion of your process.

Training usually isn't necessary because you hire freelancers who already have the skills you require.

Disadvantages of outsourcing

Outsourcers are sometimes frustratingly unavailable. Your outsourced worker may not be available when you want him or her for an urgent task. Good writers tend to become very busy working for other people. We were lucky enough to find a superb writer, Anne, through Elance. Then one day, she was no longer available because she had found full-time employment. (Of course, you could lose an employee to another business, too.)

A similar situation has happened with three outsourced programmers who have done work for us. When something goes wrong with your business, you need someone available to fix it immediately. However, good programmers often become too busy to do urgent tasks for you. This can be highly frustrating if you're not only losing sales but also leaving errors on your site that create a bad impression.

It's quite likely that you'll have to go through the outsourcing process again and again until you find solid, reliable people who are available when you need them. However, sites like Rentacoder have useful rating systems which help you choose reliable, recommended people. Paying more for professionals who have earned high ratings can be a very good investment.

Here's one of the big hidden costs of outsourcing... "You have to constantly start and re-start with new contractors," Jay says. "It took both Cameron and Krishna at least a few weeks - more like a month - to get familiar with all our systems and operations. Every time you get a new contractor to handle something complex you have to do it all over again."

If you outsource, expect to spend more time on whatever communication methods you choose - emails, Camtasia instruction videos, phone calls, Skype, or video conferencing. If you're relying mainly on email, you'll waste time writing detailed instructions. If you do things just by phone, expect to have occasional misunderstandings. There are advantages in having all instructions written down.

You can have language problems. You'll probably be unpleasantly surprised how often simple written instructions can be misunderstood, especially if you're dealing with contractors whose first language is not English.

Supervision can be a problem. You need to be comfortable supervising remote workers, and you need to have all the necessary skills for doing this, such as the ability to describe tasks clearly and accurately, and the ability to handle your virtual assistants' emails and phone calls in a friendly, helpful manner. You need patience.

Remote workers need a very special set of skills. They need to be motivated and have self-discipline. They need to be organized and have good time management skills. Perhaps most important of all, they need to enjoy working alone for long hours. We've hired people who thought they'd be able to cope and then found out they didn't like working at home alone. Before hiring a remote worker, it's essential that you question them closely about this aspect of the job.

If when you advertise for a remote workers, someone sends you a very brief email and tries to insist on phoning you to discuss the job, this is a HUGE warning sign. You need people who are very comfortable with writing and see writing as their first choice. If you hire a friendly, outgoing, talkative person, you may find that this character keeps wanting to make totally unnecessary phone calls to discuss stuff that doesn't need discussing. Been there, made that mistake. So do most, if not all, of your interviewing via email.

Outsourcers can feel lonely and not really part of your team. They want to feel appreciated and feel that their opinions are valued. (If you don't value their opinions, you've hired the wrong people, I reckon.)
One way to help make them feel appreciated is to pay bonuses for good work.

You may have to spend more time than you anticipate communicating with them, giving them genuine praise and feedback. I'm sure I haven't done this anywhere near enough. At times, you have to choose between doing urgent tasks and encouraging your team.

On the other hand, you may be lucky enough to find highly competent outsourcers who don't need direction, don't need their hands held, and who simply get on with doing the job promptly. To find such people, ask your friends for recommendations or look at the ratings at Rentacoder or Elance.

On our affiliate forum, "Charlie" says...

"I've read studies showing that most firms who try and introduce home working find that many staff miss the office 'social environment' too much. It's easy to get caught up in the 'Wouldn't it be great to work from home' hype. Some people even reckon they can't work because it's too quiet, or they can hear a sheep bleating a quarter of a mile away...

The point is, by recruiting someone to work from home, it's worth considering what environment they have been working in. Existing freelancers (who work for various clients) are generally already working alone and are happy with it."

Having remote workers can be terribly inefficient. Are your remote workers actually working or goofing off? You can't always pay just for tasks done. If you're paying virtual assistants by the hour, you'll sometimes wonder if they're working or sunning themselves on a beach. If they feel unappreciated, they're more likely to goof off.

How secure is your data? When you hire someone to work on your website, who's REALLY looking at your data? The outsourcers' friends and family? You have no way of knowing. That's a scary thought! A huge amount of trust is involved. You may find it useful to start by giving remote contractors very small tasks. If all goes well, you can gradually trust them a little bit more.

