In With the Out(sourcing)

By Chris Pentilla

Small businesses are hiring more independent contractors, but be aware of the pros and cons.

Ron Vigdor is co-founder of BornFree, a 3-year-old company that makes BPA-free bottles, sippy cups and other baby products sold at retailers such as Whole Foods, Walgreen's and CVS.

Vigdor, however, isn't taking any baby steps when it comes to outsourcing. BornFree offloads its logistics, accounting, payroll, taxes, and public relations to third party outsource providers. Even the company's sales team is outsourced.

"It's cost effective," says Vigdor, 40. "Especially for small companies, I think that outsourcing is the way to go."

Chicago-based payroll company SurePayroll, which releases a monthly "scorecard" based on data from more than 25,000 U.S. small businesses, calculates small business contracting grew 19 percent last year while staff hiring grew only 3.4 percent. "There was a much greater percentage growth in contractors than there was in the overall small businesses," says SurePayroll President Michael Alter.

20 years ago, companies viewed contractors with derision and suspicion. But outsourcing is no longer a dirty word. Entrepreneurs in particular see definite benefits to outsourcing, such as lower production costs, being able to focus on core competencies, and eliminating fixed costs such as salaries and benefit packages. "There's a lot more efficiency in going to a specialist," Alter says.

Outsourcing to Drive New Revenue
Small companies are hiring outside expertise to drive revenue in a down market. Online marketing, lead generation, and brochure writing are hot services, but small companies are also handing off what Alter calls the "backend plumbing": The basic tasks like payroll and accounting that free up time to generate new revenue. Business plan writing, website design, search engine optimization and financial modeling are all up and coming outsourcing services as well, says Chaitanya Sagar, CEO of p2w2, a San Jose, California firm that matches contractors with companies and conducts 90 percent of its work internationally.

"Outsourcing" and "offshoring" tend be used interchangeably, but there's a difference. Outsourcing means contracting with a supplier to provide a service, while "offshoring" is a subset of outsourcing in which a company task or department is sent to another country. Sagar prefers the generic term "sourcing." "Buyers don't see it as outsourcing or offshoring. They see it as sourcing, which is ‘Hey, I want to get this stuff done and who's the best person to do it?'" he says. "It doesn't matter where the person is located."

The semantics are up to debate, but one thing is certain: Any small business owner who has outsourced has a horror story to tell. Maybe it's a project that arrived late, lackluster or riddled with errors. Maybe the independent contractor flaked out mid-project, leaving the company hanging. Many small business owners, meanwhile, have found it hard to manage and trust independent contractors, who by definition work remotely and only know enough about the company to complete the project.

BornFree, which employs 8 people full-time in Boca Raton, Florida and over 100 internationally, has its own horror stories, like the time it used FedEx to deliver a termination letter to an outsourcing firm only to learn weeks later that the fine print in the contract required termination letters to be mailed through the U.S. Postal Service. Vigdor says BornFree shelled out "thousands of dollars" before the contract was finally severed three months later. "Read the fine print," he warns. "I've been burned enough times to learn what I should and should not be signing."

In this economy you can hire a freelance contract attorney to read it for you, and at a cheaper rate. The Great Recession has pushed contractor rates down across the spectrum. Companies are able to outsource on the cheap, but the best contractors are avoiding projects that could make them lose money. They're running the numbers, too. "Contractors are entrepreneurs no different from somebody running a business with 40 employees," Alter says. "It's a question of how best to use their time."

BornFree has renegotiated contract terms to its advantage in this recession, but Vigdor sees risks in getting too lean and mean with contractors. "You get what you pay for," he says. "If people tell you they can do it for half the price, it's not necessarily true that you'll get the same quality of work." BornFree keeps customer service, receivables and some logistics work in house so it knows what's going with customers and cash flow. "We try to excel at customer service," Vigdor says. BornFree's sales exceed $10 million.

SurePayroll's data show small businesses hired more full time people than contractors between November and December, but it doesn't mean small businesses are turning their backs on contractors.

"I don't think you'll see a decline in the percentage of contractors," Alter says. "You've seen a shift in mindset of small business owners toward the idea of using contractors for particular projects, and I think that's here to stay."

