Funding Plus Service: Better Than a Bank

  The funding of payroll through the sale of invoices (factoring) has been around since the post-WWII get-go of the staffing industry and has played a key role in the advancement of many great staffing companies. I remember my Dad telling me about Design Service, a national technical staffing company he helped build-up some 50 years ago. The owner – a polio-stricken man with great sales skills – would trudge down to Manhattan’s financial district each month with his stack of invoices and return with the funds necessary for payroll.

As staffing has become a mainstream industry, so has payroll funding. Many factors (funding companies) have entered the staffing market, increasing competition and providing many alternatives for a staffing company in need of funds. Working with a funding company that understands the staffing business can make for a more convenient relationship than working with a bank.

Better than a bank? Banks do offer a low rate of interest, local presence, and often serve as a new businesses introduction to the world of finance.  But you quickly learn that they smack you with hidden fees and burdensome collateral requirements. If you read the fine print in most bank loan contracts, you’ll find that they can cancel the loan at any time or hit you with draconian penalties if in their sole estimation you fail to meet their requirements.  Examples abound, but one good-sized staffing company in California recently spiraled into bankruptcy after a bank hastily pulled its loan.

Banks and IT: a bad marriage.  Because they are heavily regulated, many fail to adapt to technology and use dated IT systems that prevent them from keeping up with ACH, pay-card, automated bank reconciliation, and other e-business solutions. If you join yourself at the hip with a bank via a loan, you may find yourself locked into a partner that can’t respond to the IT needs of a staffing business.

Here’s another less well-known fact about banks:  THEY DON’T LOAN MONEY.  At best they make money you have more liquid.  Those TV episodes where the banker agrees to give a scrappy, penniless start-up the funds to launch its venture are just that – TV episodes.  FICTION.  Jed Clampett and his travails with his unscrupulous banker on Beverly Hillbillies come closer to mirroring the real-world. 

Ok, you agree – after a quick look at all the charges on your last statement – banks do suck, but aren’t factors loan-sharks? Although every industry will have its less ethical players and loaning itself has negative connotations going back to ancient times, many factoring companies execute with the highest standards. Competition among them has raised all boats. Today, you can find factors offering rates competitive with that of a bank. Others differentiate with a high-percentage of initial funding and flexible remittance systems. Others perform stellar credit and collection services.

Yet others combine all this with back-office services like payroll and invoicing, thus offering an ideal platform for a staffing entrepreneur that wants to focus on sales and recruitment. 

Eight Ways to Protect Your Staffing Company From Fraud

1.  
   1. Always meet prospective clients in person. 
   2. Never send an employee to a client site that you haven’t inspected.
   3. Always hand deliver your first invoice to your client’s AP department.
   4. Never employ someone that you haven’t met in person.
   5. Do thorough background checks on all employees, including and especially internal employees.
   6. Avoid payroll checks and if you insist on using checks always use positive pay.
   7. Investigate time cards submitted with large amounts of overtime.
   8. Never work through a third-party like a VMS firm without a guarantee of payment from the end-client.

Best Looking Business Software Ever

Nobody works harder than Tempworks at making business software attractive and easy to use. Check out this preview of the latest work from my Red Stapler team:
mms://media.tempworks.com/presentations/Jan8Enterprise.wmv

"If you don’t own the employees, you don’t own the business."

Here’s an excerpt from an article by Jack Terrana, VP Tempworks Venture, that will appear in an upcoming issue of Staff Digest. 

If you don’t own the employees, you don’t own the business. Do not be lulled into walking down the path of least resistance when it comes to insurance. You have one product – people. They are your employees, your only real tangible asset. PEOs and similar “employer of record” services appeal like an entrepreneurial lollipop. No waiting for comp, no down payment, no aggravating audits or claims. Wow, sounds good, where do I sign?

You don’t. You exhaust every possible option to secure your own workers comp coverage and when you are ready to give up, just keep repeating the mantra “if you don’t own the employees, you don’t own the business.”

How to Build a Profitable Vendor Management Business

What industry practice has done more to ruin relationships, decrease quality hires, keep hiring managers from communicating effectively with recruiters, increase corporate bureaucracy, generate countless meetings, waste hundreds of hours in unfruitful training, and ultimately result in long, expensive implementations? Ask anyone in staffing during the last 10 years and you’ll get the same answer: Vendor Management Systems (VMS).

