R. A. Cohen Consulting Newsletter

Some Staffing Firms have shown great year over year growth for several years excluding 2008-2009 when most of the industry was in recession.

Staffing Industry Analysts recently published its "Fastest Growing Staffing Firms for 2011" and reported an analysis of the key results.

While most staffing segments of supply were represented among the forty-one companies who met the criteria, twenty-seven or 66% were IT Staffing Firms. Somewhat surprisingly no F & A firms qualified.

Interestingly about half the qualifying firms are diversity players. Thirteen companies repeated from the 2010 list.

So how did they do it?

Two very different but successful models for staffing were identified. Both staffing models were found in the IT arena but could certainly be applied to other segments of the industry. The models were described as:

High Growth Local Branch Model and the

High Volume Centralized Branch Model.

Examples of the High Growth Local Branch Model were Insight Global and Apex. Insight Global showed a compound Annual Growth Rate (CAGR) between 2006 and 2010 of 41% while Apex showed a CAGR for the same period of 16%. These were not the highest CAGR's on their list; however both companies are two of the largest and both operate with a similar model, the High Growth Local Branch Model. Both firms hit the $100M mark in annual sales volume within five years through economic downturns and with little or no outside capital.

Some characteristics of High Growth Local Branch Model

Gross profits can be as high as 30%, rarely if ever below the low 20's.

SG & A Expenses tend to run about 20% of sales.

EBITDA generally runs at 10%-12%.

These firms tend to hire rookies, typically as recruiters. They often seek athletes or people with a highly competitive nature. They focus on IT Staff Augmentation (Contract Services) with little effort expended on Search/Placement Services or IT Solutions.

They have very strict rules about all functions performed and strong metric and process management guidelines. Emphasis is on long hours and diligent work efforts. Those who perform well often get promoted to a sales or business development role.

Pods of a minimum of one salesperson and two recruiters often work as a team to enhance results and push each other.

New branches are opened by relocating a well performing salesperson or team to a new city and by repeating the process relentlessly. This system creates great opportunities for their staff to earn a lot of money and expand their responsibilities. This seemingly simple system with a very strong focus for all staff has proven quite successful, especially with their rapid replication of offices. Their high growth culture attracts a certain type of person and repels others.

High Volume Centralized Branch Model

Focus is on Fortune 1000 users-they have the high volume business this model craves. Gross profits generally run about 18%, SG & A. Expenses run lean at 10% while EBITDA is typically about 8%.

Trends supporting this model include:

• Higher spend levels and a tight economy have led Procurement to become more involved with the selection of Staffing suppliers at large (F1000) firms;
• The emergence of supplier funded VMS/MSP solutions utilized at more than 60% (and growing annually) at F1000 companies, systems that were virtually unheard of ten years ago;
• Increasing value placed on diversity by large corporations to bolster their "social responsibility" and to avoid lawsuits.

Many traditional "high touch" staffing models have resisted VMS or have served VMS without materially changing their delivery or cost structure, often to their own detriment.

Key Operational Elements of the HV/CD Model

Recruiting

• Centralized Delivery Centers (Onshore and Offshore)
• Maintain a strong process for filling high volume orders
• Technology and compensation systems that support delivery

 Sales and Marketing

• Segmentation of customers by their desired sales contact
• Organize and compensate sales force accordingly
• Work the MSP Channel
• Differentiation Strategies.

 Geographic Presence

• Local market presence based on client facing activities
• VMS accounts allow geographic expansion
• Build "Local" high touch model to attract low margin/high volume business.

As we know these and other winning approaches all come down to execution. These companies are strictly managed to do it all every day and that is why they are successful. They are relentless in pursuit of their process, their targets and metrics.

In other news, Staffing firms have started to plan and budget for 2012. Yet, their plans are unclear which mirrors many economic indicators. Most are planning for slower growth not a double dip recession in 2012 and find themselves in a critical balancing act when trying to translate this information into concrete expenditures.

Our advice is to approach 2012 with great caution and let the business push you and your staff, be careful about bold growth plans, go slower and perhaps more conservatively than your instincts may indicate.

Many firms we speak to are looking for exit strategies in 2012 as they are tired of this prolonged period of economic uncertainty.

Many want to see what their business is worth. We can help with a rough but accurate valuation of your business at no cost if you ask our advice about selling.

If you are interested contact us and we will send you the information we need to give you an idea of your value

Whether your staffing company is interested in buying or selling you need to consider both the positives and negatives of the transaction. We hope this information is helpful to you in that decision. Please contact us with complete confidentiality so we can help you with your decision.