7 Ways to Convert Online Contacts Into Sales

By Starr Hall Entrepreneur

Ditch the pitch and push internet conversations into profitable territory without alienating customers.

Misguided marketers are trying to use "old-school" marketing tactics in a new, consumer-driven business landscape. But being the best, the cheapest or the most convenient is no longer going to get you the results you're after; so don't promote these virtues on social networks.

We've all seen how kindness, honesty and generosity online are rewarded. And yet internet conversations are getting heavier with sales pitching and self promotion by the minute. This sales pitching is not only turning consumers off, it's giving internet marketing a bad rap and making it more challenging for business to convert contacts into sales.

There are a few marketing strategies you should add to your daily practice to set yourself apart and turn your online communities into profitable business transactions. What's more, these activities will increase the ROI for your online efforts without looking or sounding sales pitchy (or what I like to call sales bitchy).

Here are seven secrets for successfully converting online contacts into sales.

Focus on generosity: Share your knowledge and expertise willingly online. Avoid the attitude that people are out to get you, instead think of it as people are out to do business with you. The more you are generous with your expertise and resources, the faster people will connect with you online and want to do business with you (because they've already had a sneak peek at what you offer).

Use the 3/3 Rule: The opposite side of the generosity coin is this; you have to set some boundaries online so as not to give too much away. When you are directly e-mailed or approached for advice, offer your services no more and no less than three times to that contact before you ask for the business. Don't spend more than three minutes responding or chatting per person or group. After the third such activity (on the same network, of course), just ask. This is the one thing that separates the broke from the prosperous--asking.

Don't act desperate: There is a big difference between desperate and sincere. Make sure that you really want the relationship and their business specifically and that you're not just asking for the sake of getting another deal (or because it's the third action and you're "supposed" to). Consumers are smart, they can tell the difference between the two.

Do a SPAM check: Before you even ask for the business when you're beginning to build a relationship you need to do a SPAM check. Whether it be online or off, make sure that your conversation does not involve constant:

Sales
Pitching
After
Meeting.

If you start a sales pitch before you've even established a rapport then you are spamming, something that consumers do not tolerate very well. This can instantly shut down a relationship. Make the conversation about the consumer, not you. [link to Green]. Start by listening and end conversations by asking what you can do to help them with a goal or problem. By doing this, your services and offerings will become a natural part of the conversation, rather than a forced sales pitch.

Have a communication plan in place: Once you start to engage with people make sure that you have an ongoing plan to stay in touch. A great way to do that is to get their e-mail address and send them periodic updates, resources and tips.

Build your social proof: Do you have testimonials or recommendations on your social sites and your main website or blog? Social proof is basically proving to your target market and community that you are worth doing business with. Testimonials show potentials how great you are, you don't have to say a thing. LinkedIn is a great place to house some of those testimonials.

Just be yourself: Do not try to be someone that you are not because you think that you will get more contacts, leads and business. Consumers want to feel like they are doing business with someone real, not someone that's insincere.
Above all, don't hold yourself back from reaching out to new people, groups or industries. The internet is full of millions of new contacts for you, just engage with them sincerely and leave out the sales pitching. You never know if that invite or accepted request will be your next big customer.

Steve Jobs: "Freedom from porn

Posted by Philip Elmer-DeWitt Bloomberg

"Traditional PC folks feel their world is slipping away," says Apple's CEO. "It is."

Kudos to Valleywag's Ryan Tate for posting in full his bizarre late-night alcohol-induced e-mail debate with Steve Jobs, given -- as he is the first to admit -- how bad some of the things he wrote make him look. (He drops names he shouldn't, he can't seem to spell Cocoa correctly, and he'll have hell to pay when his wife gets home.)

The 10-message exchange -- six from Tate, four from Jobs -- touches on a wide range of hot-button issues: the Adobe (ADBE) Flash controversy, the lost iPhone debacle, Apple's (AAPL) hard line on non-native applications and Jobs' personal views on freedom, pornography and a life worth living.

"Gosh, why are you so bitter over a technical issue such as this?" Jobs asks Tate at one point. And he ends with a zinger that says volumes about his attitude toward people who write -- rather than build computers -- for a living:

"By the way, what have you done that's so great? Do you create anything or just criticize others work and belittle their motivations?"

