Running a Small Business

Lesson 4: Subcontractors and employees

The virtual business

One of the more interesting developments which arrived with the computer and the Internet is the concept of the virtual business. You used to have to get people together in one place so that they could discuss how to do things, co-ordinate the paper work, co-operate on documentation and work together to produce whatever the company was selling. While production of a physical object still requires a place to build it, support services and any other kind of service businesses often no longer requires the physical proximity of the people working on them.

If a place of business is no longer required, why should the business provide one? And if there is no place of business, why should there be employees? Why not have the business contract out the work it needs to have done and exist only as an organization, without owning anything or having any employees? This would be a "Virtual" business. The benefits would be lower costs and less time spent on things not directly related to the business.

The drawback is that it is very difficult to build a team when the team members are not employees and actually hardly ever meet. The virtual business is an attractive model for small businesses which don't need a lot of people to do the work or only need them sporadically.

Small service businesses which work on contracts and don't have to have a place to meet customers derive an advantage from being completely virtual. Ownership or rental of facilities and hiring employees is expensive so that a virtual business offering a translation service, for example, can offer the service for less than the non-virtual competition and still make a better profit.

I ran a virtual business doing computer training for a few years and worked out of my home with no employees. I met customers in their offices and worked, one-on-one with their employees on their computers, training them on their software. My company owned some office equipment but nothing else. It leased a car. It sub-contracted when the work became too much. My only expenses were minor items like the telephone and Internet access. The virtual company is simple, inexpensive and takes very little time to run. It lets you focus all your attention on your work and your customers. But it only has those characteristics as long as it remains quite small.

The time to look at the virtual company concept is when your business is just starting out. If the type of business you're running fits the virtual model, you can make a decision to not own anything major, not hire employees and not rent or buy a place of business. You can put your money into communications and Internet services and grow faster with a better profit that you could otherwise.

Nobody has worked out all the possibilities of the virtual business concept yet so you'd have to just run with it and see how far it takes you. It's easy to switch back to a traditional business model once you find you have gone as far as you can or want to but it's very hard to switch the other way.

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