Stepping out: entrepreneurs grab a piece of the $100 billion outsourcing pie

Entrepreneur, August, 1997 by Frances Huffman

Ramos, with three of his downsized co-workers - David Orta, Ikie Wilkins and Garrell Edwards - joined the growing ranks of outsource contractors, providing many of the same skills they had performed in the corporate world but now doing them on an independent basis.

Today, Ramos and his partners, who own and operate ROWE Energy Services Inc. in Houston, provide specialized financial services for companies in the oil and gas industry. By 1998, the partners expect to be pulling in more than $1 million in revenues - with very little overhead, Ramos adds.

ROWE is part of a growing trend. All around the nation, companies large and small are parceling out work to outsource contractors. The 1996 outsource contracting market was estimated at some $100 billion, according to The Outsourcing Institute. And the institute predicts that figure will soar to more than $300 billion by 2001.

Why is outsourcing growing at such an accelerated rate? The primary reason, according to The Outsourcing Institute, is that large companies are doing whatever they can to reduce operating costs. Eliminating full-time employees and finding outsource contractors to replace them is a large part of that strategy. IBM, Chrysler, AT&T and Microsoft are all hiring outsource contractors to perform work that was once done in-house.

At Coors Brewing Co. in Golden, Colorado, some 18 business functions - including custodial services, facility maintenance, payroll, benefits administration and information technology - are outsourced. And more outsourcing is on the way at the company, according to Steven Brown, director of corporate development. "We're looking for outsource contractors who are better at their businesses and have more capabilities than we would internally," says Brown.

Like Coors, companies are outsourcing jobs and projects in every imaginable field: finance, sales and marketing, administration, customer service, manufacturing and more.

And it's not just popular with big businesses. Small and medium-sized companies are jumping on the outsourcing bandwagon, too, hiring contractors to take care of accounting, marketing and other business tasks. Some companies seek outsource contractors to fuel growth without incurring the burden of hiring full-time employees.

"It makes sense," says Robert Jennings, author of Make it Big in the $100 Billion Outsource Contracting Industry (Westfield Press) and a management consultant in Westminster, Colorado. "If you're a one-person company, would you rather spend time doing what you do best or accounting?"

GETTING OUT

For enterprising professionals, this trend spells tremendous opportunity. Jennings says novice outsource contractors can use the knowledge and expertise gained from their professions to build businesses. Indeed, anyone from a janitor to an electrical engineer can become an outsourcer. And the number of potential clients is almost limitless.

Sound good? Don't jump in quite yet. Jennings suggests that before taking the leap into this industry, you should start building a client base. "You should have at least one contract before going out on your own," he says.

That's how Warren Wiggins broke into outsource contracting. In 1986, Wiggins, 41, was working the night shift as an electrician at General Motors, but during the day, he started doing some electrical trouble-shooting on his own. The next year, Wiggins quit his job and launched WW Contractors Inc. from the basement of his Randallstown, Maryland, home.

"I was just a one-man company at the time," says Wiggins, "but I took out the biggest ad in the Yellow Pages and put a lot of phone numbers with different extensions to make it look like I was a big company." The ploy worked, and today, Wiggins' efforts include a five-year project worth $8 million for the Social Security Administration and a $2.2 million project for the city of Baltimore. Even though Wiggins now employs 49 people and boasts annual revenues of $4.5 million, he still runs his business from his basement to keep over-head costs in check.

Wiggins isn't alone. Many outsource contractors keep overhead at a minimum by working from home. And because outsourcing is often a service-based business, start-up costs aren't prohibitive.

For Jim McCalla and his wife, Jane, the desire to start a business with low initial costs and minimal overhead led them to outsourcing. "Outsourcing had a low break-even [point], it didn't matter where we were located, and it could provide a recurring source of income because the projects are ongoing," says Jim McCalla, former president and CEO of the Memphis, Tennessee, Boys and Girls Clubs of America. Using an office in their Cordova, Tennessee, home as their base, the couple launched Twenty-First Century Solutions in 1994 to provide attendance and payroll services to small and medium-sized businesses.

The McCallas run the business on their own, but with it growing at 150 percent per year, they anticipate a need for some help soon. "We're bursting at the seams," says Jim McCalla, 54, who plans to practice what he preaches by outsourcing the business tasks that aren't part of his company's primary focus.