When a venture capitalist calls with $65 million in funding, management listens. Then the group leaps at the chance to launch a new outsourcing firm, flush with the largest venture capital award to a BPO firm to date. That's how LeapSource Inc., a Phoenix BPO, got its start.
GTCR Golder Rauner LLC, a Chicago venture capital firm, was searching for a seasoned management team to start a new BPO firm. "Business process outsourcing is an untapped market that is expected to grow significantly," notes GTCR Principal Joseph P. Nolan. DataQuest, a business research firm, estimates the BPO market totals $200 billion today and will more than double to $402 billion by 2003.
The market is growing because poor financial management is one of the top three reasons why companies fail. Building an in-house accounting department is costly; so is hiring an accounting firm. Outsourcing BPO is becoming the option of choice, especially for growing firms.
When GTCR searched for a business partner, it noticed Christine Kirk. Kirk has a proven history of building BPO businesses. In 1995 she founded the BPO outsourcing division at Arthur Andersen. Her division began with two members and operated out of an out-of-the-way back office at the Big Five accounting firm's Phoenix office. When she left in at the end of 1999 to start LeapSource, her division numbered more than 700 people.
Eight other executives in the BPO division joined Kirk at LeapSource. Four months later, the company already employs 70 people.
The company has also grown through acquisition. "We will purchase companies when we need to acquire critical skills sets or a geographic presence," says Julie McCollum, one of the three founding partners. In December 1999 LeapSource purchased CorpCare, a BPO in northern California. McCollum says LeapSource was interested in CorpCare because of its talent and its benchmarking tools as well as its location in California.
In February 2000 the company bought ICG Consulting in Phoenix. This company specializes in finance and accounting work flow systems and has several Fortune 500 clients on its roster.
However, McCollum says the firm will also grow organically. "There aren't a lot of companies out there like us to acquire," she says.
The Daily Virtual Score Card
LeapSource's outsourcing solutions address common business processes - such as finance and accounting - that cut across a variety of industries. The BPO provides back office processing capabilities for the firm and delivers real time financial indicators to management, which they need to make informed decisions. "The CEO must focus on key financial operations," says Patti Walker, director of technology and one of the nine original members of management. "He shouldn't have to worry about bank reconciliations."
The BPO winnows through the wealth of financial data it produces daily and extracts key performance indicators for the CEO. The policy-maker receives a daily summarized report, which Walker calls "a virtual scorecard," to help optimize his or her business day. LeapSource uses the Web to deliver this report to the clients' desktops.
The outsourcing process starts with LeapSource specialists performing a "diagnostic" to capture a picture of where the company is and what processes LeapSource can outsource to improve performance. The diagnostic studies the buyer's current financial and accounting benchmarks, then evaluates its technology. With this information in hand, LeapSource determines how and what to outsource.
A successful outsourcing solution includes people, process and technology in one delivery model, in Walker's view. LeapSource provides application service providers (ASP) services, but "takes ASP to the next level" by addressing personnel and transaction processing issues as well. LeapSource partners with ASPs, then employs its own staff to perform the outsourced processes in its shared services center.
Partnering with ASPs
Partnering with ASPs is a workable business model for LeapSource because the BPO makes it clear it is accountable for the ASP's performance. "We own the client experience in every way," says Walker. LeapSource does this through service level agreements (SLAs.)
LeapSource decided to form ASP partnerships instead of building its own service center because it felt this solution would give it more flexibility and scalability, the ability to grow quickly so it can mirror the geometric growth of its clients. LeapSource only partners with mature ASPs that have a record of proven performance.
The new company did away with much of the hierarchy of the Big Five world. In its place the company built virtual teams, cobbling people together based on their industry experience. One immediate result: the new way of doing business has compressed the sales cycle. Walker says that in her prior experience the sales cycle totaled six to nine months. The new company says its clients are making decisions in 30 to 60 days.
Part of LeapSource's success has been the continuing recognition of the importance of outsourcing services like accounting. She attributes part of the long sales cycle to the fact that CEOs did not recognize the strategic value of outsourcing. Today, Walker reports, the market is demanding BPO services. Now, companies don't have to take a leap of faith to outsource.
Lessons from the Outsourcing Primer:
LeapSource says if a firm answers yes to any of these questions, it should consider BPO outsourcing:
- I am spending too much time on day-to-day operations and not enough time on strategic matters.
- Our company is growing so fast that our finance and accounting department can't keep up.
- Our best people in the accounting department are leaving. How can I retain good help?
- Our competitors are using a more advanced financial and accounting application.
- Our financial controls are not working. We have to do better on the next audit.
- Why are my selling, general, and administrative costs higher than the industry average?