Join Jamie Shanks, Founder & CEO at Get Levrg, for an enlightening session on the current trends with offshoring and nearshoring. We will explore which regions are trending for which skillsets and cost differences between regions. We will delve into how to leverage offshore talent for both back office and front office work. Discover the numerous benefits of offshoring, including cost savings, access to a global talent pool, and increased operational efficiency.
TRANSCRIPT
Greg Alexander:
Hey, everybody, this is Greg Alexander, founder of Collective 54. And you’re listening to the Pro Serve Podcast, a podcast dedicated to the founders and leaders of boutique professional services firms. So if you’re a consulting firm, a marketing agency, IT services, etc., this is the place for you. On this show, we aim to help you make more money, make scaling easier, and make an exit achievable. In this episode, we’re going to talk about offshoring and nearshoring. We’re going to discuss which regions are trending for which skill sets, cost differences between regions, etc. We’ve got a Collective 54 member with us. His name is Jamie Shanks. Jamie, for those that don’t know who you are and what you do, please give us an intro.
Jamie Shanks:
Thank you so much, Greg. You and I have known each other a long time. I am an entrepreneur who has transitioned from a sales trainer to growing a sales training business. Ultimately, through some ups and downs, I learned about offshoring the hard way. I built a done-for-you agency called Get Leverage that focuses on sales and marketing tasks to gobble up and buy back five-dollar-an-hour tasks from small to mid-market enterprise businesses, allowing them to focus on five-hundred-dollar-an-hour value creation.
Greg Alexander:
OK, perfect. So let’s talk about offshoring and nearshoring. First, real quickly, the reason why you might want to do that if you own a professional services firm is labor arbitrage. Domestic labor costs a lot more money than offshore labor. If there are tasks that can be done by those in other regions of the world at a lower cost basis, you can earn more money as a founder. So let’s start there. Jamie, in your opinion, what are the tasks that a founder of a professional services firm should be offshoring?
Jamie Shanks:
I actually use something that you taught me years ago. I remember in my first agency, Sales for Life, we grew really fast, and then I hit a financial brick wall. You taught me these leverage points: the founder of a firm should only be either rainmaking or creating intellectual property. Every other task in the business should be objectively evaluated to determine if it is the best use of their time. For example, in the sales ecosystem, many times you give a seller the job of sales, and that sales process could be from lead to winning the business or lead to winning the business and then managing the customer all the way for upsell and crossover. But within that sales process, there are all kinds of tasks that have leaked in over the years that are not a great use of the seller’s time. The seller’s time is better spent doing demos, discovery, qualification, negotiating proposals, or bringing the buying committee together. So to answer your question directly, it’s all the tasks that are repeatable and not generating direct revenue or creating new intellectual products or services that can be taught to others. These tasks almost sit on the expense side of the P&L, but using labor arbitrage can improve the gross margins or contribution margins.
Greg Alexander:
Yeah, I’ll give an example from Collective. We process about 1,200 transactions a month because we’re a monthly recurring revenue business and we collect payments on a credit card. To make it through an audit, you need a matching invoice. So who creates 1,200 invoices a month? If that was done with domestic labor, it would be very expensive, and no one really wants to do that. So we leverage offshore resources to do that, just as one example. Jamie, let’s switch the conversation to where these tasks should be sent. It’s changing right now. So what’s the best geographic location to explore?
Jamie Shanks:
There are certain geographic regions for certain needs, and I’ll talk through some pros and cons. For some organizations, voice and verbal communication, such as running customer success or call center environments, are really important. The natural places for those are Latin America and the Philippines. In Latin America, you have a huge cohort in the Americas that speak Spanish or are accustomed to a Spanish accent. The value creator here is that you are on the same timeline, making it easy to employ and retain people to work in the Eastern Standard Time Zone. The Philippines has mastered the art of the American dialect since World War II, so you have people on the phone that sound like your next-door neighbor. However, for non-voice-based tasks, the labor arbitrage is not as strong. People often over-index and bring everything to the Philippines, but the cost difference between an American in Ohio and someone in Cebu, Philippines, might only be two to one. Other nations offer better arbitrage. I’m biased towards Bangladesh, which is one-third the price of the Philippines. My offshore agencies in Bangladesh achieve 80 percent gross margins because of the incredible source of marketers with MIS backgrounds. However, Bangladesh is not as strong for cold calling or call center tasks but excels in behind-the-scenes work like video editing and marketing.
Greg Alexander:
Yeah, okay. If I’m a founder, I’ll give you two use cases and want your take on them. One is I’ve never offshored before, I’ve resisted it for all the legacy reasons, and I want to get started for the first time because I’ve finally realized the world’s a big place. The second use case is I have been doing it for a while, I’m struggling with it, and I’m thinking about shutting it down. How do I improve it? Give me your advice in those two scenarios.
Jamie Shanks:
Advice number one, founder me in the year 2018. I had 25, 30 employees in Toronto, Canada, and I only employed those that were willing to come into my physical office in Toronto. So the first thing is I had to have a mindset reframe and I had to really objectively ask myself, do people actually need to come into my office to get this job done? Now, this is pre-COVID. It’s a little easier to answer that question. But basically, they have to ask themselves why. Why do I want to make a change? And it’s typically driven financially. I want more money. I want more optionality to be able to reinvest my dollars to create new products, maybe to acquire another business line. Maybe I want to put more profit in my jeans. But you have to be really convicted on that answer. And then you have to be able to reframe that you’re going to have to explain your why to stakeholders. Those will be internal employees, investors, customers, and vendors. And when they push back, because they will, you have to be really convicted that the decisions you’re making are for the betterment of not only you, the founder, but of the business. If you can get through that answer and not bat an eye and say, I’m doing this because we want to improve our margins, because I want to go buy another company and we’ll never be able to do it unless we do it this way. And you’re so convicted. It’s like that George Costanza, it’s not a lie unless you believe it kind of thing. Like it has to be so you have to really do believe it. OK, so that’s use case number one. Did I help answer that question?
