Lease or Buy? The J. Paul Getty Rule to Outsourcing
The oil baron J. Paul Getty is attributed with the quote “if it appreciates buy it, if it depreciates lease it” as his guideline to investment decision. For a guy that at one time was the richest living American, we probably should take his word for it. Plus, as a rule I tend to sway toward the advice of people with an initial as a first name (see F. Scott Fitzgerald, C. Montgomery Burns, P. Diddy). But can the principle of this rule be applied to start ups?
Of course when it comes to the day to day operations of a start-up, the rule is tried and tested. We don’t buy our office space, we lease it. As a result there is a great business on flexible workspace that I recently blogged on. The business of leasing hardware has accelerated with the advancements of networks and the cloud. We are now almost exclusively leasing software through SaaS. Fortunately we stopped buying people and leasing them with the abolishment of slavery…
But joking aside, there may be some staff or services that you really should consider leasing, or outsourcing. I see too many startups show a hiring plan that includes incredibly expensive and unnecessary next hires who would likely be overpaid, underworked and frustrated. Sector driven outsourcing has pretty much become commoditised, with rent-a-CFO/CEO/CIO services abundant as well as accounting, PR, sales and marketing product suites and managed services available.
Whilst we can’t directly attribute the Getty rule to outsourcing, here are some questions to consider:
- The harshest example of this was a colleague who recognised that their dev shop didn’t need a receptionist so he replaced her with a bell-but perhaps that is downsizing more than outsourcing… The point here is you need to be ruthless in analysing your company’s strategy and what is important. If you are in dev mode you probably don’t need in house PR and marketing. If you are a consulting firm, you likely don’t need a massive IT team.
- What is my current risk position? A bit of the ‘first, do nothing’ rule of medicine but hard to quantify. You need to constantly be measuring your company’s growth strategy with the ramifications of waiting a bit longer to hire.
- What capabilities do I already have in-house? Sometimes giving new tasks to existing and under-utilised employees helps to recharge and discover skills that you didn’t know existed. I am not saying that you want your marketer writing legal contracts, but there may be some middle ground.
- What is my current cash position? Can I afford either? What is the short and long term impact on cash flow?
- What am I exposing? Am I risking my intellectual property ownership if I outsource?
- What is the timescale of my decision? How long will you need this position or service for? Short term- lease, long term buy.
I am sure there are other guidelines I would love to hear from our commenters. Hope this helps!
Stephen Mooney is a full time entrepreneur and part-time blogger on topics ranging from challenges facing start-ups, to pop culture to running. He is currently part of the UKTI’s Global Entrepreneur Programme and CEO of Synoptica. Synoptica is a leading SaaS platform that helps organisations to uncover, rank and engage with innovative SME’s.