The Business:

An independent recruiter noticed a need for a recruiting service in an underserved market.  She saw there was a market to help companies recruit for high turnover entry level positions (commission only sales positions, retail sales positions, call center sales or customer service positions, etc).  Traditionally, staffing agencies or independent recruiters stay away from this market because they are used to making a percentage on an hourly wage or on a starting salary.  Based on that model, recruiters either hope to fill high salary positions or place a “temporary” employee in a situation where they stay with a client for a long time so that they can continue to collect their cut off the hourly wage.

The idea was to provide a recruiting service to companies in this market.  The traditional model of charging a percentage of an hourly wage or salary was not going to work here.  The client would not be excited to pay 20% of a yearly salary if the likelihood of the employee staying on for more than 6 months was low and the recruiter did not want to get 20% of an hourly wage if every 2 months they had to start all over and fill that position again.  And then there was the problem of commission only positions; how would you handle those?

The recruiter created a simple solution.  She offered to handle all of the recruiting activities that go along with finding, screening, and sometimes interviewing the candidates for these high-turnover positions.  She realized that this process was pretty easy and repeatable and would always be needed based on the nature of this market and the high turnover involved with these positions.  So rather than having a highly paid employee of these companies spend time posting job ads and looking through online resumes which was highly ineffective, this recruiter decided to pitch the service on a retainer basis.  The pitch was simple,

“Look, you can continue to have a person that makes $85,000 a year spend 5-10 hours a week dealing with this, or you can pay me to do it for you for a low weekly or monthly retainer.  I will handle all aspects of that process that does not involve a face to face meeting (job posting, resume screening, phone screening, background check, etc).  You can handle the face to face interview where you decide to hire or not hire the candidate.”

Several companies liked the idea and off she went.

The Problem:

Within a few months she had 10 clients and things seemed like they were going well; at least to the outsider.  In reality, the recruiter was finding out how manual and tedious this was and was working 80-100 hours a week handling all of these activities plus the administrative work of invoicing and accounting for her newly created business.  It was a one-woman operation that did not have the ability to scale.  Even though she was making money, she was close to shutting down because she felt she could make just as much by just working as an internal HR or recruiter with a large company.

The Solution:

The recruiter knew that her idea and service was a good one; all of her clients loved it and she was turning down new clients due to her inability to scale.  She needed to find a way to scale this business. 

The first part of the solution was to break down the basics of her business activities.  It could be broken down into the following areas:

·         Developing job ad copy

·         Distribution of job ads

·         Screening of candidates (resumes, phone, etc)

·         Administrative (Invoicing, accounting, data entry and management)

·         Client relations (management of existing clients and development of new business)

The next step was identifying what activities were repeatable and which ones required high level expertise.  After breaking down the business it was identified that the recruiter was really good at:

·         Developing ad copy

·         Client relations

The following activities were basic and easily repeatable:

·         Administrative

·         Distribution of job ads

·         Screening of candidates

We then broke down the recruiter’s time:

·         80-85% of her time was spent doing the repeatable activities

·         15-20% of her time was spent doing the expert level activities

That breakdown was exactly why she could not scale her business and take on new clients.  This was the average breakdown of her week:

·         30+ hours a week distributing job ads

·         10+ hours a week accounting and invoicing

·         20+ hours screening candidates

It did not leave her much time for anything else.

Once we knew where the problem was, we started to fix it.  She did not want to spend a lot of money, so we had to be creative.

Distributing ads was a highly repeatable process that could easily be outsourced.  We found a firm oversees that could handle that process.  At the beginning, we found a reputable firm that would provide one full time employee for $150 a week which was more than enough to handle her current needs. 

Accounting and invoicing had some complexity to it and the recruiter was not comfortable having someone oversees have access to her financials and she did not want to spend the money on an accountant.  Therefore, we found a couple of software-as-a-service providers geared towards independent consultants and small businesses for invoicing and accounting (www.freshbooks.com and www.outright.com) that easily allow users to create and email invoices and integrate with basic accounting software.  The cost of these solutions combined was $50 a month.

