subject: The Business Of Running A Business- Basic Principles To Follow [print this page] Before I started Aviont (a Staffing Software business) in 2005, I had little true entrepreneurial experience.
Since both of my parents were teachers at the University of Wisconsin - Stevens Point (in the areas of biology and chemistry), I had always been most comfortable in academic circles.
In 1997, I joined a Minnesota-based staffing technology firm as the second employee in a start-up venture. There, I worked my way up to the role of President as the company prospered. However, despite my title, I was only superficially involved with the financial and human resource aspects of the business. I loved looking at the numbers, but I was primarily focused on revenue generation.
After many years, I accepted a position with another staffing software provider where I became engrossed in business expenses and spent a majority of my time focused on the all important number "" profit.
Now that I have ventured out on my own and Aviont has exploded in almost every measurable statistic, I want to share the guiding principles that I followed to grow my Staffing Software company. These principles can be applied to any business, regardless of size or type. While some of them may seem obvious, many of the staffing and recruiting executives that I speak with often get caught up in operations and neglect to refer back to these core principles of growth.
Focus on profit, not revenue. Revenue is just north of irrelevant. I'd easily take a $3MM revenue staffing agency with $300K in net profit over a $100MM revenue agency with $200K in net profit. When talking with your peers, it is easy to label yourself as a $10MM staffing company. Instead, start labeling yourself as a 10% Net Profit Company!
Understanding Cash flow. I didn't realize that the more I grew, the less cash flow I had! If someone would have told me that I would actually triple in revenue every year, I would have thought I was on easy street! But, the faster you grow, the less available cash you have. Therefore, knowing that great cash flow may only come once your company plateaus is key to understanding growth.
Exceptions for a Growth Company. While the primary focus should be on profit, not revenue, it must also be understood that a successful growth company should see little, if any, profit. During a growth phase of a company, it is understood that any expected profits are being put directly back into the company, further fueling its growth.
Diversify between customers. Too many staffing companies are over-reliant on a couple of large clients. If any of your clients represents more than 20 percent of your business, you are vulnerable in the event of drastic changes.
If you can't measure it, you can't improve it. This has been a mantra for many people through time. If you want to improve your back office efficiency (processing more checks/invoices with less people), then you need to start tracking your checks and invoices per FTE. If you want your sales people to make more calls, then you need to track activity by Sales Rep.
Realize the COST of doing business: This is closely related to the profit point. However, especially in staffing, there is a COST associated with every placement you make, both for Temp and Direct Hire. For example, if a large national company selects you to provide 200 employees for a new plant it's opening in town, it may be very tempting for you to jump in with both feet thinking that your prayers have been answered! Unfortunately, that one huge account could be the beginning of the end for your company and your happiness. When placing people, you not only need to factor in gross, payroll taxes and worker's comp insurance, but you also need to factor in aspects like: funding fees (if you're not self-funded), time-to-fill (and then multiply by your staffs rate), expansion office space costs, extra phone costs and extra services such as background checks, drug screens, etc. Make sure that you break down the true COST of doing a piece of business, so that you can make an educated decision on whether or not to do the business. In some cases, it may make more business sense to focus on smaller, higher margin orders and leave the larger, low profit business to someone else.
Following these basic guiding principles could set you on the path of growth and success sooner than you expected.
by: John Long
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