Chip Shots by Chip Griffin

Understand the tradeoff between cost and elasticity of business resources

In the age of cloud computing and the gig economy, the ability to scale and pivot in many businesses has never been easier.

This is a real advantage for technology- and service-based businesses because it increases competitiveness and provides incredible flexibility.

But this elasticity of resources comes at a price. Literally.

When I ran a SaaS business, the advent of cloud computing options dramatically increased my team’s ability to adopt new technology, grow infrastructure in parallel with customer expansion, and manage cash flow.

At the same time, there comes a point for some technology businesses when the absolute cost of outsourced cloud-based computing exceeds the expense of taking on those resources directly.

The same is true for my agency clients who increasingly rely on virtual assistants, freelancers, and subcontractors to get work done.

These human resources are great for small and growing agencies because it gives you the ability to ramp up quickly for new business or contract with less pain when a client goes away.

These approaches give not only cost elasticity, but also more flexibility in capabilities.

Outsourced labor allows agencies to tap into expertise that they might otherwise not be able to employ full-time — and at a moment’s notice.

Yet all of the advantages of this outsourced labor comes at the expense of profit margins in some cases.

The trick for all businesses is figuring out how to balance the elasticity of out-of-house resources with the potential cost-savings of bringing things in-house.

It is rarely an all-or-nothing proposition.

Many technology businesses use a combination of cloud-computing and more traditional “bare metal” servers.

Many service businesses use a combination of contract labor and more traditional payroll employees.

The ideal balance will shift over the life of the business. When you’re getting started, elasticity and scale may be the priority, while at a later stage you look to maximize profitability.

For agencies that increasingly depend on contractors, it is not just the absolute dollar costs that must be considered, but also the opportunity costs.

An employee who is not at capacity may be asked to take on projects that will help the agency grow and innovate, whereas the business may be reluctant to pay a contractor for the same speculative work.

The key for all businesses is to regularly re-evaluate resourcing models and not fall victim to inertia.

Just because an outsourced solution was right a year or two ago does not mean that it still is.

You should always ask yourself what it would cost to take in-house some or all of your outsourced expenses. Look at it from all angles — financial, opportunity cost, scalability, and risk.

Don’t fall in love with your existing approach so much that you are unwilling to consider alternatives.

Businesses are not static. Innovation continues to provide new options. We must all be prepared to take advantage of elasticity that these changes offer — as long as we understand the cost of doing so.

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