As MTLB's Bill Green's wrote, you will either hate or respect Steve Jobs a little more after this exchange. Read it in full here.

Does Amazon want to buy Netflix?

By Paul R. La Monica CNN Money

It would be a marriage made in e-commerce heaven: Amazon.com and Netflix. Too bad it probably will never happen.

Shares of Netflix (NFLX), the wildly popular online DVD rental and streaming video service, surged Thursday, hitting a new all-time high. The company clearly is gaining momentum, largely at the expense of the apparent demise of Blockbuster (BBI, Fortune 500).

But the main reason cited for Thursday's pop was the revival of chatter about Amazon.com (AMZN, Fortune 500) being interested in buying Netflix. Trust me, it's probably not going to happen.

Representatives from Netflix and Amazon both declined to comment on the merger speculation. But the Amazon-for-Netflix story is getting a little long in the tooth. I first wrote about it back in February -- of 2005.

Analysts who cover Netflix are dubious as well. Three analysts cut their ratings on the stock in the past two days, including a downgrade by UBS to a "sell" on Thursday.

The downgrades were mainly based on concerns that the stock has run up too far and too fast lately. Netflix dropped more than 8% Friday as a result.

Still, there must be some reason why this rumor just won't die, right? And stranger things have happened in the world of tech.

After all, scuttlebutt about HP (HPQ, Fortune 500) wanting to buy Palm (PALM) surfaced every now and then for years, only to be shot down every time as mere rumor. But, lo and behold, HP finally pulled the trigger and agreed to buy Palm last month. So the rumors were clearly more than just idle, unsubstantiated chit-chat.

Of course, there's a big difference between Palm and Netflix. Palm is falling woefully behind in the smartphone race and there were fears it would eventually run out of cash.

Netflix is in a position of strength as it capitalizes on the shift to digital video that's dooming the likes of Blockbuster and Movie Gallery, which announced earlier this week that it is shutting down its chain of Hollywood Video stores.

As such, Netflix has no compelling reason to sell out. It's not in a distressed situation. And for that reason, Amazon would risk overpaying for Netflix if it seriously wanted to buy it now.

Netflix now has a market value of nearly $5.5 billion, and one would have to think that if takeover talks were for real, Netflix would command a premium to its current price.

Besides the issue of how much it would cost to buy Netflix, it's also debatable why Amazon would want or need Netflix in the first place.

Keep track of Netflix's stock
Eric Wold, an analyst with Merriman Curhan Ford who was one of the three to recently downgrade Netflix, said the biggest reason Amazon would probably be wary of buying Netflix is because an acquisition would boost Amazon's number of distribution centers.

Wold noted that Amazon has made an effort to pare back the number of distribution centers in recent years in order to be more efficient and cut costs. It also is trying to avoid having to charge as many customers taxes in states where online purchases are subject to a sales tax.

"This rumor has been around for years and comes up every couple of months, " Wold said. "But there are always more valid reasons why it shouldn't happen as opposed to why it will happen."

Sure, Netflix has grown phenomenally over the past few years. It has done a fantastic job of striking favorable deals with the Hollywood studios so it can offer subscribers new releases in a timely fashion and expand its library of DVDs beyond current hits.

But Amazon already offers movie downloads for rent on its own site and has a fairly wide selection of its own. It's also less clear if Netflix really will remain the winner in the video market over the long haul given that Apple (AAPL, Fortune 500) is making waves with the iPad.

There's also increased competition from the likes of Wal-Mart (WMT, Fortune 500) via its recent acquisition of Vudu. Finally, Redbox, the $1 DVD kiosk service owned by Coinstar (CSTR), is growing like a weed - and proving in the process that there's still a market for physical DVDs.

It may be a digital world but people are still apparently willing to get their butts off the couch and drive to a store to pick up a movie if the price is right.

In fact, Wold argued that Coinstar's stock is now a better bargain than Netflix.

None of this is to suggest that Netflix is in trouble. The company is likely to keep adding subscribers at a rapid clip and that should lead to significant increases in sales and profits. But investors know that, and the stock is now simply too pricey.

Investors are either ignoring the growing competitive risks or naively believing that Amazon is really going to add Netflix to its queue at long last.

