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Staffing Firm Owner: "What Happened To My Margins?"

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Staffing Firm Owner: "What Happened To My Margins?"The other night around 9:30 p.m. my cell phone rang. The caller was the owner of a staffing company — a guy I hadn’t heard from in a long time.  I asked about his business and his answer surprised me. Big time.

“I don’t know what happened to my margins. They have always been thin and I tried to make that up in volume. But my clients are all beating me up on price and I can’t make it up. I’m getting killed.”

He respectfully asked me not to use his name, or his company’s name, in this story.

I can give you a little background, though. This is a guy who originally worked as an accountant out of college, though he did have some computer programming skills. As he would later find out he had some entrepreneurial skills and a lot of passion.

After some solid corporate experience he began consulting for a Fortune 500 company. He saw some opportunity there, particularly when it came to using an open disclosure model with set pricing.

He found it more transparent than what was commonly used in the consulting/contracting business and it was well received.

Staffing Firm Owner: "What Happened To My Margins?"Eight years later he had nearly 30 consultants working for him, primarily in IT, and revenue of over $3 million. His company concentrated on Fortune 500 companies with large budgets, and the growth continued.

By 2007 they had 250 contractors, dozens of employees and a whopping $47 million in revenue. Soon after, things went soft as clients cut back on spending.

During this time, with the market in decline, he invested in his people. They increased sales staff, identified leaks, tightened up processes and inefficiencies and renegotiated contracts that weren’t profitable.

Those are bold actions — keeping your foot on the gas when the competition is braking.

But every business owner I have ever met says it is far easier to separate yourself from the competition during a downturn, than when everyone’s boat is floating. I wouldn’t say this company is sinking, but the captain sounded demoralized the other night.

“I thought we were doing all the right things, positioning ourselves for growth, but I didn’t see this coming. It seems many of our clients place a lot less value on long-term strategic relationships and are focused more on price. They want the benefit of all we have to offer but they don’t want to pay for it. The business has really become commoditized.”

And here I was thinking it was just the creative community. PR pros, graphic/web designers, photographers and ad people are all complaining these days that no one wants a retainer relationship these days. Customers want Mercedes-quality work for Kia prices.

So what is my staffing friend doing? He developed a product for his clients that doesn’t have anything to with staffing per se.

“I always thought that through hard work, acquisitions and a strong plan that we could continue to grow our core staffing business. Now I’m not so sure. So we are trying to reinvent ourselves. We ask ourselves every day what we are trying to be.”

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  1. gregg dourgarian

    i enjoyed this article David, thanks. IT staffing took the brunt of the downturn in no small part because of off-shoring.

    As if we needed any further indication, today’s announcement that Microsoft is buying Skype makes it clear how easily we can communicate and thus recruit directly from 3rd world countries whose workforce has been rapidly acquiring IT skills formerly available at only high rates.

    Nevertheless, many TempWorks staffing clients are doing well in the IT arena by specializing and taking advantage of this offshore induced disruption.

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  2. David Gee

    Every entrepreneur or business owner/leader knows there are going to be pivot points, where you zig and zag and follow perceived opportunity. They also know the market does the dictating, and not the other way around.

    What surprised me about this story is that the owner of the staffing company does see opportunity, and he is pivoting, but it is outside of the staffing business.

    This from a person who wanted to see their staffing business grow threefold to $120 million.

    I didn’t receive any indication the core business is being abandoned by any stretch, I mean he still has a large company.

    But it is interesting, and even telling perhaps, that his next big initiative is not what brought him to the dance to begin with.

    Maybe his exit strategy will be selling to an enterprise company, as consolidation continues in the staffing industry.

    Look for my next post about a new/old staffing company that intends to grow exponentially both organically and through M & A activity.

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  3. Neil Rosoff

    I ran a IT staffing company for 15 years. We had 8 offices and over 500 consultants on active billing. The margins were very good.

    From 2007 forward we started see margins drop and business harder and harder to obtain at any reasonable margin. This situation also created moral issues with my internal employees. I lost some who had been with me for over 12 years (and work in other industries).

    I decided to close the business and retire. This turned out to be the right decision. Some friends recently came to me and inquired about restarting the company. This article has made think twice about if I want to.

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  4. david Gee

    Neil, congratulations on the previous entrepreneurial success. Sounds as if you had a great run. I have the utmost respect for entrepreneurs and the last thing I would ever want is to write something that discourages anyone on any level. So don’t let me talk you out of anything! I did just want to share some thoughts from a person who has also had success, thought they knew where the industry was going, and is now not so sure. That’s why he is making the pivot. Maybe some new models will emerge from this squeeze play.

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