SI Review: April 2013

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Gradual Ascent

Seven Steps to Scaling a Staffing Business

By Greg Palmer

The dust has settled. The Great Recession is behind us and people are now thinking ahead. 2013 promises to be a good year for the industry, with 8 percent growth anticipated. As a result, one of the hottest topics of conversation in the industry today is how to successfully and sustainably scale your business for the long term.

Successfully scaling begins with achieving greater-than-industry revenue growth rates supported by profit margins that meet, or exceed, category norms. These criteria are important because high growth rates combined with respectable profit margins will generate the cash necessary to fuel the growth engine in a sustainable way.

Additionally, high degrees of client and employee satisfaction are necessary because without them, a staffing firm will experience increased internal staff turnover thus risk having its model fall apart.

As an advisor and investor to the staffing industry, I have worked with more than 100 staffing firms and have developed the 7 fundamental steps to doing just that. Here they are.

Step 1. The Vision and Plan

What path to pursue, why and with whom are all essential questions you need to answer. The journey starts with determining where you can be best in class and what you are passionate about. It also involves making sure the path leads to satisfactory economic returns.

You will also need to determine for yourself if you want to create a company that is a lifestyle organization (typically less than $10 million in revenue and you take out most of the profits) or a business that you are committed to scaling and reinvesting the profits for continued growth. Many staffing owners are content with a lifestyle business. However, those firms that do have a deep desire to create a business with growing and sustainable shareholder value need to have a plan with a commitment to execution.

Step 2. Leaders Onboard Team

Who do you want on the bus? What type of skills, experience and personal traits do they need to possess? Defining these key areas along with a plan to execute and successfully onboard them is critical. Top Grading by Geoffrey Smart can get you started and help guide you toward the right path.

Once the leadership questions are answered, it will be up to the leaders to develop the plan to onboard sales and recruiting talent in a manner that successfully grows the firm in a profitable way, with appropriate incentives both short and long term.

Step 3. Focus and Accountability

The hard work begins here. This is the stage where you set up your key financial, sales and operating metrics and dashboards. You also begin not only to track, but also hold the groups accountable. In addition to tracking and trending, I would also suggest you determine your acceptable levels of tolerance for variations vs. targets (hopefully very little).

Often, I see companies that set targets but don’t hold themselves and their teams accountable for meeting them. You will need to set clear expectations and be committed to the task of inspecting the activities and results. The old adage people will respect what you inspect is absolutely true. Larry Bossidy’s book Execution is an excellent read on this topic.

Step 4. Communications Patterns

At this stage you will develop your methods of communicating, meeting frequencies, formats and culture of communication. Whatever it is you decide, I would recommend a corporate daily, monthly, quarterly and annual calendar that is open for everyone to see and participate in, up to their appropriate level within the organization. I cannot emphasize enough the importance of nailing down the communication details. This is really the glue that holds it all together and sets the tone for the culture of the organization.

Step 5. Remove the Choke Points

As previously mentioned, in order to move forward, it is critical to commit to tracking the key areas of the business and your progress toward achieving activity and results goals.

I recommend tracking the activities first, because without the right activities, there cannot be sustained results.

You should set goals based upon your established activities and measure actual vs. target results.

Invariably, you will be falling short at some point along the way. The good news is that you will have the data to pinpoint where the problems are and be equipped to understand where the opportunities lie to correct them.

This simple tool can be useful in removing the choke points.

Step 6. Client and Staff Satisfaction

Client and staff satisfaction affect growth and profitability, so knowing where you stand can help you know where you need to improve. You can survey them on your own, but I have found that using a credible third party can provide a clearer perspective. You can also use the survey to benchmark yourself against your competitors. As previously mentioned, if you have high degrees of satisfaction you will minimize unwanted employee turnover.

Step 7. Time, Talent and Treasure

Jim Collins, author of Good to Great, recommends a 50/30/20 system, which represents the balanced allocations of Time, Talent and Treasure (TTT) against the large goals of the organization. Here is an example of a current client of mine.

50. A staffing firm will spend 50 percent of its TTT on one key objective: Growing a healthcare IT staffing business with an emphasis on Epic software targeted at acute care hospitals of less than 50 beds. The company wants to grow from $5 million in revenue to $100 million by 2016.

30. Thirty percent of the company’s TTT allocation is based upon the above 50 percent objective and will be directed toward hiring five seasoned sales professionals and putting together a sales management system (using Miller Heiman) with 5,000 target accounts. Collins explains that you will only have time to pick two really important objectives, so make them count! As you can see at this point, 80 percent of this company’s resources are really narrowly focused.

20. The remaining 20 percent of TTT allocation goes toward important daily work — things like payroll, billing, banking relationships, financials, systems and reporting. All of these are important, but are not very strategic and do not usually move the shareholder value needle very far.

Because this is the measure of where you are putting your allocation of time, financial resources and talent, you will need to set up a self-directed tracking system of the important items to make sure you stay on target. I recommend using this as your primary filter to run all your major decisions through.

I personally have found the appropriate allocation of TTT are the areas where the greatest amount of discipline is needed but the least amount occurs. Most people don’t do the tracking, get off course and wind up spending too much time on items of lower importance and lower return.

The Timing of Investments

Knowing the stage of the economic cycle and your own business life cycle can help you determine when it’s OK to invest.

Economic cycle. Business cycles typically run in seven to 10-year durations. Where you are in the overall business cycle will dictate when you pull back and when you push ahead. If you have a strong balance sheet and stomach, it’s best to invest about six months ahead of an upturn in the cycle. It’s much easier to find talent and expand when everyone else is laying people off. Staffing Industry Analysts’ annual industry forecast as well as the GPalmer Forecast are useful resources.

Business life cycle. The business life cycle is typically the cycle that a business goes through from inception to sale, decline or bankruptcy, regardless of the economic cycle. In order to scale successfully, the team, systems and processes you begin with may not be what you have after the business begins to rapidly grow and mature. The business will mature, change and progress accordingly.

Getting Started

Begin with an unvarnished diagnostic of your business and measure yourself in the areas discussed in this article. The idea is to create a scorecard and grade yourself on a A-D basis. Then, appoint champions to lead the improvement effort and establish deadlines for the improvements.

By taking the time and effort to understand where you are, you can begin to plan where you need to go. The key thoughts are to be very candid and decide specifically who will lead the change effort and when the journey will begin. Most firms use an outside resource to facilitate this discussion.

The Deadly Sins

It’s a common saying: “it’s all about the people.” In the staffing business, it is absolutely the most important aspect of growth and the first deadly sin.

The firms that don’t maximize their potential and never fully scale are those firms that have difficulty in recruiting and retaining top talent. Likewise, they become guilty of holding onto people who aren’t the right fit for the respective position. This almost always creates a host of issues for the organization and the employee.

The second sin is having a high degree of client concentration or having too large a percentage of business spread over too few clients. This is a big risk typically found in staffing firms with less than $100 million in revenue. It’s always great to land the whale accounts, but if that whale swims away, there goes the scale. Ideally you will want your top 10 accounts not to be more than 20 percent of your revenue.

The fact is that scaling is difficult. It takes financial resources, talent, a plan and unwavering disciple. Firms that succeed are the ones that begin with the end in mind and accept the fact that people with deep commitment, flexibility and perseverance are necessary to scale.

Greg Palmer is founder of GPalmer and Associates, a management consulting firm focused on the staffing industry. For more information, go to www.GPalmerandassociates.com

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