The underpinnings of this failure range from power-hungry HR departments to ill-conceived venture-backed software companies to simple large project miscommunication. In any case, there is a silver lining: from the ashes of VMS failure a nimble staffing company can grow roses of success, not just for itself but for everyone from hiring managers to candidates to subcontractors.

First some history:

“If you people know the staffing industry so well, why on earth do you think we would be interested in your products?”

That’s a quote from an angry staffing owner at an ASA conference a year or so ago. She was addressing a panel of VMS vendors, and she had a good point.

What value does a VMS bring to the staffing company? Who wants to be disintermediated from clients? Who wants their bill rates reduced by three percent? Isn’t it bad enough that worker comp has already chiseled away what margin there was? How can I make a quality hire for my client if I can’t talk to the hiring manager?And, who were these VMS vendors anyway? By and large they were staffing companies that decided it would be fun to develop VMS software.

Now, there’s nothing wrong with the software business. One look at the market caps of Microsoft and Oracle and it makes you wonder if you’re working the wrong side of the fence in staffing. But these VMS vendors have failed as commercial endeavors. They go wrong in an “oops, I forgot the sales and marketing costs” kind of way.

“oops, I forgot the sales and marketing costs”

Long sales cycles, scripted demos, flying around to see prospects – it gets old fast. You spend a pile of dough fast. And if you’re a staffing company, you may well have poached your best sales people on this long shot chance at the big time.

It’s an illusion that the marketing problems end once you sign a software deal. It continues with lengthy implementations, training that invariably digs up internal client politics, contradictory sets of modification requests. The time entry screen that worked fine for the client’s engineering department is unusable by the call center. No one agrees on how authorization should work for requisitions. Version control resembles the Tower of Babel.

There’s a better way.
Solutions don’t need to be forced down the user’s throat. Some say they want a revolution, but success in the VMS business begins back home at the staffing company with a sound integrated staffing system. One that allows all staffing business processes – recruiting, invoicing, payroll, accounts payable, web portals, and vendor management – all to be done on the same system.

That system needs to offer multi-tenancy, i.e. multiple parties using the instance of a system as if the instance were theirs alone. With multi-tenancy, a staffing company can host other staffing companies or other divisions, giving each the sense that they are running on their own independent system.

With this kind of flexibility, you can gradually introduce your client to the advantages of working with you as a managed service provider. At the beginning, you can simply show them how to do business better with online reporting and order management. This can quickly evolve into a single point of billing for all of their contingent staffing, or perhaps the processing of large volumes of time clock and web-time data.

Continuity Good. Disruption Bad.
Notice that you accomplish this with your client without a disruptive implementation. You eliminate the pain of discontinuity. You are the easy guy to do business with.

At what point does this become a VMS? When you help your client with other vendors, when you distribute orders to other vendors, when you let those vendors submit candidates via your candidate portal, when you capture their web timesheet, when you do any of these things – you’ve crossed the line into VMS.

Yes, clients want the advantages of VMS. They want the best candidates regardless of which staffing company provides them. They want competition for their contingent spend. They want better internal control over approval. But, they also want a system that works – today and not next year. Staffing companies that provide it can profit handsomely.

Message Received Today from a Prospect

	“Casey’s commitment to honestly addressing the right answer for both TempWorks and my client is both an all too uncommon act and the kind of thinking that is the reflection of an excellent sales representative and company.”

“I just got off the phone with [Tempworks sales person] Casey Kraus and wanted to share my thoughts about that conversation with you.    I had talked to Casey last week about a prospective medical staffing client that I’m working with.   I told him that I’d be talking to the client this week in preparation for evaluating some key alternatives.  Casey called this morning to say that he had spent time with your development team for the Medical version of your software and wanted to say that he-and your team-felt that TempWorks really wasn’t fully ready to be the provider that we needed to have….and that they had also had a robust discussion of alternative vendors-the strongest of which (Clearview) was already at the top of our list.

I’ve been in the computer industry since the early 1980’s starting as a sales representative and at one time was simultaneously on the Apple and IBM national sales councils.  I co-founded my consulting company in 1992 and we’ve been integrating solutions for clients involving a very long list of vendors since then….which, of course, has involved us with countless sales reps. 

Casey’s commitment to honestly addressing the right answer for both TempWorks and my client is both an all too uncommon act and the kind of thinking that is the reflection of an excellent sales representative and company.  The actions that he and your staff took are the best character reference for a potential solution partner that could be wished for.  I will be talking to TempWorks in the future for any clients that are a good fit and I will certainly recommend your company to others looking for staffing solutions.”

