Once a business hits twenty employees (on average), outsourcing IT makes less sense. SMB IT is just much harder to commoditize.
That's because more staff means more hardware, more software, more cabling and more - and more complicated - servers. It also means more breakdowns, more lost passwords, and more sweating in Accounts Payable if an SMB outsources its IT. On paper savings evaporate if the contractor is sleeping over in the office.
The higher volume of an SMB leads to slower turn around time as well. After all, contractors aren't waiting in the office for one of the computers to explode. Their hour-long drive to the site can add up to a lot of lost productivity.
An SMB shouldn't forget their contractor has other clients too – who also demand attention. A system wide-failure at one business in the contractor's network might leave the rest with no IT support. Outsourcing puts SMBs at the mercy of their contractor's personal calendar and priorities.
(And this is assuming the contractor is local. If the contractor is offshore, time zones and language barriers are even larger hurdles to quick servicing.)
Contractors are also unlikely to understand the foibles of either the small business's in-house hardware or their prickly users – slowing service further. The time a contractor spends deciphering an employee's exclamation point filled email is time not fixing the problem. But it's all time that is billed to the business.
Businesses have no input in their contractor's staff hiring, pay, or morale strategy either. If a contractor has high turnover, it's the clients that must bear the parade of green engineers hammering away at their sensitive hardware.
In this way, small and medium sized businesses must consider the potential productivity loss of slow or inefficient IT. At their size, the up-front savings of outsourcing may be offset by their contractor's other priorities and unfamiliarity with their systems.
At first blush, an in-house IT department seems expensive. But their intimate knowledge of a business's systems, workflow and staff will prevent costly downtime, and their close proximity (just down the hall!) allows them to put out fires before they burn down the office.
If you rely on innovation, hire internally
From startups to enterprise, any business that relies on IT for innovation should have a full-time IT Manager and/or support staff.
IT innovation requires familiarity with workflow and business processes, a deep knowledge of the company's business plan and constant communication with staff and management.
Contractors, by the very nature, do not possess the knowledge needed to accomplish such a unique mission - and if they do, it's often at "all the gold in Fort Knox" prices. Small businesses are advised to save on the armored trucks and keep IT innovation in-house.
If you require top-notch security, hire internally
Data centers and cloud vendors are great for storing and maintaining small business data, but once data is moved outside the business, the odds of compromise greatly increase.
A contractor's security standards, despite their assurances, are nearly impossible to verify. And if there is a breach, a contractor's mea culpa rarely wins back customer or employee trust, or covers the fines or penalties a small business may face.
Data isn't like a broken stool. A contractor can't simply offer a free replacement and make the business whole.
The only truly known security protections are the ones the small business sets up itself. If data integrity is critical to a business, it should not be left to a third party.
Can't we all just get along?
Outsourcing can still be an important part of a small business's IT strategy even if it employs in-house staff. Many SMBs farm out low-level functions to contractors, giving their internal staff the bandwidth to tackle more business critical IT tasks.
As automation and Software-as-a-Service become ubiquitous, a hybrid outsource/in-house strategy will likely become the dominant IT paradigm (if it isn't already). This is a win-win for small business. They can access the economies of scale of outsourcing, as well as the control and efficiency of an internal IT department.
So the question for small business shouldn't be "should I outsource" but "how much should I outsource and when?"