These two solutions reduced her 30+ hours a week for distributing job ads to less than 5 hours (time to manage new offshore employee) and the 10+ hours a week for accounting to less than 3 with her new software. 

The screening of candidates was a bit more difficult to handle as some of it involved really analyzing resumes and doing phone screens.  She was not comfortable with using an offshore company for this activity.  We handled this issue by doing two things:

First, we found a developer that had built some software (basic inventory management tool) for a couple of her clients.  The process of passing candidates to her clients was very manual (emails, excel spreadsheets, etc) due to the fact that most of her clients were small customer service call centers or event promotion companies that did not want to spend money on a talent management system.  We pitched the developer on building a candidate screening tool for the recruiter and a simple candidate management system for her clients where they could track the candidates (schedule interviews, hiring, etc).  The pitch was simple,

“Develop the software for me and I will pitch my clients on buying the candidate management system from you as a SaaS.  If I don’t get five of my clients paying you $49 a month for this software in 3 months, then I will pay you for your time to build this tool for me.” 

Well, sure enough, the recruiter sold the idea of using the candidate tracking system that was integrated with her screening tool to her clients.  Her clients loved it because now they would no longer have to deal with her clunky excel sheets and emails and the additional $49 a month to them was easy to swallow.

Second, even though the process was more efficient with the new softward, it still involved a lot of time so we need to find a low cost, flexible, domestic labor pool to handle this.  We decided to try the “work at home mom” network.  The recruiter posted a few ads looking for work at home moms to work part-time screening candidates and handling phone interviews.  We set up a couple of part time workers with a VoIP phones and gave them a try.  It took a few candidates to find the right people, but after a few weeks, we found 2 great workers that were easily able to handle the process.

So now the work of screening candidates which used to take 20+ hours a week was now taking less than 2 hours for her to manage the 2 new employees.  The cost of 2 new employees working a total of 20 hours was only $250 a week.

Results:

Before

The recruiter was working 80+ hours a week handling 10 clients.  Of those 80 hours she was spending around 10-15 adding real value to her business.  She could not scale her business and could not take on new clients.  Even though she did not have many expenses, she had the high-risk that if she lost one client, her revenue would go down by 10%.

After (6 months after implementing changes):

 The recruiter was working 40-60 hours a week with 25 clients.  Of those hours, 60% of them were in client relations and in taking on new clients  (that is why she went from 10 clients to 25 clients in less than 6 months).  The rest of her time was spent in developing high quality job ad copy and in managing her new domestic employees and her new offshore employee. 

Her revenue is mostly linear so it was approximately up 150% and she minimized her risk of losing a client – it would be lot lower percentage hit to her top line.

On the flip side, there was the added risk of having additional costs (offshore outsourcing firm, software products, and part time employees and phones), but most of these were minimal and easily scaled down if necessary.  The offshore firm could be fired with 30 day notice, part-time employees could be terminated at will, and the additional phone services only cost her 25% more than her prior phone bill.  Even in the beginning weeks of implementing all the changes her additional costs were about $425 per week.

Even more amazing was that the total cost of all the additional expenses (staff, outsourcing, software, phone systems, etc) was now less than 20% of her total revenue and most of it can scale up or down within 30 days if necessary.

The recruiter is working 25% - 40% less a week and is personally making 75% more a year due to these changes and her business is completely scalable now.

Conclusion:

As you try to scale your business, regardless of its size, always go back to the idea.  Make sure you are growing the idea and figure out ways to outsource the processes.  The majority of the owner’s or management’s time should be spent on improving the idea and selling it to current clients and potential clients.  The processes required to run the business need to be streamlined to the point where they are completely repeatable so they can easily be outsourced or handled by lower cost labor. 

Disclaimer:

As a co-founder of internet retailer Chipshot.com and by starting and growing a sales and call center outsourcing firm, I have gained the experience necessary to help start-ups and small companies scale their businesses.