From the September 2000 issue of Startups

Have you been eyeing the drum-tight labor market, thinking you ought to get into the staffing business? If you can match the right people with the right jobs, that might just be a smart move. It was for Tom Potenza, 33, who in 1998 launched TechLink Inc., a Ramsey, New Jersey, staffing firm that provides IT professionals to clients who develop their own software, Web sites and other systems. "I was flipping through The New York Times and saw there were tons of jobs out there. I read about how the demand for good employees is so much greater than the supply," explains Potenza. A former computer programmer, he figured he had the connections to open a company to fill the need.

Potenza's timing couldn't have been better. A robust economy and low unemployment rate are driving the demand for workers. Companies vying for the same talent need an edge to compete. Increasingly, that edge is staffing companies.

In the old days, there were two kinds of staffing firms: temp agencies and recruiters. One placed people on a short-term basis, the other permanently. Those lines have now blurred, with many temp agencies doing direct placement and many recruitment firms arranging short-term contract work. This change has had such an impact that the leading industry organization, the former National Association of Temporary and Staffing Services, recently renamed itself the American Staffing Association (ASA) to reflect the current state of affairs.

The reason for the shift is twofold. "The staffing industry is changing in response to the business world, which has different employment needs than in the past," explains Jean Norton, founder of Staffing.com, an Austin, Texas, directory of industry staffing companies.

Plus, "People find they like the flexibility that working through a staffing company provides," adds Tim Brogan of the ASA in Alexandria, Virginia. "They see themselves as independent professionals."

There's a host of terms now used to describe the increasingly complex industry: staffing firms, employment agencies, employee leasing companies and personnel service suppliers, to name a few. Staffing is now a $72 billion industry that puts about 2.9 million people to work each day.


 

Start-Up Efforts

No doubt about it, competition in this business is steep, but so are profits. Choosing the right market and location is paramount. Deanna Kohlhoff, 34, founder of the Kohlhoff Group, a Round Rock, Texas, agency that staffs the high-tech industry, started capitalizing on the trend toward tech businesses five years ago. She started from a spare bedroom in her house with enough money from her old job to carry her through her first year. Today, Kohlhoff takes in a little more than $750,000 annually.

Finding an opening and seizing it is what gave Potenza his start. "I got into it at a perfect time," he says. His start-up required nothing more than a phone, a computer and a fax machine. Because he has a family to support, he socked $60,000 in the bank before quitting his job. Potenza's firm is expected to bring in $10 million this year.

Want to know how much cash to pull out? Check out the How Much Will You Need? section to help you do the math.

The hardest part about opening a staffing firm isn't the capital required, since little is needed. The real trick is finding clients who will use your services. "It was very difficult to get my foot in the door," Potenza acknowledges. He found most of his original clients through purchased mailing lists, networking and by scanning the help-wanted sections of newspapers. Once he snags a client, he maximizes the relationship by placing 10 to 15 people at a given firm. "I target larger companies, Fortune 500s, where they'll need more than one or two of my people," he explains.

Cultivating relationships with businesses also leads to word-of-mouth recommendation, the cornerstone of any thriving business. "The biggest percentage of work we do comes from referrals," Kohlhoff confirms.

Ben Smith, 28, founder of Intelitech, a Los Angeles staffing firm, learned the ropes by working for another staffing company. The one thing he didn't take from the company was clients. Thanks to a noncompete agreement, he had to start from scratch. Smith admits that translated into "eight months of really struggling," but he did manage to lure three of the company's employees away with him-even though it was six months before any of them drew a salary.

To drum up accounts, Smith turned to the telephone. "At first, it's all cold-calling, but then you start to build a client base," Smith says. "Once you get going, this business can be a cash cow." Indeed, Intelitech expects $5 million this year.

For Kristin Knight, 32, founder of Seattle-based Creative Assets, a staffing firm specializing in graphic arts talent, the most effective tool is her Web site. "It's the number-one marketing vehicle we have," she maintains. Indeed, the Internet helps in pumping up any business's visibility.

Keeping The Business On A Personal Level

To be successful, you must love profits and people. In addition to providing a generous benefits package, Creative Assets offers employees education credits for every hour worked. "It's very expensive," explains Knight, "but I need to have a training fund so I can attract and retain the kind of people I want." That strategy has paid off, as her business has blossomed into a $25 million company.

If you want to reel in top talent, you're going to have to offer good benefits, paid time off, and possibly 401(k) packages. You've got to court the client-worker and keep the romance humming along. "We get to know everyone on a personal basis and find out what's going on with their lives," says Smith, who periodically takes client-workers out for happy hour.

Do The Math

If you want to know just how hot this market is right now, look at the numbers: Last year, there were nearly 20,000 staffing firms around the country, according to Brogan. Many of those offices are spinoffs from original start-ups, usually in a different city from the debut locale. This indicates that entrepreneurs are not only staying in the industry, but are also expanding, a sure sign of serious profits.

Potenza plans to open a second office later this year in California, despite the fierce competition in the high-tech arena. "Business has been just incredible. Why not go there and take advantage of the opportunities?" he says. "Besides, part of being an entrepreneur is taking risks."

Likewise, Knight, who has established Creative Assets offices in Denver; Los Angeles; Portland, Oregon; and San Francisco and will soon have offices in Atlanta and Austin, Texas. The trick, she says, is to grow while maintaining personal relationships with clients. "We don't want people thinking we're only there because we want to make money," she says. "We want to develop lasting relationships."

For Smith, the hardest part about growing so fast is that you don't have a big learning curve, so when you make mistakes, they really sting. For instance, in a rush to get the company up to speed, Smith invested in "crappy computers" that cost the company $10,000 in a single day.

Still, Smith's business is thriving wonderfully. Why? "It's all about picking the right people and investing in them," he happily attests. "I credit my success to the people I have with me." How fitting. In a business that's all about finding the right people, there's no better place to make perfect matches than on your own home turf.

The Future Of The Staffing Industry

The staffing industry is expected to grow by 43.1 percent over the next 10 years, according to the U.S. Bureau of Labor Statistics. You can tap into big growth by specializing. Here are projections for the fastest-growing staffing categories:

  • Systems analysts: 125.9 percent
  • Computer engineers: 65.7 percent
  • Lawyers: 57.9 percent
  • Landscape workers: 50.6 percent
  • Machinists: 65.6 percent
  • Administrative: 46.4 percent


Brain Food

  • American Staffing Association (703-253-2020, www.staffingtoday.com)
  • Co-Employment: Employer Liability Issues in Third Party Staffing Arrangements (American Staffing Services, 703-253-2020, $100)
  • How To Start A Staffing Service (Entrepreneur Media Inc., $69, www.smallbizbooks.com)
  • Staffing.com provides articles, news and a listings service for staffing agencies.
  • Staffing Industry Resource Guide (Staffing Industry Resources, www.amazon.com, $89.50) by Inc. Staffing Industry Analysts

Contact Sources

Creative Assets, kristinknight@creativeassets.com, www.creativeassets.com

Intelitech Employment Services, (888) 311-0187, www.intelitechstaffing.com

The Kohlhoff Group, www.kogroup.com

TechLink Inc., (201) 995-0214, www.techlink-usa.com