Operate - March/April 2010
Boom Times for Hiring
High unemployment spells big opportunity for small business
Deborah Silver
After Nelson Grist established For the Earth Corp. in 2008, his staff struggled to get its eco-friendly household products into retail stores and hotel bathrooms. The employees did double duty in operations and sales, but in a challenging marketplace, Grist realized he needed a more experienced sales force. His employees simply didn’t have time to handle both jobs. But with the economy uncertain and his company just getting off the ground, how could he, the company’s president and chief executive, afford a top-notch sales staff?
He found the answer in the very economic downturn he thought would stymie his Phoenix business. With 10 percent of U.S. workers out of a job—the rate jumps to slightly more than 17 percent when you count those working part-time and those who have stopped searching—Grist speculated there were likely a lot of highly skilled, out-of-work salespeople who would be happy to work for a startup—for just commission. He was right. The 10-person sales force he hired was more than happy to work solely on commission.
“Not so long ago, I would have had to pay them from $75,000 to $100,000 base salary, plus commission,” Grist says. “In this economy, I was able to hire incredibly qualified salespeople with experience at blue-chip corporations who were just happy to be back in the work force doing what they do best: sell.” The strategy worked. In 2009, sales at For the Earth jumped 91 percent over the previous year.
During tough economic times, small businesses typically hunker down and postpone hiring until they see the glimmer of an economic recovery. This downturn is no different. But as conditions improve, rather than signing up new staffers for full-time positions, small businesses are taking a cautious, albeit more creative approach to hiring by adding new staffers on a commission-only basis, like Grist, or as contractors. Small businesses in a position to hire are finding they can snag talented employees at a lower cost than ever before.
“A tremendous number of excellent, highly skilled people are out there who have not been able to find work. It’s the largest, most qualified talent pool we’ve ever seen in the job market,” says Michael Alter, president of Glenview, Ill.-based SurePayroll, a provider of payroll outsourcing services that tracks small business employment trends. “These people are eager to work and available for less money than prior to the recession. That represents a tremendous opportunity for small businesses.”
Independents Day
According to Alter, the average paycheck for SurePayroll’s 25,000 small business clients dropped 7.3 percent for the year through October 2009. That’s a reflection, in part, of their increasing dependence on independent contractors. Cutbacks in worker hours are another reason for the decline. As the economy strengthens, Alter expects that small businesses will first increase current employees’ hours, bringing them back to full-time status, and then pay those employees for overtime work, rather than add new hires. “It will be a slower jobless recovery, or a job-lite recovery,” he says.
What will continue is a heavier reliance on contract, temporary or commission-only employees, who will fill gaps current employees can’t—because they don’t have the skills or time. Alter uses the following example: A small retail business he knew with about 10 employees typically had two marketing people, both generalists, on staff. As the economy weakened, the marketing staff was reduced to one. But when the economy began to bounce back in late 2009, the retailer decided it was time to tackle three important projects that had been tabled because of the recession: a Web site, a marketing brochure and a store redesign. During past economic recoveries, the owner would have hired another full-time marketing generalist to execute the projects. But not today. Instead, he took a less risky approach, hiring three independent contractors on a project basis: a skilled Web designer, a specialist in developing marketing pieces and an experienced interior designer.
“The three tasks get done in less time, for less money and likely with better results,” says Alter. “This is the new reality, and now is the time to take advantage of it. When the market picks up, those people will be back at work in full-time positions, and the opportunity won’t be available.”
Temp Time
Temporary hiring has been a major factor behind recent incremental boosts in the job market, as temporary staffing agencies are placing more workers than they have in at least five years, according to the Bureau of Labor Statistics. Because of that, the unemployment rate has stabilized a bit in some states in recent months.
Many staffing agencies are seeing a surge in demand for temp workers. Manpower Inc., the giant Milwaukee, Wisc., staffing agency, saw its business grow 10 percent to 15 percent in third quarter 2009.