EMPLOYEES (sometimes called "insourcing")

Advantages of full-time employees

Human beings are social animals. As a general rule, we like to congregate and communicate with each other. So it's much easier to build a strong team spirit if the members of your team are in the same room or the same building.

The team sees the bigger picture of what they are part of when working in an office.

If you are thinking big - like Jay - you'll want employees. "You need to look at where you eventually want to go with your business," Jay says. "If you want to grow big, then in-house staff become an asset to the business as there becomes a collective intelligence within the business."

This "collective intelligence" can be a powerful force - especially if you hire employees who are smarter than you and have skills you don't have.

Employees save you time. As soon as he had set up our office, Jay found exactly what he'd expected - that for small tasks, it was so much simpler to walk to an employee's desk and explain the task in person. This was much, much, faster than writing detailed instructions in an email and easier than explaining something over the phone.

"Because I can sit down and show them things it's a lot easier," Jay says.

"Most times I used to just end up doing things myself because it would be quicker than having to craft an email to ask someone else to do it. Now I just talk to them."

Training is simpler and faster. When you're dealing face to face with someone, it's much easier to tell if your instructions have been understood. You waste much less time on misunderstandings because any misunderstandings tend to be noticed much earlier in the process.

Employees train other employees. "I've noticed that staff are starting to help each other without having to bother me with things," Jay says.

You have better data security. You have more control over your confidential data if all data is kept in-house.

Disadvantages of employees

You now have employees to manage. You need management skills. Your library will probably have dozens of good books on the subject, but do you have the time to read any of them? You also need patience and empathy and need to have the right personality to manage staff.

In another life, before I began our online business, I had to supervise a team. I don't mind admitting that I wasn't very good at it. Before you take on employees, examine your own skills carefully.

You have to do fiddly stuff. You have to calculate and pay sick pay, holiday pay, Workcover insurance, compulsory superannuation or whatever applies in your country. You have to keep careful records of this stuff. Joanna found this "bookwork" annoyingly time-consuming. 

I'm not a lawyer or an accountant and this is not professional advice for you in your country, but life is so much simpler when a contractor sends you a monthly account, or when you simply pay whatever is owing via a Rentacoder escrow account. With Rentacoder, we pay only when we're satisfied the task has been done satisfactorily.

When you have an office and employees, you have high fixed costs, month after month, in good times and bad. These costs aren't just wages, vacation pay, sick pay, insurance etc., but also include office rent, electricity, phone, insurance, and all the small associated costs.

If you want to sleep well at night, your business needs to be in a strong financial position before you think of setting up an office and hiring employees. You need money in the bank - a buffer of at least three to six months - so you can pay all outgoings if your business faces a serious downturn.

Conclusion: Hire employees or outsource?

So, which should you do - outsource or insource?

The answer doesn't depend just on your business situation. It depends on your personality, too.

Outsourcing and hiring remote workers, even full-time remote workers, suits me fine. I love the freedom it gives me. I don't want to go to an office every day. I don't want to manage people. Been there, done that, and it didn't suit me.

I'd rather try to set up systems for people to follow, give them jobs to do, and leave them to it.

I made a conscious decision to have employees working remotely because I value my privacy and freedom of movement. I want to be able to take breaks whenever I feel like it and go for a walk on the beach without having to worry that an employee may think I'm slacking off while expecting them to work.

However - and this is really important - managing a team remotely isn't nearly as efficient as having people in the same room with you where you can see exactly what they're doing and have the benefit of being able to discuss things face to face and have brainstorming sessions. When you're in the same room, it's much easier to gauge someone's mood. If a problem arises, you can immediately see that there's a problem and deal with it. When you're doing everything remotely, it's much more tempting to let problems slide by because they're out of sight. And those problems can lead to the loss of good people you shouldn't have lost.

Weighing it all up, I prefer to have remote workers, but that's a lifestyle decision much more than a strictly business decision.

Jay, on the other hand, LIKES going to an office each day. He thrives on the challenge involved in creating and motivating and managing a team. "It's SO much easier having people right there. You can take care of things quickly and easily without having to carefully craft emails etc. It's also nice feeling like a team and working together to get good results."

We're different people, so we do different things.

