Vendor Selection
“Who the hell wants to hear actors talk?” – H.M. Warner, 1927
Vendor selection is critical because as CEO of a virtual model you do not want to be spending your time putting out fires all over the place. You want people and companies that get on with the job with the minimum of supervision. That way you are free to focus on business growth. For this reason strong intuition is as valuable as good analysis.
If you were a micro manager before, or had trouble empowering employees, you may struggle with a virtual business model for a while. The model requires that you allow others to perform their role somewhat freely and out of sight and that you trust your inner voice to know when to step out of the way or when to step in. You must also use your intuition to decide which vendors to work with.
Keep in mind that your company is only a project to them and probably one of several they have. At the start you are probably not their most important client. You will have to work to keep in the forefront of their minds.
Every traditional business has departments organized by function. Accounting & finance, administration, legal, manufacturing & distribution, purchasing & inventory warehousing, sales and marketing, and human resources are common to most traditional firms. In my businesses, I have also had research & development, regulatory and quality assurance functions to consider as well. The virtual business model requires you as CEO to outsource all of these departments to third-party companies that make their living providing one or more functions.
The main advantages are:
Customers have a right to expect quality of service from every function of a business, and straight from the start. They are under no obligation to be empathetic just because you are new and learning. No business can excuse poor levels of service just because they are a start-up. Outsourcing functions to expert providers means the customer immediately experiences the same high level of service with your fledgling company as they do with a large, established one. Satisfied customers always return and refer others. As CEO, you are looking for an established vendor with a positive track record, and you must check references… and then use your intuition.
Outsource providers take on your company name when they interact with customers, so you will always give the impression of being an established, bigger, older company.
Outsource contracts allow you the flexibility to add on or cut back services and volume according to demand… and cash flow. In the first few years of a business, demand fluctuates enormously, and when cash flow is turbulent, being able to pull in the reins of certain functions or put projects on hold fora while is tremendously helpful to managing the money. In the traditional model you are stuck with full time employees no matter what happens to revenue and demand. As CEO you are looking for a vendor that understands the turbulence of a start-up company and offers flexibility in terms and fees and delayed payments for services. Most companies will be willing to negotiate these terms in your favor because they know on e day that you might become the next Amazon.
Outsourced providers are experts in performing their functions, which means you need to spend less time keeping up with industry standards. In your previous job you might have spent considerable time managing less experienced staff. With outsourcing, you can focus more on business growth. It is important that you assess the knowledge level of the people who will represent your company. Investigate the rate of staff turnover and the level of satisfaction amongst the vendor’s employees. During the selection process, I always take a guided tour of the vendor facility. There are plenty of opportunities to get one-on-one with the employees and ascertain what they think of the company and people they work for
You don’t have to create operating procedures from scratch, but simply edit the existing vendor templates.
Providers of functional services have many clients and you can tap into that reservoir of experience.
Providers have all the staff support mechanisms like human resources, so you don’t have to spend your time and resources on them. Oh, the joy of never having to do a performance and appraisal exercise again. That alone is worth starting your own company.
Providers offer a menu of services allowing you to cherry pick what you want when you need it. You can start with the basics, and upgrade as you grow.
For functions like accounting, there are hundreds of companies that advertise locally or online. When I started out, I searched online and found one I liked. After a positive conference call, they offered to work for free for two months in order to show me how good they were. They also offered to have me speak with other similar clients. Our relationship worked well, and they remained with me for seven years until I sold that company. What could be simpler? It mattered not that my company was founded in Washington and the accounting company was based in Texas.
Other vendors for more specialized functions might take a little more effort to track down, but the process is basically the same. Freelance consultants with their lifetime of network building are a most valuable resource for connecting you to good companies. Just ask them.
If you search online for “how to select the perfect vendor,” you will get lots of same sounding advice… alignment, honesty, expertise. The most important things though are that your intuition feels good about them and that they are fun people to be with. There is no point in business if it is not fun and there is never a good outcome if you go against your intuition.
Resources
Intuition for vendor selection.
