SI Review: August 2012

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The Man Who Sold VMS

How an entrepreneur partnered with suppliers to spread his high-tech vision

By Subadhra R. Sriram

It wasn’t just chutzpah that spurred Jai Shekhawat to start Fieldglass when there were already four well-known players in the vendor management system arena. So what drew him to found a VMS company when it was hardly an original idea? “I saw the gaps,” says Shekhawat, a student of business models. The opening he saw? No VMS company was empowering the staffing supplier, he says.

Instead, folks viewed the acquisition of contingent labor as a procurement problem. Shekhawat, however, saw Fieldglass as a software-as-a-service application that helped suppliers better serve the buyer’s temp labor needs.

Shekhawat, a master chess player, did get it right. And earlier this year, he was awarded Staffing Industry Analysts’ Peter Yessne award for his contributions to the industry. Fieldglass is the largest VMS provider, with spend of $21.5 billion for 159 customers in 2011, according to Staffing Industry Analysts’ 2012 VMS/MSP Competitive Landscape report.

A global company headquartered in Chicago with 202 employees worldwide, it has earned the respect of its competitors and customers. And it wasn’t just because Fieldglass was the cloud computing pioneer. Or that it made its numbers. In 2011 the company experienced a 32 percent year-over-year revenue increase. Staffing industry insiders claim that Shekhawat’s real claim to fame comes from making VMS more palatable to managed service providers and staffing firms. “The company’s success in part is thanks to its network of partners, MSPs, who often include Fieldglass in their sales process. Put simply, the company has always been fishing with a net instead of a pole. This allowed it to gain a broad market presence in a short amount of time,” says Bryan Peña, Staffing Industry Analysts’ vice president of contingent workforce strategies and research.

Wooing the MSP, Suppliers

Shekhawat was touting the cloud as early as 1999 — way ahead of the pack. But it’s his calculated moves from years of studying chess masters that paid off. Shekhawat used the MSP providers as emissaries. They acted as great sales agents, spreading the word to customers about the tool.

It helped that Shekhawat made it abundantly clear that the company was not going to enter the MSP space. What Fieldglass would bring to the table was technology. “Let’s stick with what we are good at, which is the software,” he said. And as MSP influence grew, so did Fieldglass.

And Fieldglass stayed on the path of being a standalone VMS. Shekhawat’s concentration on the tool while staying clear of MSP — a low margin business — proved successful, though it took more than a decade. He watched from the sidelines while VMS providers entered the MSP space. “It’s really expensive to build a good VMS and the last thing you need is to be diverting your dollars,” he says.

But it wasn’t just the MSP that he wooed. Respect for VMS has been hard won. Viewed as a tool that commoditized the industry, Shekhawat won staffing firms over by asserting that it would level the playing field for them. Staffing firms typically treat VMS as the enemy. The common perception: VMS technologies hurt a supplier’s business. They lower margins, stop the suppliers from communicating with hiring managers and in general make life and business harder for the staffing supplier. To his credit, Shekhawat showed these folks how VMS could help their business.

“What a VMS does is actually reward a firm for being an excellent recruiter,” says Shekhawat. It makes it easy to demonstrate a staffing firm’s strategic value. The reports that the system can generate indicate that a supplier’s opportunities to win business is related to the firm’s ability to find the right candidate and nothing else. Arriving at the client site with donuts and coffee, golf outings and other touches are no longer necessary.

Anecdotal evidence does reveal that staffing firms are less negative about VMS. As part of our VMS/MSP Landscape survey, we derive the industry’s net promoter score. In the 2011 survey, staffing firms were slightly more positive about their VMS than they were in 2010; negative responses were down slightly as well. Some claim the industry’s improved image has less to do with Fieldglass and more because the VMS phenomenon is impossible to ignore. But there is no doubt that Shekhawat has played a vital role in popularizing VMS usage. Ameliorating the negative sentiments around the VMS is in part due to his approach.

The Ride Up

It helped that Fieldglass has always been a cloud-based product. However, there are some who complain that the tool’s interface is not exactly intuitive but the fact that Fieldglass keeps overhauling its user experience helps. Fieldglass was also responsible for introducing the supplier fee model. Buyers of staffing services are not charged; instead, suppliers pay a fee to the company per transaction. The strategy caught on, ultimately becoming the industry standard. It took a while for this to happen. Change was the only constant in the early years when staffing suppliers were ranting against VMS. The tool was seen as a threat. But corporations require solutions that not only provide data, but reduce complexity. The buyers were ready for it. The cost savings that accompanied VMS usage alone — 5 percent to 10 percent — couldn’t be ignored.

Given positive buyer sentiment, Shekhawat embarked on accommodating the commercial self-interest of staffing. He understood that new business at lower margins was better than no business. The big staffing firms — Adecco, Manpower, Bartech, Kelly and Randstad — all partnered with Fieldglass.

“Jai’s ability to listen to what the market wants is the key to the success of his company,” says Kip Wright, vice president and general manager of TAPFIN, ManpowerGroup Solutions. Shekhawat has always been strict about the fact that Fieldglass is a technology provider. Even when it came to writing software, he had stringent rules.

