SI Review: February 2012

Print

Command a High Valuation

How to increase the worth of your firm

By Tom Kosnik

If you own or are managing a staffing business, everything you do is for one sole purpose: to increase its value. “Manage the business as if you are going to sell it” is a common refrain. What it really means is to manage the business prudently.

To do this, you need to focus on certain key variables that you know will increase the business’ value in the marketplace. Here, I discuss those variables and how you can improve on them.

Client Concentration

Client concentration is how heavily your firm depends on a handful of accounts. If 70 percent of your revenue comes from just a few accounts, your business is significantly devalued — and is actually at risk. All it would take is for one of those accounts to move to another staffing firm, and you’re forced to retract the business by laying off valuable employees. A smart goal is to have no one client representing more than 10 percent of the revenue.

To address this variable, develop a client profile. Outline your key customer’s industry sector, its size by revenue and headcount and maybe its staffing challenges. This will help you clarify exactly who your ideal prospects are.

Then, do a little market research into the industry sectors involved. That is, identify the top 25 to 50 companies that are similar to your existing key accounts. There are all kinds of Web-based tools that can help with this process.

Next, you should develop account plans for your top prospect list. An account plan would entail sussing out the organizational chart of each prospect. You might already be connected to some of them on LinkedIn; check your contacts to determine whom you can ask for referrals to the prospect.

This would be just the start of the sales process. After the account plans are developed it is a matter of persistent execution. Someone in the organization has to do the work; send the letters, make the calls, ask for referrals, get face-to-face appointment, etc. Managers have to manage and hold sales reps accountable to weekly activity. Persistent and constant contact will eventually yield results.

Margin Pressure

Clients and prospects are applying margin pressure, making it a challenge to maintain acceptable margins.

So how do you maintain healthy margins? Have a pricing strategy. The sales process has to prove why the service and pricing are of greater value to the end user. Benchmark your key performance indicators and use these indicators in your sales process. Low-cost service typically means that the staffing firm is cutting corners, which in turn typically means high turnover rates at the client’s site, more injuries, more mismatches, etc. All these factors cost the client money; it is your job to show your prospects how.

Don’t answer a purchasing manager or human resources manager when they ask you to match a markup quoted by another fi rm. Instead, turn the tables and ask the prospect, “What services are being provided for that markup? What turnover rates are you experiencing?” You know the key problems that the prospect is dealing with. You need to focus the conversation on resolving those issues.

Fully training sales reps to execute on a pricing strategy, keeping the markup questions out of the conversation, educating the prospect on the true results of low margin business will assist in maintaining healthy margins. Sales reps have to be trained to respond professionally to these very real objections. Sales techniques that work are asking discovery questions, finding out where the prospect is suffering, putting together an informed plan either in the form of a proposal or a simple word document. In addition, the rep needs to follow up with the potential client. Healthy margins are obtained on the front end of the relationship with the prospect.

Multiple Locations

One business, one office, one geographical reach equals low value. A business that has three or five or 10 office locations shows that the business is more than a lifestyle for the owner. There has to be management in place. You need systems and procedures and a centralized back office. This is a big step up from a one-office business.

Start out by putting together a methodology for opening offices. You’ll need to make a checklist for the steps involved in successfully opening a branch location and establish who is going to make sure that everything on this checklist is completed. Also, conduct market research in order to rank your target locations. You’ll also need cash flow statements and financial projections. What is the up-front investment? When are we going to break even? When are we going to get our investment back?

Opening new office locations can be a recipe for losing a lot of money. Make sure you are opening offices for the right reasons. If your business is in the upper midwest, opening a branch in Florida to enjoy warm winters is not legitimate. Successfully opening new branches can increase the value of the business, but it is not without risk. So make sure you do your due diligence up front.

Pick a Niche

Having a focus is critical to success and this is true for every industry in business. Trying to be all things to all people rarely succeeds over a focused strategic approach. Defining your niche increases the value of your staffing business. Once defined, figure out how to grow it geographically.

One of the benefits of focusing on a staffing niche is that the fulfillment team can build a national database of candidates who work in that niche. Candidate referrals can be leveraged. Candidate networking can be leveraged. As a result, the entire fulfillment team and fulfillment process becomes more efficient and effective (greater production out of each individual recruiter, greater production out of the entire team). A generalist staffing provider simply cannot compete with a skilled group of specialized recruiters.

Another benefit of a niche is that the sales team can also become highly skilled in the niche they are servicing. Instead of selling and working three to five service offerings, sales executives can master one specialized service offering. Such a sales team can more easily leverage referrals from hiring managers over a generalist sales team. Sales executives can master production knowledge, giving them the edge with customers and prospects. The result is a more efficient and effective sales team, and a better-valued business.

It’s not a simple process to increase the value of your business, but it’s certainly achievable. Expanding your client base to spread out your dependence is just one step of many. To make your firm more attractive and to make sure you command the highest of valuations, be sure to take the steps outlined here. It’s bound to pay off .

Tom Kosnik is a growth strategy and organizational development consultant who helps staffing companies improve employee performance, corporate revenue and profits. He can be reached at 312-527-2950 or tkosnik@visus.us.

Comments

Add New Comment

Post comment

NOTE: Links will not be clickable.
Security text:*