Don't try to do it all

If you have ever worked for a large corporation with multiple subsidiaries, you probably have noticed that size create bureaucracy and the result is inefficiency. Similarly, trying to over-generalize a small business results in either an increase in staff size or a decrease in expertise.

Harvard Business School's Working Knowledge website released this week a report on the transition of 7 Eleven from a vertically integrated company into a more efficient capability sourcing company.

The moral of this story for the small business owner is that out sourcing those parts of your business which are not part of your firm's core competency.

In the book "Thinking like an Entrepreneur," Peter Hupalo in chapter three discusses business owners who make the mistake of trying to reduce expenses by doing everything themselves. He borrows a phrase from the movie "The Magnificent Seven," in which the character played by Yul Brynner says, "Men are cheaper than Guns." He then shows how inefficient it is for a business owner to try to do everything himself.

One solution is to hire employees. This solution creates the problems associated with payroll and accounting and compliance with employment law. Which means that you either also hire an in-house accountant and HR manager, or you end up out sourcing those services or you try to do these things yourself and you are back to being inefficient.

At some point, at some level, you are eventually either going to have to out source some capabilities or else lose efficiency. This is where freelancing and small specialty service firms can boost your company's profitability. By spending money on out sourcing those capabilities which are not part of your company's core competencies you free up your engine of productivity. You can focus your time and attention on those aspects of your company which are most profitable to your company.