Hot Stuff

Hot Business: Professional Employer Organizations

If the companies in a given industry served only about 2 to 3 percent of a market that's growing 20 to 30 percent annually, wouldn't you consider that a good business opportunity?

We thought so. That's exactly the situation for professional employer organizations (PEOs), according to Milan P. Yager of the National Association of Professional Employer Organizations. Although PEOs have made this list of hot businesses for four straight years, there are still areas of the country where entrepreneurs haven't yet picked up the ball and run with it.

While many firms in this market-revenues of which Yager estimates at $30 billion--began life as employee-leasing companies, the industry has evolved considerably. Now PEOs consider themselves co-employers with their clients for employment taxes, benefit plans and other human resources purposes. They take over the personnel administrative functions that often bog down entrepreneurs and, in some cases, are able to offer employees much better benefits that a single business owner could.

Entrepreneurs looking to get into this industry couldn't have picked a better time, particularly if they stay out of heavily saturated markets like California, Detroit, Florida, Salt Lake City, Houston and Dallas, says C. Michael Cain, president of Team America Tennessee, a PEO in Selmer, Tennessee. "Given the right geographic setting, the market is wide open," says Cain, 53.

While lack of competition in areas of the country may seem like a good thing, Cain says it also means firms opening their doors in uncharted waters spend lots of time educating potential customers about the services PEOs offer and how these differ from those provided by temporary and contract staffing agencies.

Cain estimates new ventures should have at least $250,000 in start-up capital and a solid knowledge of how the industry operates. There's also a growing body of state and federal laws and regulations to keep up with, so be prepared.

Cain points out one last, persuasive argument for staying power in this industry: "This is the type of business, if done properly, where a client will almost never go back to the old way of doing business."

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This article was originally published in the December 1999 print edition of Entrepreneur with the headline: Hot Stuff.

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