Most of what I have to write about the industry involves discussing how the internal staff size of a staffing and recruitment agency goes a long way towards defining the business.
And this covers a multitude of aspects, including equity value.
My proposition is that there are distinct stages that a recruitment agency finds itself in and these stages identify a lot about the complexity, risk and equity value of the business. Equally as important, the stages define the characteristics of leadership and behaviours that are usually imposed on the founder by that size and complexity.
In this conversation size does not equal big. And size does not imply you have to be growing to the next stage. We often talk about the huge number of smaller recruitment agencies. What impacts the founders of these companies is just as interesting, and as full of complexity, as what impacts the founders of the larger companies. But it is different.
Of course, there are variations and exceptions to how any particular company operates in any particular company size, but there is enough consistency across the industry for this conversation to hold.
I group characteristics I would like to discuss into categories of approximately this size of internal staff:
Australia is well represented by companies at all levels, although the Australian industry, and others such as the UK and US, are dominated by recruitment agencies of less than 20 staff.
So what changes? Later documents will dive into each of the size categories mentioned above, but it is worth considering some of the characteristics.
Some activities are not able to be undertaken without size. A recruitment agency is unlikely to win a national labour hire agreement without direct access to resources in the relevant locations. And a large client with complex recruitment needs is unlikely to appoint an RPO contract with an agency that cannot step up to the financial capacity, compliance capability and recruitment scalability to meet that organisation’s needs.
But as the recruitment industry proves every year, there is room for recruitment agencies of all sizes to find a niche in which they can be successful.
The size of an organisation, whether they intend to stay at that size or grow through that size, does often determine what is possible. In most instances, there are certain types of client engagements that can be undertaken for any particular size, and there are a number of steps to be taken to be able to operate at a different level. These might include client solution flexibility, financial strength, recruitment capacity, scalability, account management, payroll services, and candidate attraction and candidate compliance.
In some ways the risk of a business increases when larger. Bigger financial and client commitments, greater complexity to change or scale up and down, and more complex compliance and business processing to keep processes complete, correct and timely.
But there is also the opportunity to reduce risk. Greater staff numbers give backup and support. More complex and forecastable revenue streams give economic diversity while improving certainty of future results. Better planning, budgeting, account processing and technology systems reduce errors and improve visibility and timing of important functions.
Importantly, a stronger leadership team reduces reliance on founders and provides coverage and backup to the future leadership of the business.
As usual, these changes do not happen organically. They require an attitude and an investment to tear down the existing environment and rebuild it for a future state.
The benefit? As an organisation grows to the next level, shows that it has improved the consistency and sustainability of its services, and invests in a corporate environment that is suitable for its new size, then its equity value is likely to rise accordingly.
As can be seen in this article, size changes everything. The difficulty for founders is that the complexity that comes with size can seen like a weight on the leadership role. Some of the subjects that are mentioned:
The formality of people management, and the time and effort required to make changes.
The time devoted to budgeting and reviewing financial performance
The complexity of compliance, for all aspects of the business
The commitment required from the company to work with larger clients on more complex projects
The size of decisions required when there is uncertainty in the decision, such as technology, marketing, accommodation and leadership team expansion.
This is important. If the founders want the business to be successful at a larger size, one of the biggest determinants of success is the change in actions and mindset of the founders.
In the early days of a business, the founder is responsible for everything, including sales and delivery. As there is some growth, the delivery function is usually the first area to get additional assistance while responsibility for everything remains with the founder.
The really big change happens when a leadership team begins to emerge. Now a founder has delegated responsibility for defined activities to others, and the founder responsibility changes from “this is mine to define and to manage” to “I now need to inspire the leaders to achieve the vision we have collectively set”.
That is not a change all business owners successfully make.
Size does not guarantee success, but it does lead to exposure. It exposes if leadership has evolved, if structure has kept pace with the demands of the business, and if the business has been shaped by design or simply reacted to its own growth.
As organisations move through stages of size, the question is not whether they are “big enough”, but whether they are appropriately structured, led and disciplined for the stage they now occupy.
HHMC Global operates within the staffing and recruitment industry on equity transactions, market valuations and business growth advisory. Contact us to discuss further.