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.

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.”

Tags: Business, Entrepreneurs, Profit, Profit Margins