Reader comment of the week: Some interesting feedback on Thursday's piece about why the comeback in luxury goods may not be the worst thing in the world. Unsurprisingly, there was the typical doom and gloom about the U.S. economy.

But Jason Marks points out that too much negativity can just make things worse. "Sure, some consumers might be getting a little over-optimistic about the economy, but the optimism will help the recovery. It's the same way that pessimistic consumers fueled the downturn by cutting spending, which resulted in layoffs. Both optimism and pessimism fuel themselves."

An Internet Struggle with Bandwidth Aplenty

By Paul M. Barrett, Todd Shields and Jonathan D. Salant Bloomberg

The fight over regulating the Internet has become the engine for a perpetual Washington fund-raising machine. By definition, this means the battle won't end anytime soon.

On May 6, Julius Genachowski, chairman of the Federal Communications Commission, announced that his agency would move toward crafting new restrictions on high-speed service providers such as Comcast (CMCSA), AT&T (T), and Verizon (VZ). As he sees it, the FCC is defending the status quo of a free and open Net. Preserving what fans call "net neutrality" would mean barring service providers from favoring their own online offerings and those of business partners. It would also mean stopping the providers from slowing or blocking content from rivals like Google's (GOOG) YouTube video empire.

Rather than settling the issue, though, Genachowski's move may guarantee years of jockeying in all three branches of government. Among the K Street law and lobbying firms, it means plenty of lucrative paydays ahead.

Victor E. Schwartz, who chairs the Washington policy group at Shook, Hardy & Bacon, has seen this drill before. "You have a Washington game with certain perennial issues important to business," he says. "They come back again and again. Why? They're fund-raising gushers." Members of Congress see little reason to resolve the clash quickly, so long as conflicting interests fill their campaign coffers.

Schwartz served as an industry field general in a 20-year war against the plaintiffs' bar over product liability restrictions. That scorched-earth exercise in the courts and Congress finally burned out in 2005. Business interests won selected litigation curbs, including limits on state court class actions and securities suits. Total victory—broad federal "tort reform"—eluded Schwartz and his allies.

Net regulation could be the new product liability. The FCC announcement "is likely to set off a politically charged conflagration and deep-pocketed lobbying war," pitting the digital service providers against Google, Amazon (AMZN), and others that want their content disseminated free of special charges or limitations, says Jeffrey Silva, a Washington-based analyst with Medley Global Advisors.

Genachowski, 47, a Harvard Law School classmate of President Barack Obama, began fleshing out his vision for the broadband future by claiming authority to regulate the Net under statutory provisions long applied to phone companies. His May 6 declaration was an attempt to salvage an ambitious agenda from a potentially crippling ruling in April by a federal appeals court in Washington. The court had said the FCC lacks authority under a different set of provisions governing "information services." The high-speed providers that favored the court decision will almost certainly steer the dispute back to the judicial branch while simultaneously seeking aid in Congress.

As occurred in the product liability hostilities, the Internet struggle is breaking down along partisan lines. Republicans sided with business on litigation curbs; Democrats linked arms with plaintiffs' lawyers and consumer groups. Today, the GOP has signaled its eagerness to back the service providers. Representative John Boehner (R-Ohio), the House Republican leader, calls the FCC net neutrality plan "a government takeover of the Internet," words echoed by conservative groups led by Americans for Tax Reform. Consumer advocates and Democrats such as Representative Edward J. Markey (D-Mass.) back the FCC.

Among major companies favoring the FCC's net neutrality initiative, Google boosted spending on lobbying in the first three months of 2010 by 59 percent, to $1.4 million, compared with the same period a year earlier. Amazon's lobbying expenditures rose 46 percent, to $540,000. AT&T, which has told the FCC that net neutrality rules could discourage important investment in digital infrastructure, has also increased lobbying. It spent $5.9 million through Mar. 31, up 16 percent. Comcast boosted its spending 11 percent, to $3.1 million.

All that money points to a protracted slog with an uncertain ending. One thing is for sure: Prospects are brightening for the capital's influence-peddling elite.

