Why Staffing Tech Companies are so Valuable and What They Mean for your Staffing Agency
Technology has only recently started to solve complex offline problems such as managing thousands of temporary workers, automating payroll, etc.
Companies including Uber have been around for a decade and have just started to solve simple staffing problems like event staffing.
Wonolo, which was founded four years ago, has built a business that’s raised $60M to solve the problem of short-term temporary staffing using mobile apps.
These companies are being valued on metrics including users and growth potential with multiples of earnings that would make any agency owner in the staffing industry envious. We’re talking 10X gross revenues and as much as 120X EBITDA.
TimeSaved believes that the complexity and variety of problems in the staffing industry are best managed by experts who have regional and occupational focuses.
Unlike Uber and Wonolo, TimeSaved believes that the complexity and variety of problems in the staffing industry are best managed by experts who have regional and occupational focuses. We also know that the companies that will survive and thrive over the next decade will use technology, mobile, and data to increase their growth and value.
Why are unproven apps worth so much more than established companies?
Public staffing agencies trade at 2–5X EBITDA and <1X of gross revenue while Tech Startups in the industry are getting 120X markups. Why is that?
Mobile apps are placing more workers per employee with better matching, faster than traditional agencies can.
Mobile apps help you earn more money on the workers, generate more productivity from your employees, and make your company more valuable for shareholders and potential acquirers.
Beyond all of the short-term benefits of using technology — better redeployment rates, higher efficiency, and an increase in worker reliability — sits a pot of gold.
Becoming a tech-enabled staffing agency can drastically increase the value of your business.
Sound too good to be true? Well, we want to take a deep dive into staffing agency valuations as well as technology company valuations. We want to help you understand how technology makes your staffing agency more valuable to private equity and other potential acquirers.
Perhaps, most importantly, we want to help you see how you implementing technology will be responsible for the growth and survival of your staffing company over the next decade.
How do you grow your business's value? Technology? M&A? Entering a new geography? Hiring?
You can really increase the value of your business by doing more business or doing business more efficiently. If you want to increase your profit by 20% you can buy a company with the exact economics for 20% of what you are worth today, increase your growth rate by 20%, or you can become 20% more efficient.
Valuation experts RA Cohen suggests that gross margin, growth rate, and churn rate are the three biggest drivers of enterprise value in the staffing industry.
Acquisitions in the staffing industry generally operate with multiples of 5X EBITDA or less. Tech-enabled staffing companies keep getting valued at much higher multiples.
This is why we TimeSaved brings technology, mobile, and data to the heart of your staffing organization. Going mobile and using data is the most responsible thing you can do as a business owner to maximize shareholder value.
The relationship of and the 3 key drivers of enterprise value
1. High Growth Rates
Your trailing 12-month growth rate (or rate of decline) is the biggest factor outside of your size and your margins that will affect your valuation. Why? Because if you are growing quickly, the future value of your business will be greater to the person acquiring your business. Data and digital-first strategies are one of the best ways to identify and leverage growth within your organization.
Agencies become more effeicient when they use a mobile staffing solution. They redeploy candidates, and charge more for the same candidates by increasing reliability.
2. High Gross Margins
Your gross margin, as you know, is total sales revenue that a company retains after the direct costs of the workers you deployed.
Companies that use TimeSaved have found that they can increase the final cost to their customers because they are able to better predict worker success and worker reliability.
Perhaps the best thing about implementing a mobile platform that bills per worker hour is that agencies have been able to pass on the additional costs to their customer.
When you get charged $0.10–$0.20 per worker hour, the improved service increases what you can bill your clients. This means more revenue per worker, and a more valuable company.
3. Low Customer Churn Rates
Why do you lose your customers? Probably because you send them the wrong worker or an unreliable worker. By increasing worker quality and reliability you’ll build more trust with your customers.
For staffing companies, churn can also be considered the churn of your workers. How you retain workers affects your fixed costs dramatically.
Mobile apps and SMS keep you closer to workers so you can stay top of mind with them. It’s obvious that your redeployment and retention on the worker side will improve how efficient your recruiters are. It will also decrease the cost of recruiting and increase the lifetime value of each candidate you pay to require.
Tech can lower churn in a way that creates the perfect storm of improvements to your unit economics that will drive your enterprise value through the roof.
Overall it’s clear that the value of mobile and better data on workers can save you money, grow your revenue, and increase value for shareholders. The best part is, you can often pass on the cost to your customers by introducing your mobile recruiting service as a more powerful and reliable service offering.
Natural selection happens in nature & business — Staffing agencies need to evolve or they will die.
Choosing not to evolve won’t keep things the same. When a species doesn’t evolve they get out-competed in their niche and can become extinct. Lemurs used to exist across Africa — now they only inhabit Madagascar. Why? Because the monkeys beat them to the banana everywhere else.
It’s a simplistic analogy. Adapt and survive, or stay the same and die. Death isn’t immediate — it happens over a long time.
We’ve recently seen the impact of technology and changes in how business is done in the “Retail Apocalypse”. We have yet to reach the staffing apocalypse.
But all demographic and macroeconomic changes point to temporary staffing growing as a market. While this might sound great to you, the companies that will capture that growth are the companies that move to a digital-first strategy.
Between tech-first companies entering your territory and publicly traded giants build technologies to compete — you need an advantage.
Temporary employment is a growing industry— not all agencies will benefit from the growth
The number of temporary workers in the US is expected to grow by 10 million over the next few years. But will your firm benefit from that growth? Or are you going to continue to think about expanding into new markets or trying to just acquire more customers?
Target tried to expand their business by entering a new market — Canada. That failed, and they went bankrupt. What has worked is changing the way they do business.
Modernizing their technology, building tools that give their customers a better experience, and thinking like a digital-first company. You can revitalize and create growth by thinking about how tech is impacting your business and then doing something about it.
Temporary staffing’s future requires mobile-first thinking. We now trust our phones to find everything we need. People look for work on mobile devices first, especially temporary or casual work. If your company isn’t thinking mobile first yet, you need to start thinking about it today.
There is a reason the Fortune 500 have seen companies go out of business while technology companies have become dominant.
Even the companies on that list that aren’t tech-first companies have all adopted digital first mentalities to leverage and build technology to sustain their lead in the market.
Regardless of if you are running a $1, $10 or $100 million agency, you have customers, employees and families that rely on your business. For your business to continue to support and sustain the people that are most important to you over the next decade it’s integral for you to evaluate, understand, and act on the changes to the industry that are going to happen whether you decide to evolve or not.
Conclusion
If you aren’t convinced that mobile technology is going to help you increase how much business you do, hopefully, you recognize that is going to keep you in business and make you more valuable.
At this point, it is irresponsible for business owners not to consider the implications of a mobile-first temporary workforce. It’s impossible to compete without evolving. And most importantly, it’s profitable when you can simply increase retention, margin per worker hour, and your shareholder value.
