The scaling up process - from those who have been there
When recently asked what they wish they knew before they had embarked on the journey to upscale their recruitment businesses, the answers from three industry veterans were as diverse as the sector itself.
“Stay on plan, do not chase shiny things and do what you do well,” Chris White, of Davidson told the recent How to Successfully Scale up a Recruitment Business webinar organised by RCSA and hosted by Scottish Pacific Business Finance.
Admitting they made mistakes during their growth, Moldrich said they had initially started to “chase low hanging fruit” and early on tried to diversify their offerings.
“What we learned in terms of the broader business, is it was your strengths that got you to where you are and it is what will get you to the next phase of growth. If you are looking to diversify for growth, don’t gut your business to do so.”
John Harland, Director/Owner at ERG Recruitment Group, says if he could wind back the clock on expanding his boutique agency, he would have better educated himself on the importance of understanding business economics.
“It’s a cliche that cashflow is king, but it is a cliche which has been validated over the years,” he said. “I think the biggest thing is the impact of the financial decisions you make and how that relates to your business and your capacity to grow.” Harland explained he now has a “daily” understanding of company cash-flow.
When to grow
When it came to identifying a turning point where the business owners or leaders decided to pursue growth, their answers continued to be as diverse, reflecting the nature and size of each business. Harland said he had a “need for growth”.
“We couldn’t compete with our international colleagues so consequently we needed to scale up our business to maintain its profitability and financial viability,” he explained.
For Labourpower, Moldrich explained the path to upscaling was laid by competitors and clients, using the “critical mass” in terms of financial viability and a “reasonably stable base to work from” to do so.
“It was a gradual process over time but we listened to our customers who were not receiving good service from our competitors,” Moldrich added. “Being in the niche that we are - high volume, blue collar - we were competing on site with other agencies. That was what gave us the impetus to say righto, we can do a bit more.”
He added that Labourpower also started bidding for tenders and needed to increase in size to be able to compete.
The Davidson growth story is quite different with White explaining they have grown from turning over $13 million five years ago to now being a $160 million per annum business, with shareholders pushing for the change.
The conscious growth journey he says started three years ago when group revenue was $75 million and the billing headcount was around 70.
“For us it really came down to the why of growth and our shareholders said if we were going to build something good, let’s not go for good, let’s go for great,” he said. “So the strategic decision was made to move from being a Queensland only business to being an east coast business of size.”
Of course measuring the success of strategy and growth is as important as the journey itself with webinar host Marcus Gray, Sales Manager with Scottish Pacific Business Finance, asking what key metrics were used for the growth journey.
Moldrich said the key metrics measured by Labourpower include hours, headcount, margin and a breakdown of product, region and sales outstanding, adding “we work very hard to understand what the key things are to keep our business ticking along.”
For Harland, it comes back to cashflow saying monitoring this is critical as a small agency.
Being a much larger agency, the metrics and drivers are slightly different for Davidson, perhaps sometimes more refined, but remaining basically the same.
“The jaws of growth are real,” White said. “They can be very hungry for working capital.” White explained that Davidson splits its metrics in three key areas - operational, financial and working capital.
Under operational they measure lead indicators for performance, check activities and pipelines are robust and will deliver revenues, while also looking at weekly jobs and client visits. Financial metrics include margin per fee in on amount basis, EBIT conversion, operating cost per month, perm and contract mix. Working capital metrics include cash flow and reporting.
White said Davidson has a very simple philosophy when it comes to using metrics to measure and manage adding: “In God we trust, everyone else please bring data”.
Key actions to grow the business
The decision to grow and putting a strategy in place should include careful execution and planning, tailored specifically to the size of the business and the industry it works with.
“What it came down to for me was to get a really clear focus on what we were good at and understanding where our strengths and weaknesses are and focusing on the strengths,” Harland explained of ERG’s growth.
“The financial viability of the company and having a system which flexes with your growth was absolutely imperative for me. Also having a facility which didn’t require me to have security.”
Moldrich said Labourpower made the company culture a key area of focus during the growth phase.
“One of the key actions we did was invest from within, strengthen what we had, especially our culture,” he said. “My job is heading up the finance function and one of the things that we did was to preserve that culture in our head office function. We saw that as a critical element.
“And making sure we had the right systems was a big thing for us." White said Davidson’s growth had included a history of using “the right corporate advisors at the right time”.
“We have also gone to vendors as well to make sure we have the right systems in place; accounting systems, payroll systems, applicant tracking or CRM systems all play a pivotal role in getting your operational base right,” he adds.
“Through that process, it has been very important to lock down the intellectual property or the processes and ways in which you do business, so you can scale. That has been really important as well, making sure we have strong discipline around the sales process."
The webinar also looked at offshoring outsourcing and why it can be useful, sustainable contract temp margins, the value of 2nd tier management and marketing budgets through the growth process (hint: how long is a piece of string?).
The full webinar can be seen by registering here.