So you have an idea, business strategy and a business model. Do you have the right resources? Here is how to determine what you should not outsource and what you should partner or out source.
Let’s say you have solution to a common problem and you know how you are going to create value and get paid for it. Your strategy determines ‘what’ to do, and the business model determines ‘how’ to do. When you have a fairly good idea of the strategy and model, it is time to move on to ‘Who’. Startups should not do it all. Trying to do everything has the detrimental effect of spreading yourself or your team too thin and also, it is expensive to develop all the necessary skills internally. This will affect the time to market, quality of the product and drive up the costs. Rather than trying to do it all, experienced founders know what they are good at. They nurture their strengths and grow it, while partnering and outsourcing everything else. This is faster, cheaper and better. If you are wondering how this is cheaper, consider the opportunity cost lost due to a delayed launch, all the time and effort you spend trying to learn a skill that usually takes years, instead you could more of what you are good at. But determining what to outsource and what to nurture / develop internally is not easy. We will discuss a simple tool to assist with this.
Resources Gap Analysis
Identify the key areas of importance for your startup. Refer to your business model and see how you create value and how to get paid. Through the value stream, identify the tasks to be done and list them. I have a generic starter list below;
- Technology – this includes R&D, innovation. View this as the ingredients to make the secret sauce.
- Product Development – This is commercialization of the technology. This involves creating the product that can be repeatedly reproduced in an economical manner. Design could be a subset of this and again combine if it appropriate in your case. View this as the recipe for sauce.
- Design – This gives the idea a form be it a website or a product. This creates tangible personification of the idea. View this as the presentation / plating of the dish.
- Manufacturing – This is the process of converting the inputs into a saleable product. This is the cooking of the sauce.
- Distribution – This is getting your product into the hands to the users.
- Network – This is the rolodex required to make your startup fly.
- Customer Acquisition and Retention – This is about marketing, sales conversions and customer support. They could be broken out but for simplicity I included them. You should break them out if the skills or resources required to do this are different in your startup.
- Management and Leadership – This is probably the hardest, because a founder thinks is always the best person to lead his company. The book “Founder’s Dilemma” discusses founder’s dilemma of choosing between power vs money. And another important aspect to consider is the decision to License or not.
Evaluate each of the tasks or required skills identified to determine what to do yourself and what is best to seek partners. Keep skills internal that are central to creating customer value or enhance differentiation. Below is the criteria you can use to evaluate each skill or resource area;
- Valuable – Is this skill valuable in increasing revenue or reducing cost
- Rare – Is this skill hard to find.
- Inimitable – This skill is not easily copied.
- Non-substitutable – Not many alternatives exist for this skill
Identify the areas that are valuable and rare or that cannot he imitated or substituted. These areas are critical to your success. Typically, you will have two or three areas that are important. Assess if you have these skills or can develop it. Find partners for all other skill areas. The skills you keep internal are your core competencies.
Core competency is a deep skill that enables a company to deliver unique value to their customers. Company can leverage this core competency by continuous learning and development of this skill to make a competitive advantage. C.K. Prahalad and Gary Hemmel are credited with coining the term. In their HBR article in 1990 they proposed three tests to find the value of a Core Competency;
Relevance: Firstly, the competence must give your customer something that strongly influences him or her to choose your product or service. If it does not, then it has no effect on your competitive position and is not a core competence.
Difficulty of imitation: Secondly, the core competence should be difficult to imitate. This allows you to provide products that are better than those of your competition. And because you’re continually working to improve these skills, means that you can sustain its competitive position.
Breadth of application: Thirdly, it should be something that opens up a good number of potential markets. If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth.
Companies use Core Competencies to:
- Design competitive positions and strategies that capitalize on corporate strengths
- Help employees understand management’s priorities
- Decide where to allocate resources
- Make outsourcing, divestment and partnering decisions
- Widen the domain in which the company innovates, and spawn new products and services
- Invent new markets and quickly enter emerging markets
- Enhance image and build customer loyalty
Technology and engineering product development is never easy. For a startup the lacking of a large company backing makes it even more challenging. Founders should step back and analyze their resource gaps and core competencies to improve their chances of success. Sometimes doing less is more.