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The Goldilocks Principle in Real Estate Outsourcing

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What Is The Goldilocks Principle, Exactly?

"The Goldilocks principle states that something must fall within certain margins, as opposed to reaching extremes...

[It] is derived from a children's story "The Three Bears" in which a little girl named Goldilocks finds a house owned by three bears. Each bear has their own preference of food, beds, etc. After testing each of the three items, Goldilocks determines that one of them is always too much in one extreme (too hot, too large, etc.), one is too much in the opposite extreme (too cold, too small, etc.), and one is 'just right'."[1]

When it comes to Real Estate Outsourcing, the Goldilocks Principle is about finding the ideal mixture of an in-house, local work-force with an outsourced, "virtual" work-force.

Outsourcing & Economics: Leveling the International Playing Field

As someone who's been involved in outsourcing since the late 90's, I can definitely say that using any overseas work-force is a controversial topic. For many people at different points along the political spectrum, "Outsourcing" has become a hot-button topic. A dirty word.

To some, just the word "Outsourcing" invokes images of evil corporate big-wigs, scheming on how to profit by stealing jobs from your neighbors.

Thing is:

The rise of Outsourcing is an unavoidable result of basic economics. Supply & demand. As new international markets become able to supply the same domestic demand for labor, competition increases.

With the rise of communications technologies (driven by the world's interconnectedness through the web), it is becoming more and more feasible to get work done anywhere on earth. The easier it becomes to achieve the same output objectives ... whether the work-force is located in NYC, London, Manila, or Karachi ... the more impossible it becomes to avoid "virtual teams" (remote, off-site workers collaborating together).

As a buyer, you can benefit greatly from this increased, international competition to supply low-cost, high-quality labor. As an inflexible, incumbent business (if you happen to own or be employed by one), you either adapt to this increased competition, or be destroyed by it.

Illustrating The Perfect Outsourcing Use-Case Scenario:

Think about it like this: you have a simple, repetitive task in your business which you no longer have time to do yourself. This task doesn't require anyone's physical presence, as it is done 100% on the computer. The outcome of this task is purely objective, it is either done right, or done wrong. There is no finesse or special skill needed, other than understanding the step-by-step task list to achieve certain goals.

So, if you have a task that (a) can be done from anywhere, and (b) requires no special skills, would you:

  1. Hire someone locally, who will cost $10 - $15 / hr?
    or
  2. Hire someone abroad, who will cost $5 - $10 ... at most?

Again, this is not some type of trick question. We are talking about an idealized world, where there is literally no difference in quality of work output between 1 and 2. In that sense, from a business perspective, is it possible to justify hiring someone for up to 3x's the cost ... to achieve the same exact result?

Obviously, in a situation like this, the benefits of outsourcing far outweigh the potential down-side.

Of course, in the real world, very few things are ever so cut-and-dry simple...

The Risks Of Over-Outsourcing vs. Under-Outsourcing

Before you can even hope to be successful when outsourcing business activities & hiring virtual assistants, you'll need to define your company's "Goldilocks Principle" for Outsourcing.

Simply put, this means finding the "just right" deployment of outsourcing resources. If this is your target, you'll need to precisely define what this entails for you - in terms of operational goals, as well as lifestyle goals - if want to hit it. Allow me to suggest:

If you are Under-Outsourcing, you are spending too much on local payroll, when you could be saving significant costs while achieving the same or better output. This would mean you are blatantly over-paying to complete certain tasks that someone across the world could easily complete.

If you are Over-Outsourcing, it means you have passed the point of diminishing returns when it comes to using cheap, overseas labor. In other words, the "Hidden Costs" (outlined in Part 3) have surpassed the apparent savings on overhead. Over-Outsourcing's costs can be measured by its effects, such as:

  • Increased client attrition (losing customers),
  • Decreased (or steadily decreasing) productivity,
  • Diminished (or steadily diminishing) ROI on outsourcing costs,
  • Negative publicity generated by outsourced staff.

Over-Outsourcing: When Hidden Costs Outweigh Benefits

The most common complaints related to outsourcing (other than directly losing your job to a cheap foreign alternative) come from clients who find the quality of product or service has significantly diminished as a result of shipping the customer service, production, and / or fulfillment overseas.

This, to me, is the very definition of "Over-Outsourcing". In other words, if your customers feel dissatisfied due to your attempts to save money using cheap labor ... you are outsourcing either:

a) Too much, or

b) The wrong activities.

One of the biggest areas where outsourcing & Virtual Assistants can quickly lead to problems is in your Customer Service Department. At this point, nearly everyone has had at least one experience trying to find support for a product or service they've purchased, only to receive the run-around among an array of bad-English speaking, ill-informed, poorly-trained "support" staff located on the other side of the globe.

Under-Outsourcing: When Local Dependency Is Costing You Big

While "Over-Outsourcing"is the biggest problem for the biggest businesses, when it comes to smaller & medium sized companies ... the most common issue is that they are "Under-Outsourcing" (or even not leveraging outsourcing at all!).

As I've mentioned: "The rise of Outsourcing is an unavoidable result of basic economics. Supply & demand."