Greg Alexander:
Very well, thank you. Yep.
Jamie Shanks:
Use case number two is you’ve dabbled in this before, but typically there’s been some missing ingredients. What I typically see, especially in founder-led organizations where the founder is the orbit of the sun kind of thing, and everything drives through that founder. That founder doesn’t have a number two or doesn’t have somebody else in the organization that is going to be the in-between or project manager for and around the offshore team. So the founder took one. They already were a bottleneck, and now they’ll be transferring knowledge and they’ll be managing a project manager and offshore teammates that are doing all kinds of tasks. And they didn’t create any more capacity or leverage for themselves. They just created more headcount. It is no different than the amount of headcount that they would have had onshore. Except now you have time zone issues and you have cultural nuance issues. So my recommendation to those founders is you’re not the first or the last offshore. There are millions that do it, and they do it really successfully. But if you’re a founder that is holding on to a lot of things and you are a natural bottlenecker, it is not going to get any better or easier for you because there is, like any role, a transfer of knowledge, except that transfer of knowledge isn’t nascent to the water cooler concept. They’re not sitting next to you and you’re not talking every day like you would naturally in a physical office. So you probably want to have those offshore teammates reporting into your head of marketing, your head of sales, your head of product and development or what have you, not yourself. Yourself reaps the reward of the gross margin change, but isn’t constantly dealing with yet another teammate that you’ve already struggled because you are a bottleneck.
Greg Alexander:
You know, if you talk about margin expansion, you know, the financial incentive or the financial motive to go down this path and the degree of conviction you have to have on it, I would offer kind of a waterfall thinking process. So margin expansion is the goal. You want to make more money. So first thing, can you increase prices? If you can, that’s the easiest thing to do and do it. It has nothing to do with offshoring or nearshoring. You just raise your prices to clients. Many of our members are in environments that are highly competitive. They don’t really have the ability to raise prices. So that takes us to step two. Step two, is there work you’re doing for the client that no longer needs to be done? Sometimes we geek out about our stuff and we over-engineer things and we don’t need to do that. So we end up putting more hours into work that is unnecessary. So can you eliminate things?
Jamie Shanks:
So creep discounts all the, yeah.
Greg Alexander:
Yeah, right. And step three, once you get past that is what can a machine do as opposed to a person? If you can automate through, tech is cheaper than people. You can expand margins. And then lastly is for the things that need to be done, you know, cost of business items, I’ve got to have labor to do them. What’s the cheapest labor I can do it and still meet the client expectations? Very often that labor is not in the US. It’s not in North America for that matter. It’s usually other parts of the world. I’ve been blown away by how capable this labor is in different parts of the world. And to be honest, and I don’t know how long this will last. So maybe this is an urgency, how inexpensive it really is. So that’s kind of the margin expansion waterfall. And that’s where offshoring fits and nearshoring. I guess, Jamie, my last question is on that. What is definitionally the difference between offshoring and nearshoring? And why does it matter?
Jamie Shanks:
Yeah, and it comes back to the model that best suits your organization. From my understanding, the way that I see nearshoring is you’re still creating labor arbitrage, but that nearshore doesn’t even have to leave continental United States. It is within a similar geographic time zone. So that could be Puerto Rico. That could be you’re a California-based business and you’re now moving teammates to Oklahoma or to Costa Rica. Offshoring is truly leaving off of the Atlantic and the Pacific Ocean. One thing that I would combine when you were talking about margin expansion, I’m a big believer of combining number three and number four on your list where you have AI or technology managed and powered by the labor arbitrage itself. So you’re kind of double dipping. The reason being, maybe this is my bias coming from the sales world. I watched all the way from sales leaders to sellers, spin their wheels trying to learn every tool in the book when it’s just not a great use of time. When others can learn the tools, manage the tools for you and you get all the outputs from them. So have them geek out and learn every sales widget and then bring the outcomes to you. But anyway.
Greg Alexander:
Yeah. And that’s actually great advice to combine the two. All right. Well, we’re at our time limit here. I’m going to give the audience three calls to action. So if you’re a member of Collective54 and you want to pick Jamie’s brain on offshoring and nearshoring, attend the private member Q&A where you can ask questions directly to Jamie. Look for the meeting invitation and sign up for that. If you’re not a member and you want to become one, go to CollectiveFiftyFour.com. Fill out an application. We’ll get in contact with you. And if you’re neither of those two things, but you just want to consume some more content, I’d push you to my book, The Boutique, How to Start, Scale and Sell a Professional Services Firm, which you can find on Amazon. And Jamie, I just got a copy of your book. Tell everybody how to find that.
Jamie Shanks:
Go on to Amazon. Look under Jamie Shanks. It’s called Offshore to Profits. And it will take you through the framework from the why to the financial analysis to the talent evaluation and infrastructure that you need to onboarding all the way to scale.
Greg Alexander:
It was insightful. I took a read of it myself and learned quite a few things and have changed our approach to nearshoring in our case. But with that, Jamie, it’s always great to talk to you. Thanks for making a contribution to Collective Fifty-Four. We look forward to your upcoming session. Thanks for the invite. Thanks, everybody. See you.
Note: This transcript was generated by Gong.