We have all heard sayings like ‘you get what you pay for’ or ‘cheap things end up being expensive’ and professional services are no exception! Throughout our careers, we have seen countless businesses face undesirable situations in their quest to save a few upfront dollars.
The truth is that companies do not always understand hidden costs associated with not using experts. It’s not as simple as comparing two price alternatives! And many times these costs present themselves after some time. Some of the most common hidden costs we have seen are:
Opportunity costs:
- Productivity costs – Companies will dedicate large amounts of their staff’s time to try to do something that can easily be outsourced to experts. On almost all occasions, the company just compares the price that the external provider has and does not take into account the cost of productivity. Basically, this is the total time that their employees spent learning about something that was far outside their expertise working on that project, and all the lost internal work that was not performed because of it. And remember – the employees still aren’t experts. However smart your employees are, they will only learn a fraction of somebody who has dedicated their entire professional career to learning about their chosen field.
Monetary costs:
- Costs of fixing mistakes –The cost of fixing mistakes on many occasions can be a lot higher than the cost of having someone else build it from the beginning. This is particularly true for professional services! We have seen companies contact us last minute because their model wasn’t working properly or because they had missed a very important variable in the model. In the past 6 months, we’ve had two companies try two different “internal” resources’ models before finally coming to us. Another example is when companies attempt to file tax returns without contacting an accountant and with limited understanding of how it should be done. For both examples, having to review the problem to try to understand what was done and where the mistake is, could take up more consulting hours than just outsourcing it in the first place.
- Costs of ‘pitching’ with inaccurate/incomplete data – This is probably the biggest ‘hidden’ cost for companies and it could easily be quantifiable. Whether you want to attract new investors or a new potential client, the cost of having the wrong data or information can be immense. On almost all occasions, you get one chance to impress your investors or clients and if you present inaccurate or exaggerated data, you might not close the deal! If you have experienced something similar, it is very easy to quantify the cost of that missed opportunity and compare it to the fraction of the cost it would have been to let an expert take care of the problem from the very beginning.
- Costs of making decisions with uninformed data – Similar to the above, these are big ‘hidden’ costs that any company can quantify. Businesses encounter options and decision requirements on a daily basis. A lot of the smaller decisions are made with internal data and based on past experiences. However, when a business is faced with a decision that could potentially change the future of the company, information and correct analysis matter! A lot of times, businesses make big decisions with limited information and/or with incomplete and incorrect analysis, just to save some money. This can potentially come back and completely alter the way the business operates.
Reputation costs:
- Brand & perception costs – This is probably the most complicated ‘hidden’ cost to quantify, but it has a deep impact on the day-to-day operations of any company. When companies use incorrect or incomplete data to manage their operations, investors and/or clients will catch on. If mistakes occur because of this, people will have an unfavourable opinion of the company and brand. This can lead to losing potential clients, losing repeat business from existing clients, losing potential investors and/or negative publicity for the company.
In fact, in many “how to do it yourself” articles for businesses, we are now seeing independent experts warning businesses about the risks of not using a professional service expert. For example, many companies chose to incorporate themselves to avoid the costs of hiring a lawyer. However, if done incorrectly experts warn that this can have many negative repercussions on the future of the business, such as not setting up articles of incorporation or your ownership structure in the best possible way. Experts also warn that these setbacks could slow down subsequent equity raises.
These are some of the reasons why we believe and always recommend letting the experts help. Companies need to look at outsourcing professional services as an investment and not a cost. We’ve met with companies in the past who took our proposals and tried to build a model on their own, only to find themselves in undesirable situations with their models and seeking Sapling’s help to put out fires. Because unfortunately on almost all occasions with professional services it ends up being: pay now or pay later!
