Don't Hire, Outsource

Tuesday Jul 5th 2005 by Gerry Blackwell
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For one small business owner, outsourcing everything is a key strategy for her success.

Like many successful entrepreneurs, Debra Cohen, founder and proprietor of Home Remedies of New York Inc., a home improvement contract referral business, had to discover her own secrets to success. Unlike most, Cohen now shares her secrets with others — for a price. Her lucrative second business is The Home Referral Network (HRN), a company that sells a business manual, software, forms and services to people who want to start identical home-referral businesses in their own communities.

One of the secrets Cohen learned early — or perhaps knew instinctively — and now passes on to her HRN owners — is how to deal with the computer stuff. Computers, it turns out, are vital even for such a high-touch, low-tech business as hers. "Before I started the business, I wouldn't say I was computer illiterate," she says, "but my knowledge was very limited. I had never been on the Internet, for instance. Now I'm developing my own Web software. I've come a long way."

Her secret: outsourcing. Cohen has one employee, herself. Everything else she outsources, including Web-site development and maintenance, clerical assistance, graphic design and, most recently, software development. When she says she's now developing her own software, she means she's supervising a developer.

"I think that's a key to success for any entrepreneur," Cohen says. "Stick to what you're good at, and outsource everything else."

By outsourcing, she simply means contracting with other self-employed people rather than hiring full- or part-time employees. It's not a startlingly new concept, but for entrepreneurs with empire-building instincts, especially those who come from the corporate world where they're used to having minions to boss around, outsourcing may not come naturally. Luckily for Cohen, she had no issue with it.

Building a Cottage Industry
When she left the publishing industry ten years ago to start a family, Cohen looked for a business she could run from home. Her love of home decorating and her own experience with contractors led her to the home referral idea. It's a simple concept. She finds good contractors, thoroughly screens them to ensure they're licensed, adequately insured and that they consistently leave customers satisfied. She then markets their services to home owners. Her portfolio of contractors runs the gamut from home handymen to architects, and everything in between, including general contractors.

"It's a very comprehensive list," Cohen says.

Homeowners, who pay nothing for the referral service, get the security of knowing they're dealing with reputable, trustworthy, quality service providers. Cohen helps them negotiate terms and schedules with contractors and monitors job progress. The contractors, who pay Cohen a negotiated percentage commission on all work she refers to them, get business they wouldn't otherwise get.

When she was planning Home Remedies, Cohen exhaustively researched possible business models. One was simply to hire contractors — become a general contractor herself in other words. Another was to run a home improvement placement agency.

"Because of liability and other considerations, I opted for the referral model," Cohen says. It also meant she would be unencumbered by employees.

Home Remedies of New York was an almost immediate success. In her first year, Cohen cleared a modest $30,000, in the second year, $55,000, in the third $90,000. She wasn't getting rich, but that was never her objective. In fact, the business was so successful, she had more work than she could handle on her own. That was when she started looking for ways to expand.


Delegatrix – Debra Cohen, founder of Home Remedies of New York Inc., concentrates on her core business, outsources everything else and advises other entrepreneurs to do the same.

Birthing Another Business
One obvious solution was to franchise. But as Cohen says, "I was a new mom, I really didn't want to go into another full-time career." She found the solution in the 1990s entrepreneur's bible E-Myth by Michael E. Gerber, which explained the alternative notion of entrepreneurs "duplicating" themselves. That's what Cohen did.

She worked with a consultant to document in meticulous detail everything she did in starting the business and in running it day to day. The result, The Complete Guide To Owning And Operating A Successful Homeowner Referral Network, is the key component in a range of HRN offerings — start-up packages ranging in price from $1,795 to $5,495. The most expensive and comprehensive also includes eight hours of one-on-one consultation time with Cohen, the recently released HRN Management Software (HRNMS), an HRN Web package, graphics CD, business forms and promotional items imprinted with the buyer's company name.

Cohen receives no ongoing royalty or fee. It's a one-time transaction. Buyers are completely independent and use their own company name. After helping launch three successful new HRNs on Long Island where her own business is based, Cohen started marketing the HRN concept more widely in 2000. There are now over 400 across the country, with 150 new HRNs buying her materials last year alone.

Through it all, including an intensive six-month project to develop the HRN Software, Cohen has continued to work from home, raising her family and still doesn't have any employees. The software project is typical of the way she has run her business. "I decided to do it because so many HRN owners were asking for something," Cohen explains. "They were having a really hard time managing all the information."

What they needed was a specialized kind of contact manager to keep track of contractors, homeowners, the contracts between them, the multitude of resulting project deadlines and the commission transactions between contractors and HRN. Cohen had tried using the consumer-grade database management functions in Microsoft Works. Other HRNs were using products such as Act, a sales contact management program from Sage Software (formerly Best Software), but none of these options was entirely satisfactory.

If You find Them, They Will Build It
Most home-based companies wouldn't consider developing software specific to their businesses, especially if they had no computer expertise themselves. It's typically an expensive, risky business. But Cohen knew, at least in principle, how to go about it: find somebody with the skills she lacked and hire them on a project basis.

She had already done this successfully with a secretary who worked out of her own home and later bought one of the first HRN packages, and with a Webmaster who designed, hosts and maintains her HRN Web page. The Webmaster, who has been with her since 1999, also now does work for other HRN owners and could probably be kept busy on a full-time basis with HRN work, she says. But that's not Cohen's way.

Finding a developer was not terribly difficult. "As in my business, I generally find people [for outsourcing to] through networking and referrals," she explains. "I found the software developer through my Webmaster. They both live in Texas by the way — we've never met."

With Cohen dictating how the software should work, the developer built a Web-based program that does everything Cohen and her HRN owners want it to do. Users access the program using a Web browser, and their data is stored on a host computer in Texas.

The development process was much like what happens in big enterprises when in-house developers build applications — except here the relationship between business operations and application development was on a contract basis and done long distance. This is no longer uncommon in medium-size and large organizations. They increasingly contract with overseas development houses to build custom software.

The project cost HRN about $20,000. The program now sells for $1,495 or as part of the $5,495 package.

"It makes everything so much easier," Cohen says of the software. "And because it's Web-based there's the convenience of being able to travel anywhere and work. With a cell phone and laptop [and an Internet connection], this is a very mobile business, and that's very appealing to people these days."

Her new assistant — a home-based contractor, of course — can work more easily with Cohen because they both use the same program and work with the same data. She also has a graphic designer with whom she works on the direct-mail programs that help her market Home Remedies services. An accountant and lawyer, functions that virtually all very small businesses outsource, round out her network of service providers.

Cohen is convinced this is the only way to operate a small, home-based business. "You don't have employees, you don't have pay checks and salaries and insurance. It's just a lot less complicated." There is also a "personality issue" here, she admits. Hiring somebody full-time and delegating responsibility and authority would mean giving up some control. And Cohen likes to be in control.

Based in London, Canada, Gerry Blackwell has been writing about information technology and telecommunications for a variety of print and online publications since the 1980s. Just for fun, he also authors features and columns on digital photography for Here's How, a spiffy new Canadian consumer technology magazine.

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