February 20, 2008

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Comments (11)

Benedict Manovill
Said this on February 28, 2008 At 10:28 am
Hi Allan,
Nice article! I tend to agree with you and prefer to outsource work. However, having employees or outsourcing depends on your business. I create name scrolls so I contract with a great artist and with a printer. If you are in a business with a lot of customer contact or deal with customers' personal information, it is probably best to hire trustworthy employees.
All the best,
Benedict Manovill
Chris Roberts
Said this on February 28, 2008 At 10:34 pm
Allan, You're SO right about the need to choose people who possess the right personality. I made the BIG mistake of hiring a very chatty girl and she kept wanting to phone and chat. It just hadn't occurred to me that would happen. Doh! I think she must have been lonely. Some days, she'd keep disrupting my planned work, then I'd settle down, then she'd phone me again.

People make hiring virtual assistants sound easy, but there's a LOT to think about. Superb article! I have some friends who need to read this.
Ash Nallawalla
Said this on March 2, 2008 At 01:46 am
This is a very thorough article, leaving no gaps for any comments. :)

Depending on the nature of business, certain stuff will need expert staff who are at work every day other than sick leave, leave etc. Certain business processes cannot be picked up overnight by a freelancer. At the other end of the scale, some work is so repetitive and simple that you could give a cheat sheet to a fresh graduate and get fairly predictable results.

BTW it was great to meet with Jay a few times during Pubcon.

[Thanks! Good points. Allan.]
Genaro Brito
Said this on October 9, 2008 At 10:58 am
This is an awesome article.
I have a business put together over the premises brilliantly exposed by Allan.
I began to do it for myself and later though, Why not do this for other companies?
We now are a solutions provider for insourcing employees.
Take a look at our website: www.overseasemploymentsvcs.com
Said this on January 7, 2009 At 12:23 am
Hello! What a really nice article. I work as an online freelancer since 2004, and now hired by ****** company. How happily that I been hired and able to work at home. I spend 8 hours a day. But, I am still looking for an extra job on my vacant time. I can fast typing, article submission, ad posting and many more. If there someone here, need assistance, please send me a note at [email protected]

Thank you!
Said this on February 5, 2009 At 04:45 pm
You should always consider the clauses in the contract when hiring a programmer. There are 9 clauses in custom software development contracts that you must take extremely seriously or risk losing a lot of money, time, and even your most valuable information. Visit link for full article.
Said this on July 3, 2009 At 05:18 am
I would like to established a DATA ENTRY firm. Because I have 6 years experience in this work. So I make a big office 40pc setup with 1MB net connection reserved at this moment for DATA ENTRY work. If you have any DATA ENTRY project (Computer Related any Work, Exm : Census Record, from Hand writing to computer compose or PDF to MS word convert etc.) please give me one project (countable pilot project). I hope that I will fullfillup the work and timely delivary and with your requirement also.

[B.D. Accuracy 99.99%, Speedy worker, Huge office space and better Electricity with 1MB net Connection]

Thank You & Best Regards
Md. Razzak Hossain
Said this on May 25, 2010 At 07:09 am
Allan, nice post! Benefits of employees vs outsourcing in a nutshell, in an easy to understand manner. I will have to check out your other posts. Also, I have been looking at doing some affiliate work; just not sure if that is worth my time more so than developing own product from here in Mongolia. Cheers!!
Summer Daza
Said this on October 20, 2011 At 07:36 pm

Interesting Article! You've got some really nice points there.

Outsourcing also depends on the company, it is very tricky but often times a great move for your business. You just have to have the right methods, follow some guidelines and do some research. Like this article, I've recently read a blog that could help outsourcing be effective.

Paul C. Meador
Said this on October 4, 2012 At 08:43 pm

This article is almost a year old but good thing it's written in a timely manner as it is quite a very bold subject nowadays. Of course, there are pros and cons to outsourcing but what bothers me the most is the misconceptions around it. Many don't realize that outsourcing has helped a lot of small businesses worldwide enabling them to fulfill their financial obligations to their country effectively.

Planning is critical when considering outsourcing task and you should learn how to build a strong remote team to meet your business goals in no time.


Said this on July 23, 2013 At 05:22 am

A very good post. Covering both outsourcing and insourcing tediously and with real examples too. However, I'm more on the "doing what I want" side so I would prefer outsourcing than managing a group of people physically.

It's tough at first but when you and your contractor will have a routine of work and communication it will begin to work out. There have some miss and hits with hiring the right one but I considered it as "charge to experience" and learned from it.

Another good thing with outsource contractors is that once they know that you are a good employer who pays on time and treats them well and gives feedbacks on their work on a regular basis they will be loyal to you and give their best to impress and help you out with your business.

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