Lessons from the Staffing Industry Crash of 2002

If the stock market is any indication – and it is – the staffing industry is in for some tough times in 2008. I’m getting calls from friends in places like Dubai and France asking how bad it’s going to get. The Hang Seng is down more than 8% today alone, and the staffing stocks in the U.S. markets have already been cut in half over the last six months.

Our clients generate roughly a $10 billion run rate and although that represents a small portion of the overall U.S. staffing industry, it’s enough for some statistical observations. The downturn started in earnest in the 2nd quarter of 2007 and mostly hit temporary staffing while direct hire stayed strong. By the 4th quarter, direct hire began to take a hit and temporary staffing stabilized. All trends point to an awful 2008 market for direct hire and simply a crummy one for temporary staffing.

That’s enough to get in a defensive mode. Fortunately, we have the staffing crash of 2002 to learn from. Over the years since those unpleasant days, I’ve gathered the stories from those that survived or even thrived in the hard times. Some common themes:

•  
  · Cut out the frivolity beginning with the owner iron. This is not the time to buy that Mercedes. Already got one? Sell it and buy an Altima. Show the team you’re the first to make sacrifices.

  · Outsource. Eliminate all possible non-revenue generating positions. Outsource computer operations, payroll processing, tax filing – everything – and eliminate expensive accounting staff.

  · Negotiate. In a weaker economy, your customers will look to you for price cuts. Be prepared. Have your negotiating agendas ready. Don’t expect that your clients will determine on their own the overall value you bring to the table.

  · Top-grade. You’re in a much stronger position now with vendors and employees than you were two years ago.

  · Capitalize on competitor mistakes. In 2002, when all seemed hopeless, the bigger staffing companies stumbled badly. They let customers down left and right. Example: one of our clients picked up a high-margin, $80 million contract that Adecco fumbled. You don’t get those chances in a strong economy, so take advantage now.

Staffing Site of the Week

Jim Durbin’s blend of social media and PR brings a fun perspective to any business.  His not infrequent postings related to recruitment make this my staffing site of the week.

Small Staffing Agencies Threatened by Chinese Government

Staffing companies in Shanghai have grave concerns about new laws regulating the staffing market and say that the risks threaten the viability of the nascent industry.

The new laws came about as disputes between staffing agencies and temporary employees increased exponentially in recent years, triggering reaction from authorities.   In China like in France and other countries, a temporary worker signs a contract with the staffing agency and does the work for the staffing client.  The Chinese authorities claim that frequently when conflicts arise neither the client nor the staffing agency properly address the concerns of workers. Occasionally, the staffing agency disappears overnight leaving the already marginalized temporary worker without recourse.

Article 12 of the new labor law requires staffing businesses to maintain current assets of  ¥500000 (about $70,000) and to deposit with the government a refundable ¥5000 (about $700) per temporary worker. Article 40 says that after one year on an assignment, a temporary worker must transition to a direct contractual relationship with the end client. 

The laws purport to better regulate agencies and avoid the problems of fly-by-night closures, thus protecting the rights of the temporary worker.  Industry executives point out however that the capital requirements are excessive and make it difficult or impossible for many companies to stay in business.

Despite the new laws, many bigger staffing companies maintain an optimistic view of the Chinese market.  They point to a burgeoning market which in Shanghai has increased more than 35% annually for the last five years, much higher than in developed economies.  Manpower China now has 62 offices in twelve big cities; last year it had only four offices in three cities.

Making Software Easier to Use

I hate Office 2007.  It doesn’t matter which product you use – Powerpoint, Word, Excel – those ribbons on top that are supposed to make things easier just complicate the hell out of everything.  Doing simple stuff like indenting just gets harder with each new release.

Truth is, all software runs the same risk.  Clients and prospects constantly ask us for new features that easily conflict with each other or complicate the core product.  Most users just want the common functions, and they want them easy to use.  And when they need help, they want a help button nearby to get them out of jam.

Here’s a clip on how we accomplish this at Tempworks.  Derek Nicholls, our lead web service developer, goes under the covers and shows how its done.  Derek has led his team to a string of client successes.  WebCenter now powers one of the world’s largest car manufacturers and one of the largest federal agencies.  Thanks Derek for all the hard work and for the video clip.

mms://media.tempworks.com/presentations/WebCenterHelpSystems.wmv