The bottom line: A quick fix in the net neutrality debate looks unlikely if the issue becomes a proxy battle for larger Democratic and GOP agendas

Greek leader considers action against US banks

By DEMETRIS NELLAS, Associated Press Writer

Greek Prime Minister George Papandreou declared he is not ruling out taking legal action against U.S. investment banks for their role in creating the spiraling Greek debt crisis.

Both the Greek government and its citizens have blamed international banks for fanning the flames of the debt crisis with comments about Greece's likely default, actions that are causing the country's borrowing costs to soar.

"I wouldn't rule out that (legal action) might be a recourse. But we need to let due process (take its course) and then make our judgments once we get the results from the investigations," Papandreou said in a CNN interview broadcast Sunday.

He did not elaborate further on any actions against U.S. banks.

Papandreou also said a parliamentary investigation will examine the rapid swelling of Greece's debt and international banking practices to examine whether the financial sector engaged in "fraud and lack of transparency."

The European Union and the International Monetary fund have approved a euro110 billion ($136 billion) bailout package for Greece. In addition, European nations have created a euro750 billion ($1 trillion) rescue package to protect the euro, the common currency of 16 European nations, including Greece.

The Greek leader also urged more regulation of the markets which, in his view, are now betting against the European governments that have poured billions into them since the global financial crisis began in 2008.

Some European governments plan to push for tighter regulation of hedge funds this week — a move opposed by Britain, home to the financial hub of London.

Papandreou also tried to counter criticism, expressed mainly in Germany, that Greeks are getting a free ride and rejected widespread international skepticism about Greece's ability to pay back its loans. Greek debt is scheduled to exceed 140 percent of its economic output in 2012.

"We are paying back the loans we are getting ... this saying that 'we are handing out money to Greece' is not true," he told the CNN show "Fareed Zakaria GPS." "It is very easy to scapegoat Greece and Greece bashing very often gets entangled in regional politics."

He insisted his government has made the unpopular but necessary decision to implement austerity measures.

"We are ready to make the changes ... we have made our mistakes. We are living up to this responsibility. But at the same time, give us a chance," Papandreou said.

Still, another top German economist expressed doubts Sunday about Greece's ability to repay.

Deutsche Bank AG's Chief Executive Josef Ackermann created an uproar Thursday for mentioning the possibility that Greece might have to restructure its debt — but Dekabank's chief economist, Ulrich Kater, was quoted as agreeing with him Sunday in the German news website Handelsblatt.

"It will be very, very difficult for Greece to orderly repay its debt," Kater was quoted as saying, adding that Greece's new austerity measures and its lack of competitiveness were dooming the country's prospects for economic growth, making debt reduction difficult.

Despite widespread anger about tax hikes and other austerity measures imposed by Papandreou's Socialist government, his party still enjoys more support than its predecessor, the discredited conservative party.

According to a poll published Sunday in conservative-leaning newspaper Kathimerini, Papandreou's popularity has plunged from 53 percent in January to 43 percent in May. The same poll showed that opposition leader Antonis Samaras has sunk from 26 percent approval in February to 18 percent in May.

On the other hand, 76 percent of respondents also say they are unsatisfied with the Socialist government's performance.

UK faces "enormous" economic challenge: Osborne

Reporting by Kylie MacLellan; Reuters

The British economy is in a dire state and there will be difficult times ahead as the government takes action to tackle a record budget deficit, new finance minister George Osborne said.

Osborne took up the role this week after the center-right Conservatives joined with the center-left Liberal Democrats to form the country's first coalition government since 1945 and end 13 years of Labour party rule.

Although Britain has so far seen only an anemic recovery from the worst recession since World War Two, the new government is under pressure to reduce spending and raise taxes to cut a budget deficit running at more than 11 percent of GDP.

The coalition has already pledged to significantly accelerate the reduction of the deficit in the next five years, cutting 6 billion pounds ($8.75 billion) from non-frontline services this financial year.

"We do face an enormous economic challenge," Osborne wrote in an article for Sunday's News of the World newspaper, published online late on Saturday. "We won't be able to turn things around in a week or a month or even a year."

"Our economic problems run very deep and there will undoubtedly be some difficult times ahead," he added.

Osborne pledged to get to grips with wasteful government spending and said the coalition would act to ensure economic stability and keep mortgage interest rates low.