If there's one force you don't want to have against you, it's the power of the free market. Like it or not, outsourcing is here to stay. And its importance & penetration is growing. According to a PDF at The Economist, "Outsourcing can increase productivity and competitiveness 10- to 100-fold ... More than 90% of companies say that outsourcing is an important part of their growth strategy."[2]

If you aren't already 100% sold on outsourcing at least a portion of your operations to a "Virtual Assistant" working remotely, I hope you are starting to see the writing on the wall.

Every business in the 1st world needs to be leveraging the power of outsourcing to your advantage. There will come a day when it will hardly matter where a job is completed, as long as it gets done on time and up to a high standard of quality. If you are overly reliant on the locally available labor pool, your costs will be higher than your competitors who can draw from a global work-force. Put simply: you won't be able to compete.

This is a catastrophic result, obviously, which is why you need to be:

Solving The Goldilocks Paradox...

... And Finding Your Own "Just Right"

If you're thinking like me, outsourcing / hiring Virtual Assistants is about business.

At the end of the day, it all comes down to the bottom line.

There is no subjective, emotional, moral, psychological way to determine your company's "Just Right" deployment of outsourcing resources. It's in the numbers. Either your investment in outsourcing is profitable, or it isn't. Period. Full stop.

Are your outsourcing efforts as profitable as possible?

That is the only question you should be asking yourself. And, while on its surface the question seems simple, it is in fact extremely difficult to answer. In my opinion, this difficulty stems from two root causes:

  1. If you are "Under-Outsourcing" ... you have literally no idea how much more you could be earning.
  2. If you are "Over-Outsourcing" ... the negative effects on your bottom line are not necessarily obvious.

In other words, it's impossible to say what outsourcing tasks will be profitable if you've never even tried (or thought about trying) them. It's also difficult to say when you have reached the point of maximum effect, exceeding which will only bring diminishing (or even negative) results.

The Scientific Method Of Maximizing Outsourcing ROI

From a pragmatic standpoint, the only way to determine if your outsourcing is as profitable as possible is via systematic, carefully analyzed testing. You need to research the potentially best strategies for integrating remote staff into your current operations. You need to ensure the work is being done to your standards. You need to systematize, then move on.

For convenience, I've simplified finding your Goldilocks Principle in Real Estate Outsourcing to this simple, 5 step formula, loosely based on the actual scientific method.[3]

5 Steps To Striking Perfect Balance: Your Goldilocks Principle

  1. Research: You need to formulate & hypothesize a list of prioritized tasks to potentially delegate to your Virtual Assistant. The rule of thumb is:"Any repetitive tasks which do not require someone's physical presence."
  2. Plan: You know your business better than anyone else, so you need to be intimately involved with the planning & set-up process.Help develop staff training materials, Standard Operating Procedures (SOPs), and pertinent infrastructure to ensure everything has been carefully orchestrated to meet your exacting standards.
    Be as thorough, clear, and specific as possible.
  3. Test: Train & deploy the outsourced back-office staff for a test period.Set a schedule- or objective-based milestone. Be sure everyone involved is well aware that when this preset milestone is reached, their performance will be critically analyzed. Make sure you are prepared to track all important metrics (costs, earnings, # of sales, leads generated, calls received, website visitors, etc). Implement your "Plan" from step 2 above.
  4. Analyze: Collect & assess all data from the Test to determine:a.) Whether or not the Test was successful, in terms of showing promise enough to be continued,
    and
    b.) What specific elements of the Test need the most improvement, based on your analysis.Once you have carefully put your Test through the rigors of determining both a.) and b.) above, you will basically have two options. If the Test was successful enough to continue, then it becomes your "Control" (to borrow a term from the Direct Marketing industry).If the Test was unsuccessful, or at least less successful than your previously established Control, then you'll need to go back to the drawing board or make major changes before continuing.
  5. Repeat: Continue to refine & systematize your outsourced Virtual Assistants' operations to maximize profitability.You've established your Control: a specific task or business process which has been effectively outsourced. Now, you have a few options. First off, you can simply just sit back, let your VAs handle their responsibilities, and continue to focus on your business with one less thing to worry about.But, if you are interested in finding the maximum possible profitability for your outsourcing efforts, you'll need to choose whether you want to:
    • Work on enhancing / optimizing your Control via carefully monitored Tests of one variable at a time.
    • Research & Test other business processes you can potentially outsource, to find parallels to your previous Control(s)

    Ultimately, you'll want to do both. And you can even do both at the same time, as well as run multiple other Tests & Controls simultaneously.

This process is by no means straight forward, nor is it easy. To run through all 5 steps represents a substantial amount of work, no matter how you approach it. While you can outsource a lot of the efforts, your direct input is necessary to ensure maximum profitability.

You know your business better than anybody. Ultimate success with Virtual Assistants is all about compartmentalizing your accumulated knowledge into bite-sized, repeating chunks that can be managed by people with much less experience & skill than yourself.

Implementing all these steps will move you inexorably toward finding the Goldilocks Principle of Real Estate Outsourcing for your business. Then, you will be striking the balance, getting the maximum return on your investment into your "virtual" team.