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Are There Too Many Staffing Agencies?

by Nov 16, 2011, 5:59 am ET

Staffing agencies struggle to differentiate their brand message and uniqueness in a sea of competition. In my dealings with staffing agencies, their pitches all begin to sound the same, but they also recognize that the sheer volume of competitors makes it difficult to sound different, if they truly are. In most local markets there are a handful of solid players and a larger number of peripheral staffing firms that tend to create the “noise” (read: sales calls). Here are some thoughts on being a top staffing agency player in your market.

Be different. I harked on this point a couple of months ago, but I challenge any staffing agency that wants to be great to clearly communicate their compelling business case. Talk about your recruiting process, client relations, local market connections, and client successes.

Don’t be a cheesy sales guy and don’t treat your own recruiters poorly. I know a lot of staffing agency recruiters, and I shy away from vendors that treat their recruiters like dirt (this also drives high turnover and lowers the professionalism bar for all recruiters). Some vendors may say how they run their businesses is none of my business and I should judge them simply on candidates hired. And in response, I will say that how you treat your people speaks volumes about how you are different/better.

Understand your competition and how they do business. As an extension to my previous point, I think staffing firms are so entrenched in the daily operation of their own business that they don’t take the time to understand the competitive landscape. Are your competitors dropping the ball with other clients? What are they doing to build business and break into new accounts you’d like to be in? I think that the typical staffing agency only has a superficial understanding of their competitors and then tries to sell against these perceived weaknesses (for example, I hear “we don’t just send you a bunch of resumes like everyone else” a lot).

For the savvy staffing agency, this in-depth knowledge of the competitive landscape should provide you with worlds of opportunity. The truly great vendors know their competition, know their recruiters, and know their challenges and strengths. This knowledge should provide an agency information on where business development opportunities lie in the market. As a corporate recruiter this information can provide me with much-needed insight into the current talent pool and where my recruiting headaches may soon lie ahead.

Too much business development is done with the “give-us-a-shot” approach. When I wrote my previous article several agency recruiters reached out to me and said, “How will you know that I’m different without giving me a shot at a tough requisition?” While I appreciate their effort, I can’t simultaneously engage a lot of vendors with this request. My world would be consumed with just managing vendors and their candidates.

Here’s a business development suggestion: Go to a client where you’ve had solid success and ask them to either A: Make a call on your behalf (I know that’s a huge stretch but I’ve done it before), OR B: Ask if you can use their name and success story when calling into another company. Strong relationships with clients allow this level of imposition. Lastly, don’t be everything to everybody. One issue I’ve seen with vendors is that they contract with every company in town. In the staffing business I know that means more sales, but it also limits your ability to recruit talent away from my competition.

Maybe there is a need for this many vendors. Ultimately I know the answer to this question is dictated by the market. If there were truly too many staffing agencies, natural selection would weed out those that are less successful. This is an effect we saw during the Great Recession. Some staffing agencies closed up shop while others were able to stay in business and make it through a couple of tumultuous years. However, the handful of excellent staffing firms drown in a sea of mediocrity.

The few solid staffing firms have a reputation built on years of experience, consistency of internal staff, and relationships built with hiring managers and human resources. As a result, a lot of their business development comes when a trusted hiring manager moves to a new company. This person becomes a strong internal champion helping introduce the agency to a new client.

Maybe they are all the same. In consideration of this article’s content, maybe we need to consider this reality — the vast majority of staffing firms are the same. Their sales pitches sound the same and their recruiting approaches are pretty similar, so maybe the best staffing firms simply have the best salespeople.

Perhaps it’s time for staffing firms to admit this reality of sameness and let hiring mangers work with the salespeople they like the most (or take them to coffee the most or get them football tickets, etc). What if success is truly predicated by luck and “dialing for dollars”? If this were the case, then treating vendors as a commodity is the only reasonable course of action (And further reason for the proliferation of vendor management systems).

In closing, I will be the first to state that I don’t know if there are too many staffing firms. At first pass, my opinion seems to be yes. I get way too many solicitation calls for the same service to think otherwise; however, the reality of the market will really bear out whether your local market can absorb new players and will weed out others.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Keith Halperin

    Thanks, Alan. As I stole from Patsy Cline:
    “Well people in hell want ice water – that don’t mean they get it.”

    As far as security- if companies were really serious about holding on to their “Fabulous 5%”- they’d offer multi-year, “no-dismissal-without-cause”, automatic raise employment contracts to them. I suspect this would substantially improve retention…

    Cheers,

    Keith

  • Alan Fluhrer

    @Keith- Sure it would improve things. But in general it isn’t going to happen. Also, I think to some degree, you really can’t hold on to your top 5% for too long. One of the reasons they are top 5% is because they have more experiences from other jobs at other companies. If you maintain those relationships over the years, you can get them back and everyone wins, again. This sounds like a great webinar topic

    A great comparison case study with today’s shortages would be the Dot.Com economy. Some firms planned and acted according to the marketplace and provided comp/etc, as needed. Some firms didn’t/couldn’t. The ones that could did better than the one that didn’t.

    While the Dot.Coms happened very fast and to some degree, was concentrated in the tech and financial sectors, this time it is across disciplines, specialties, and across many countries. And it will happen so much slower that many firms wont see much change except salaries going up so much. There’s a lot of subjects that could be discussed here.

    Suffice to say that companies walking-the-walk, today, and not just talking about it, will be able to be better off in the short-mid-and long run.

