When I talk to founders, I like to understand what they view as their core business. What’s at the heart of their business, and what parts of the business support that core? For example, Target is a retailer, but it’s built a sizable logistics operation to move products.
As a business grows, it’s likely to need the support of many non-core functions to be successful. When you’re the size of Target, this isn’t an issue—you’ve got the resources to execute in all areas in-house. In a company’s early stages, though, that may not be the case, and founders should think hard about what they should and shouldn’t do in-house.
At CCAW, I recognized early on the critical role that fulfillment warehouses played in supporting our core function of selling automotive parts to consumers. I also knew we’d need multiple warehouses in our network and that running them was a huge undertaking. I visited a few warehouses and interviewed their owners. The upshot? I decided I didn’t want CCAW in the business of operating warehouses. Instead, I decided to outsource this function. We partnered with folks who did own warehouses to leverage their infrastructure and operational know-how. Sure, we had to learn how to work with their processes and systems, but that was relatively easy. In the end it worked out and we built a network of nearly 100 warehouses.
I knew the problems people had buying auto parts and had a vision for how to solve it through processes and technology. Warehouse fulfillment wasn’t part of our secret sauce. Recognizing that it was non-core and that there were tons of companies who did it far better than we ever could (and that we didn’t have the money to do it even if I wanted to), I chose to outsource it.
Now, I’m not saying that every newish company should outsource everything that’s non-core. CCAW’s solution is just an example of one way to deal with the core-versus-non-core issue early on when resources are limited. There’s no right or wrong way—only the way that’s right for your situation.
Entrepreneurs should have a clear idea of what their core business is and make sure that other areas of the business support it.