Why You Should Be Seriously Thinking About Succession Planning NOW , Part II

The KEY to Growing a Great Business That Commands Top Dollar When You are Ready To Leave…. Even if Your Time Horizon is 10 or More Years Out

Last week I wrote about what many believe to be the first step in a successful exit plan from this business. That step requires you to have a clear vision for yourself as to a) “what’s next?” in your life and b) how much money you have to have put away to finance that lifestyle.

As I stated last week, the absolute best time to begin an exit plan is five, ten, or more years before you plan on leaving the business. Why? Because it takes time to put in place and then master the right systems and strategies to maximize your firm’s valuation. The more systematic your recruiting business, the more likely you will sell it for the highest amount possible.

What if you are not sure you EVER want to leave the business? Keep reading. Here is what I discovered in building a firm with the objective of maximizing its value to a buyer:

The way to grow a great business is to set it up as if you wanted to sell it. 

You see, when I began thinking of an exit strategy in 1998, I ran a $500k recruiting firm largely dependent on my personal billings. A firm like this has little if any value to a potential buyer because the client relationships were tethered to me. If I left, those relationships would probably not produce at anywhere near the level they had with me there.

When I began putting in place the right structure, we scaled our business to almost $3 million dollars inside of the next three years! Again, building the type of business that will be attractive to what a buyer is looking for is also the SAME EXACT key to building a business that is scalable, highly profitable, with consistent revenue streams and lower involvement on your part!

So how did I go from about $500k to almost $3 million in less than three years?

First, I studied what buyers of professional service firms looked for in a company before they bought it. The short answer: replicable systems.

Second, I began studying how recruiting firms as well as other professional service firms systematized and leveraged their business.

Based on my research and now experience here are the 5 Biggest Assets to a Potential Buyer:

  • Client DEPTH vs. Tenure
  • Employee Tenure
  • Quality of Database
  • Operational Systems/Metrics
  • Goodwill

One could write an entire book on this topic and many have! The good news for you as a recruiting firm owner is that ALL of the above can be systematized. For the purpose of this article, I will give you some ideas on each of the above key areas.

Client Depth vs. Tenure

In a perfect world you will have several clients that give you multiple hires per year and who have also worked with you for several years prior to you transitioning out of your firm. Of these two, buyers prefer clients where you have multiple hiring contacts who give you multiple assignments per year.

Making this happen with clients requires you to think about them and new prospects much more strategically. Begin by looking at all the companies you have made placements with within the past two years. What potential do they have for future development? How many hiring managers are you working with? What additional value can you bring them?

Start asking your key hiring contacts at these firms who else is hiring (this may seem obvious, but you would be shocked how few actually do this!). Ask them to introduce you to their peers or others on the management team.

At any given time you should be looking to develop ten companies for multiple hire, multiple internal client contact type business knowing only a few of these will be successful. However, even if you convert just one, it is well worth the effort.

Employee Tenure

Having a few employees with three, five or more year’s tenure who also have good relationships is ideal for maximum firm value. OK, so this isn’t rocket science and you didn’t have to pay dearly for a subscription to this publication for me to tell you that!

The harder question is, “How do you FIND & DEVELOP tenured recruiters with deep client relationships?” Again, this is a system! As a recruiting firm owner you need to start studying what has and has not worked for you as a manager and a leader in developing talent in your firm. Often I come across recruiting firm owners who are seeking me out for coaching and consulting and I ask them this very question. Most do not have an answer as to what works and what doesn’t work. As a matter of fact what I often hear is “I just need someone who ‘gets it’ or “I can’t find anyone willing to put in the work”, etc. Most of these statements are directed at the quality of the recruiter they hired. It is rare that the owner has invested any time exploring what it is in him/her that causes high turnover and low production.