There was never any custom software programming for a customer. Unique requirements were handled by configuration. “We avoided the code line proliferation that took down others,” Shekhawat says. But it wasn’t easy getting there. Designing a business model that had not been proven came with its own challenges. Further, Fieldglass began operations post the dot-com bust. Investor paranoia was rampant so raising money wasn’t a smooth process. “It took us six years to break even and a number of times came within weeks of potential payroll issues,” laughs Shekhawat.

But faith, a strong team that includes an outsourcing facility in India and the right early adopters — Fortune 500 companies that were target customers that stayed on — kept Fieldglass going. But it’s not only the staffing firms that feel the pressure of lower margins. Given the economy and the inherent nature of software, Fieldglass charges less than what it used to for the tool.

Accolades Along the Way

The admiration the company has won has been through hard work. One of the qualities that made Fieldglass stand out right from the start was its responsiveness. “The company is very dependable and astute at understanding our needs through good and challenging times,” says Brian Bules, GlaxoSmithKline global head of talent solutions. GSK is Fieldglass’ second customer and came on board in 2002.

Even the MSPs relied heavily on Shekhawat’s guidance. “Jai’s been really good about listening to our issues and challenges that we have as an MSP and making those changes,” says TAPFIN’s Wright.

Ultimately, however, what sold the investors was Shekhawat’s “clarity of vision and ability to articulate his strategy and the clear value proposition among his target customers both enterprises and staffing companies,” says Deborah Farrington, co-founder and general partner of StarVest Partners LP, a New York City-based venture capital firm that was an early financier.

Today, other firms have bought into that vision. As an example, Enterprise application giants SAP and Oracle have both acquired companies with cloud-based solutions. Off the software field, Shekhawat’s skill in building relationships with the staffing ecosystem was well-known. Fieldglass customers comprise an illustrious list including BP, Salesforce.com, Verizon, Johnson & Johnson and Monsanto, to name a few. And in 2010, Chicago’s biggest venture capital firm, Madison Dearborn Partners LLC, purchased a majority stake in a deal that valued Fieldglass at $220 million.

The Next Chapter

Money notwithstanding, Fieldglass still has problems to resolve. There are users that complain that VMS technology in general is complex. And the complexity is compounded by tool providers, including Fieldglass, not making VMS simple or easy for people to use, says a long-time VMS customer. It should be ATM-simple for a hiring manager going on the system once a year. But it’s not, complain contingent workforce managers.

At the same time, suppliers continue to resent VMS for disrupting the staffing sector. Shekhawat is sanguine about this. “Which industry doesn’t have this equivalent,” he asks. Disruption to a company can come from anywhere, he says. Examples are online staffing businesses like Elance and oDesk that have homed in on the inherent weakness of the traditional brick and mortar models.

But automation via software is inevitable. “However, there’s always going to be a main street requirement for certain types of jobs. Elance and oDesk’s futures are bright but for a certain category of buyers,” says Shekhawat. The conventional wisdom here that he subscribes to has it that certain firms will and do require a staffing vendor that does everything from payroll to staffing to onboarding.

Nonetheless, Fieldglass’ challenge is to defend its territory from old rivals such as Beeline and IQNavigator while fighting new adversaries like Elance. “In some ways we are a startup all over again,” says Shekhawat. Only the tool requires different tweaks than it did in the past.

Fieldglass has already added different classifications of workers including independent contractors and statement of work consultants to its mix. Going forward, there will be more adjustments to the tool as customers evolve their businesses. At his end, Shekhawat is planning to expand the product into different categories of services. And maybe organize a few installations in parts of the world where Fieldglass has not been deployed, such as the Middle East.

As he plots his moves, he urges the industry to recognize that some of the biggest innovations with billion-dollar markets have come from staffing. VMS, job boards, MSP, RPO — the list is impressive. But the industry needs to stop viewing itself as providing a transactional service and think more strategically, he says. This way staffing can get a seat at the executive table.

Through it all he is watching for the nameless competitor that can bring him down. Just as LinkedIn has proven to be a recruiting game changer, Shekhawat believes that VMS will be turned on its head. And when that happens the Fieldglass CEO doesn’t mean to be taken by surprise. He is sharpening his strategy as he ponders how to checkmate his opponents.

Subadhra R. Sriram is editorial director of Staffing Industry Analysts. She can be reached at ssriram@staffingindustry.com.

[SIDEBAR]

Standing Out

There are those who believe that the biggest thing in staffing has been VMS. And this year in March, Fieldglass co-founder and CEO Jai Shekhawat received the 2012 Peter Yessne Staffing Innovator Award at the Staffing Industry Executive Forum at the Red Rock Resort, Casino and Spa in Las Vegas. Of the nearly 100 highly qualified nominations Staffing Industry Analysts received for the award, Jai Shekhawat stood out this year for providing outstanding innovation.

“Innovation shapes itself in many ways,” says Barry Asin, president of Staffing Industry Analysts. “The growth and adoption of vendor management systems has been one of the most striking and enduring innovations in staffing over the past decade. Jai Shekhawat has been leading the cutting edge of that development. This innovation has shown how technology could be used to connect suppliers and buyers of contingent labor while increasing usage and quality.” 

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