Healthcare entrepreneurs face an important (and difficult) decision when launching their start-ups: which capabilities should they build and which ones should they outsource?

We can define outsourcing as subcontracting a process to a third-party company. The decision to outsource is often made in the interest of lowering firm costs and focusing energy in the “core business” (concentrating the efforts in what is important for the company, where we really add value, and subcontracting the rest).

In the early stages of a start-up it is usually interesting to outsource when a certain function has a potential to become more economic when subcontracting it with little strategic cost to the organization. In the healthcare sector the most frequent reasons for outsourcing are achieving a faster time to market, reducing costs, or gaining access to intellectual property, wider experience and knowledge.

If a start-up decides to outsource some of their activities, it can do so through strategic partnerships, contracts and/or market exchange. I usually recommend deciding which is the most appropriate way taking into account whether the nature of the transaction is unique or common, and the frequency of the transaction (see my diagram).