Terra Staffing Group in Everett, Wash., has also experienced an uptick in business, with companies increasingly seeking both temp and direct-hire employees. “Business declined dramatically at the end of ’08 and beginning of ’09, and many businesses made deep cuts to stay afloat,” says Terra Staffing President Betty Neighbors. “When their economic fortunes began to improve, they had to reckon with the fact that they were short-staffed.”
This is a good sign for the economy and small businesses in particular, because cautious employers typically hire temps during a recovery before committing to full-time staffers.
“Companies go first to the contract labor market until they know demand will last,” says Paul Rauseo, managing director at George S. May International Co., a management consulting company in Park Ridge, Ill., that specializes in small and mid-size businesses. Many temps eventually find permanent employment through their temporary placements. Manpower reports that each year, about 40 percent of its workers find full-time work that way.
Rauseo says today’s contract labor pool is different from any other he’s witnessed. “We recently polled 37 people that came to George S. May to fill a call center position. The average time out of work was one and a half years, and these were highly qualified people who would not have given this job a second look two years ago,” he says.
According to Staffing Industry Analysts in Los Altos, Calif., contract employees, including temps, currently make up about 8 percent of the national workforce. A few years ago, most temp slots were filled by office staff who primarily handled administrative functions; today, with so many unemployed, the majority of temps have professional backgrounds.
One major advantage for small businesses that hire contract workers is the low cost. Without benefits, a contractor may cost as much as 30 percent less than a full-time employee. In addition, businesses save money because they don’t have to extensively train employees, since temp agencies ensure their workers have the required skills. On the legal side, companies who use temps worry less about wrongful termination and harassment lawsuits. If a temp isn’t working out, a business can simply let go of that person and hire a new one.
Neighbors, for one, is optimistic about what small businesses can expect to find on the hiring scene in 2010. Certainly a great deal of experienced and qualified talent is waiting in the marketplace to be hired. And those potential hires are more inclined to want to work for small businesses these days, given the precarious situation in which many big companies find themselves. “There’s more desire to work for smaller emerging enterprises where, while they may take less in compensation, they’ll be able to have a direct impact and see the results rather than be so far removed from the action,” she says.
Small businesses can also take advantage of the glut of unemployed recent college graduates by hiring them as interns. Many small businesses, for example, suffer by not having a sophisticated Web presence. That’s an area where recent graduates have know-how. “Interns bring fresh ideas to the table that an existing sales force might not have,” says Rauseo.
It’s all about adapting to ever-changing business models, says SurePayroll’s Alter. “There’s been a reset in the minds of small business owners that this new employment model—more fully utilizing contract or temp workers—may be a better way to run their businesses not just for the short term, but for the long term,” he says. “Bring people in on a project basis and when a project’s finished, move on to the next one.”
Taking Advantage
Of course, businesses that are thriving don’t have to fret as much over whom to hire and under what pay structure. Still, even successful companies are taking advantage of the surplus of highly qualified workers who are willing to work for less. Like Kris Helton, president of Denton Inc., a small millwright and structural steel company in Modesto, Calif.
In tight times, Helton cut his own salary and benefits, repaired vehicles rather than buying new ones, and reevaluated inventory policy. But he didn’t cut staff.
Instead the company took advantage of the recession’s cheaper staffing. “We were able to get people at a more affordable rate because the market simply won’t bear higher salaries,” he says. Affordable, yes, but highly experienced and focused. “We only wanted overachievers, and that’s what we told them. Our plan is to double sales in the next three years, so any new employee had to be able to step up to the plate,” he says. Denton brought seven new employees—better qualified than past hires—onboard last year.
If the economy and Denton’s sales continue to strengthen—thanks in part to his new staff—Helton hopes to hire another 10 to 15 employees this year, including a division manager, accounting support and field workers. He also hopes to implement a profit-sharing program.
“In a bad economy, you have to creatively figure out how to not only survive, but thrive,” Helton says. “That means looking at the fine details of how you run your business.”