Price, Price, Price
Marty Orenstein,CEO of Marty Orenstein’s Staffing Network, Inc. - July 19, 2017
From Staffdigest Magazine, September/October 2006
Reprinted with permission
As I travel the country and continuously speak with independent staffing service entrepreneurs, the complaints that I hear most are the predatory pricing being extended by the Nationals and how best do we compete against them. I then ask “What are the value-added services that you offer your prospects besides pricing”? Nine times out of ten the owners
came up with the same answers: Knowledge of the local business community and their requirements. Excellent ability to recruit in the local sector, capability of filling good percentage of client requirements, quality of personnel, RELATIONSHIP! etc. etc.
I recently conducted a round table at a multi-state staffing conference, the subject being ‘Adequate Capitalization’. After querying the initial eight attendees as to what qualities they look for in a funding source, I was amazed that seven of the eight individuals only mentioned ONE and only ONE quality and that one was PRICE! I was very frustrated with that response and had to take a deep breath before continuing. My next question to the group was, “Do you sell your services based only on price”? In answer to the question all eight immediately started reciting the value added extras that they propose to a prospect or when bidding a contract. The qualities that they mentioned were not unlike those mentioned in the first paragraph of this article. I then proceeded to explain that the same principals apply when identifying the proper funding source to participate in the growth of their business. The attributes that should be looked at that are just important as price are:
- An available credit line agreed upon in advance, large enough to enable the entrepreneur to expand their business by at least 50% without waiting for three committees to have four meetings in order to grant a higher credit line.
- A funding source that truly understands the capitalization requirements of a rapidly growing staffing service. In the past several years, many financing companies have suddenly represented themselves as staffing industry specialists. Nothing can be further from the truth. The chore is to identify the real specialists who know the intense capitalization requirements of an expanding staffing service with the ability to properly interpret the financials of that service.
- Flexibility – All banks and most financing companies work with pre-defined formulas that you must carefully adhere to. In the event that you fail to meet all the requirements you are deemed ‘Out of Formula’. When that occurs, all bets are off as to the relationship going forth. The penalties to you vary from an upward adjustment in your rates to a lower credit line to working in a default relationship manner.
- Pricing – I never negate the importance of this factor. However, in the same manner that you don’t just sell price, the old adage “you get what you pay for” certainly also applies when seeking a funder. True, money is a commodity, however, without a strong partnership with your financing source and their ability to assist you and your exponential growth you are short changing your equity development as you strive to sell your business for the highest possible multiple at the time of exit. Therefore, a strong initial agreement with a funding source that provides the ample credit line to support your exponential growth along with a firm understanding of the staffing industry is highly important. This could conceivably prevent losing millions of dollars in upside upon sale for the sake of saving several thousands of dollars in interest charges at present.
In summary, don’t try and build your valuable equity with inexpensive but inadequate capital. As you can see, a good funding relationship is not only based on PRICE, PRICE, PRICE.