It needs to be so out of focus, in fact, that it's completely undefined. This is best done with a telephoto lens and a large lens aperture. Unless you are going for a very different look (such as using a wide angle for an exaggerated perspective), I would suggest using a 200mm telephoto or longer for pictures of people outside.
In addition, shoot them in the shade. Don't have any direct sunlight on them at all, and the background needs to be shaded as well. This means that their eyes will be open fully and you won't have any harsh contrast to deal with.
These two simple ideas will make a world of difference in your outdoor portraiture.
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