Dear Sean,

I have a firm with seven employees. One of them has done the purchasing for more than six years now—but as we have grown, so have the responsibilities of this person’s role. Their work now encompasses all operations and human resources, which leaves no time to continue ordering each and every lamp or sofa. I don’t know if hiring another person to solely do purchasing is the right move for us, and ultimately it would take time that we don’t have to train someone on this job right now. So here’s my question: Can we outsource our purchasing? Who does that? And do they do it well?

Procurement Puzzle

Dear Procurement Puzzle,

I know it is a radical statement, but I believe that the only people who should be employed by your firm are those who are bastions of your culture. Everyone else should be an outsourced service provider. It is taking what Ronald Coase spoke about in “The Nature of the Firm” (a 1937 article from the journal Economica—yes, I am that economics geek) to its modern-day extension: Simply, if a task can be undertaken more efficiently and effectively by a third party than by the firm itself, it should be done by the third party. That is why most accountants do not work for their clients, but short-order cooks do. This is true about almost everything today except corporate culture. The philosophy that drives culture is straightforward: We do it this way because this is the way that matters to us. You cannot outsource culture, because it is iconic to your firm. A third party cannot be asked to sing that song, because, ahem, it is not theirs to sing.

Provided that you have the systems in place to be sure that what is to be purchased is entirely accurate, then the actual ordering and monitoring is best done by those who care about the effectiveness of the transaction. An amazing custom sofa that is 10 days late will have a far greater chance of being excused by the designer who values the quality than by the bookkeeper/operations manager who understands that a broken promise is a broken promise. Redemption does not come from “It was worth the wait.” Ever.

The combination of incredibly powerful software and expertise in purchasing and cash management means that, in almost all instances, a third party will do far better at purchasing and overseeing production than almost anyone in-house. It is just what they do every day, all day. You should expect them to help you develop a system that will be a remarkable and valuable communication tool for everyone involved—ultimately elevating the process better than you ever could.

However—and it is a big however—to take advantage of these third parties, you must have the business structure to make it worth it for everyone. Remember, you are replacing an employee with this marginal expense (meaning that you only incur it with a project). If you are working in any form of the traditional way—hourly billing, markup on product, and the like—you may find outsourcing really hard. Why? You have set revenue, and this will be another expense you will have to pay for. True, you will save money by not having an employee, but your risk if the project goes long or there are major issues in purchasing exposes you in a way that might just be too much. At least an employee is a known number.

Outsourcing works if you are ahead of the cash (that means you get paid before you do the work) and are in complete control of the production budget. An example: Your design for a $400,000 project (decor only) is complete. You are to receive $20,000 a month with a target completion date of seven months. (Some quick back-of-the-napkin math for anyone clinging to their markup: 35 percent of $400,000 is $140,000.) You agree to pay your bookkeeper/operations firm $3,000 each month to manage purchasing and order flow and provide reports of the same to the client. If the project is completed earlier, beyond a minimum, the payments stop; if it goes longer, they do not. It works for your firm because you are confident in the ability of your bookkeeper to maintain focus on the project; and, of course, it works for the bookkeeper because they are being properly compensated for the ongoing work. If ongoing payment is uncertain, you can see how it can all fall apart.

Last, I am sure you are wondering how to explain this outsourced arrangement to your client. First, no reason to reveal the independent status, as your client only cares that the production is happening as it should. Or you can celebrate the value of having an expert on the team that cares only about the client’s money and its effective spend.

If you do not believe in the power of outsourcing and are reading this column on your iPhone (produced by a company that exemplifies the success of outsourcing), you might want to rethink your position. When the iPhone and iPad were being designed, Steve Jobs recognized early on that, if he was right about the success of the products in the marketplace, Apple could never handle the scale of production that would be needed to manufacture the phones and tablets at an effective price—and he was right, of course. The same is true of your design business: The reason Coase’s theorem matters so much is that it implores you to get better at what you are great at, letting those third parties who are proven powerful voices for your firm use those voices to speak louder on the things they’re best equipped to fight for.

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Sean Low is the go-to business coach for interior designers. His clients have included Nate Berkus, Sawyer Berson, Vicente Wolf, Barry Dixon, Kevin Isbell and McGrath II. Low earned his law degree from the University of Pennsylvania, and as founder-president of The Business of Being Creative, he has long consulted for design businesses. In his Business Advice column for BOH, he answers designers’ most pressing questions. Have a dilemma? Send us an email—and don’t worry, we can keep your details anonymous.