As it relates to increasing employee tenure, you need a system that a buyer can walk into, hit “play,” and it will work. Yes, that can be done in this business too! There are some areas for you to look at systematizing. First, your ideal profile should be written out. Second, your interview process needs to be defined, refined and repeated. Next, your hiring, training and onboarding process need to be specific and in writing.

When you start this you won’t be perfect. Even my clients who use my step-by-step process need to implement this a few times to see what works for them.

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Quality of Database

Do you have a million resumes in your database that are two years old or older? Does everyone in your firm have their own unique system for entering data? If you answered “yes” to one or both of the questions your firm is worth less to a potential buyer than if you had a defined system for entering data and keeping it updated.

Furthermore, if you answered affirmatively to one or both of the above I challenge you that you are losing tens of thousands per year in missed placements because you can not find the person in your own database that is a great fit for one of your openings!

Operational Systems and Metrics

If you are like many recruiting firm owners right now you are saying to yourself “WHAT operational systems and metrics?” Don’t beat yourself up! Most of us were never taught the right way to set these up. Most of us were never taught WHY these are so important in building a company with sustainable and predictable revenue streams.

Furthermore, most of us make this business far too difficult for ourselves. We work far too hard on the wrong things and give too little effort to the areas that will produce revenue consistently. I have written many articles on this very topic that you can read at www.TheRecruiterCampus.com.

For the purpose of this article, you need documented business plans going back at least three years, preferably five or more. Buyers will want to review all of your key performance indicators (KPIs) on a yearly and quarterly basis so they know exactly what they would need to do as an owner to replicate and grow off of your success.

Additionally, you should have an employee manual (you can have a company like Paychex do one very inexpensively), a defined hiring system (as described in the second point above), a defined career path, employment agreements with non-competes, and you should have job descriptions for each title at your company at a minimum to satisfy this operations and metrics requirement.

No, do me a favor… re-read the last four paragraphs. Go ahead, I’ll wait!

Do you see how putting these strategies in place over time and knowing your KPI’s can take soooo much of the mystery out of your business? When you have these in place, and execute your plan based on all of the above, stuff happens!

Goodwill

The short version of this is what the marketplace, clients, candidates, and your employees feel about your company’s reputation in the marketplace. Does your company command respect with both your clients and your prospects? Is your company one that promotes high performance, a great culture and strong tenure?

These are just the basic aspects of goodwill. If you execute well on points one through four, my bet would be your goodwill will be outstanding!

Now that you are completely overwhelmed, my challenge to you is to do this over time. Do not try to tackle all of this today, this week, or even this year. When I begin consulting a recruiting firm owner, I have them begin tracking the right KPI’s immediately. This is the easiest thing to do first. Then we begin working on a business plan and a time management plan to allow for a firm that has a strong strategic plan for the next 12 months, with specific 3-month, 1-month and 1-week executables that can be easily done while working at your desk and managing your team. These are the same steps I recommend you take right now.

Start tracking KPI’s and do a business plan, this month. That is ALL you should do this month. Based on your plan, slowly begin putting in place the other elements. Do this and I promise you that you will have a firm with great value years from now and a company that produces more revenues, more consistently, at higher profit margins in the short term!

Michael Gionta (mike@theRecruiterU.com) is sought out by owners of recruiting firms, both solos and offices with recruiters, who are frustrated; passionately wanting more from their business. Bonus Tip: To enroll for FREE in his seven part audio series, "The 7 Deadly Sins MOST Recruiting Firm Owners Make That Cost Them Tens of Thousands in Lost Profits & HIGH Turnover? & How to Avoid Them!" visit TheRecruiterU.com. This will give you more ideas on planning and running your recruiting firm especially in a tight economy. You can also visit his blog at TheRecruiterCampus.com for free articles on managing your recruiting firm. Your first module will be emailed instantly and you will learn strategies you can implement immediately to build a search firm generating several million in revenue from some of the simple mistakes made and witnessed by Gionta in his 20 years building his own multi-million dollar firm.

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