  • Keith Halperin

    @ Alan: quite true; the sensible but new is often hard to do…. Right now, we have at least 26 million people who want some or a lot work. Until these numbers get LOADS better, non-employers of choice will be able to do pretty much do whatever they want unless the candidate is in the “Fabulous 5%” and if they are an employer of choice
    they will be able to do pretty much do whatever they want unless the candidate is in the “Well-connected Fabulous 5%”. I think you’re going to have a whole Gen Y really timid and docile (or really angry: see Occupy Wall Street)because they’ll be coming into a stagnant job market with lots of debt. That’s why I encourage amny of them to consider emigration to Canada, Austalia, New Zealand, or prosperous Northern European companies that have economies doing better than ours.

    Cheers,

    Keith

  • http://www.goodtemps.org Ken Pryde

    I work for GoodTemps, which is the staffing division of Goodwill Industries of Greater NY and Northern NJ, and I found this article very interesting.

    As a company, we’ve been fortunate to have carved out a distinct market during the past decade. We’re the largest supplier of diversified temporary staff to the government agencies of New York City, and the State of New Jersey. Approximately 90% of the people we place into jobs have a disability of some kind, visible or invisible. Our key is that the people we place are job ready and able – we recently placed a disabled attorney with one client, for example.

    Disabled people are one of the hardest hit segments of the population where unemployment is considered – many choose not a look for work because they fear they won’t be able to compete. Many can, and we work closely with local community and service organizations to source and recruit qualified candidates for our jobs. We’re one of very few staffing agencies in our area who collaborate closely with such organizations.

    http://www.goodtemps.org – GoodTemps Staffing
    http://www.goodwillnynj.org – Goodwill Industries

  • http://superecruiter.blogspot.com/ Morgan Hoogvelt

    Way too many…staffing is an industry where people on the outside hear about the money that can be made and get it in to chase money. Kind of like the stockbroker industry several years back when everyone jumped in head first to make money, and then it imploded.

    Hopefully our industry does not follow suite…

  • Keith Halperin

    @ Morgan: I don’t think we have to worry about that happening for a number of years until the unemployment situation gets WAY better than it is now.

    -kh

  • Sylvia Dahlby

    Are there too many staffing agencies? Or is the workforce turning temp? http://www.tennessean.com/article/20111110/BUSINESS/311100060/Is-workforce-turning-temp

  • Michael Rosmer

    @KC

    “if you can lower your fees and maintain margin while accelerating sales due to your “built in advantages” then pricing can be a powerful competitive weapon…”

    Absolutely, at the end of the day the overwhelming power of price wins, it’s what’s made Wal-Mart successful, it’s why cable TV killed the movie industry, why iTunes killed the recording industry, why Netflix kills Blockbuster, along with pretty much every other case (that and marketing)…the thing most people don’t get when they are considering this though is you have to consider larger scale economics than just the price paid. It’s all about the value proposition, convenience is part of the price, so is the service itself, so is the reliability of the products, etc., which is why someone will be willing to pay more for a Mac than a PC, because the up front cost might be higher but the net cost of ownership if you have less failures, less crashes, less viruses, etc. might actually be lower.

    However, while pricing can be and is a powerful tool we also need to look at the supply demand curve. I could show you a chart of how much your sales need to increase to compensate for the difference in profit of lowering your price. Just as a quick example, if you have 50% margins and you want to drop your prices by 25% your volume of sales needs to increase by 100% just to make the same profit you were making before…so the question is will that decrease in prices result in that much higher sales? This is why often the best way to increase profits for a small business is just to raise their prices by 10% because 10% usually isn’t enough to cause customers who were buying anyway to go away but it will add 10% of your gross revenues to your bottom line.

    @Patti Green

    Absolutely, the candidate is the product, but one sale isn’t going to get you very far as mentioned above you rarely make any significant profit on a first sale, it’s all about repeat business about being able to consistently deliver and that’s where you need an operational competitive advantage and compelling value proposition.

    @Jerry

    As mentioned above all competitive advantages in business boil down to price…just price in a macro sense, in other words the overall value proposition. Keep a few things in mind:

    1. No business model works forever, one of the biggest problems I see with small businesses is not realizing you need to take advantage of the advantages you have at your scale and then learn to scale those up as you grow, which means how you operate today is not how you’ll operate after 5 years of growth, if you do then chances are you’re doing a poor job of it. (The best example of this is probably transitioning from personal relationships to relationship with the brand).

    2. You can’t use price as a competitive advantage…that is to say you need to have an operational advantage that drives a consistent pricing advantage and in this case it does work, for most micro businesses the operational advantages are personal service/relationship (which means customized service) and low overhead. That will get you so far, then you need to adjust but that’s ok because now you’ve got an established customer base with established cashflow and you can raise your prices without any problems as you move to your next operational advantage, which now starts to be more procedural built around efficiencies you’ve developed doing it for a while. At the end of the day you need something operational driving your pricing policies but pricing policies are important.

    3. Finally, it’s not about price overall, it’s about the value proposition (the best way to understand this is probably found in the book The Blue Ocean Strategy, which suggests creating a strategic canvas to visualize yourself relative to your competitors), this reflects in price but it isn’t built around price rather price flows out of it

    4. You have to keep in mind there’s a difference between what will work well enough to maintain and what’s necessary to create explosive growth. Explosive growth only comes from a highly competitive value proposition, but you can survive and have moderate growth (say 10%) without it

    You’re right discounting is generally bad business, but effective pricing built around a unique value proposition and clear operational advantages will create rapid growth for you.

    @Sylvia

    I consider tempt to be part of staffing and that’s part of the key, differentiating, and doing so in temp as well.

  • Gabrielle Thooms

    Thanks for the good tips! I’m a newbie at work and yesterday I was told to recruit new people. I don’t want to fail it from the start, I’ll do my best following your advice.

    Here’s one of my company’s new projects:
    Convert YouTube to mp4 free software: http://convertyoutubetomp4.net/