For Immediate Release August 9, 2001 The "Virtual Company" Business Model Ten Lessons from Experience
Many entrepreneurs today are choosing the "virtual company" business model instead of loading up on costly infrastructure, Jim Brown, Director of Marketing at QualSure Insurance Corporation, told a recent conference in Boston sponsored by CSC (Computer Sciences Corporation), Electronic Business Works, and Milliman USA.
Mr. Brown is a member of the management team that launched QualSure three years ago. The Company is a property/casualty insurer located in Sarasota, Florida. It began operation with 83,000 homeowners policies previously underwritten by two State insurance pools. "We didn't have an existing internal organization to manage such a large number of policies so we partnered with established leaders in their fields to provide essential services. This freed up the management team to concentrate on strategic planning and business development."
"The essence of a virtual is that the enterprise is conducted through a small management team that oversees the work of one or more vendors or other organizations," Mr. Brown said. "Before deciding to start a virtual company, the management team must determine what it needs to be successful and understand the risk factors - how to avoid those which could be lethal and how to minimize those which are merely harmful," he cautioned.
Mr. Brown offered 10 lessons from the QualSure experience to help entrepreneurs who choose the virtual company model:
1. Determine which competencies are core to the enterprise and should be performed by company people and which can be outsourced to competent vendors.
2. Be sure the vendor is financially stable, has a verifiable record of accomplishment, and is flexible enough to work with management.
3. Don't be dazzled by computer power alone. The fact that a vendor has huge amounts of computing power may not matter as much as a proven Internet capability to a niche company with modest volume.
4. Establish a structured system to oversee each vendor. The keys to effective control are the quality, frequency, and relevance of management reports. Prioritized communication events to monitor performance are even more important than usual when the people performing operational duties come from different, unaffiliated organizations.
5. Treat vendors as partners, not only in face-to-face dealings, but just as important, on those occasions when only company people are present.
6. Specify clear-cut objectives in the vendor contract and provide financial incentives for the vendor to achieve or surpass objective standards. These can include an ownership stake in the business or bonuses based on performance.
7. Encourage the virtual company management and staff to communicate frequently. This should promote a proprietary feeling among vendor employees and build vendor loyalty.
8. Provide in the contract for periodic meetings with top level executives of the company and the contractor plus a formal process to bring problems to the surface at a high enough level to be solved without delay.
9. Build long-term, stable relationships with vendors, but be sure contracts that stretch out over an extended period provide a way to incorporate technological changes.
10. Document every task during implementation and on important projects thereafter - when it has to be done, who has to do it, and what interdependencies exist.
Mr. Brown concluded that a well planned and executed virtual company operation will provide substantial benefits, including "paying fees for services without costly overhead, tapping into expertise that might not otherwise be available especially to a start-up, and overcoming the impediments that existing infrastructures always put in the path of creative ideas no matter how promising."
