The End Of Staffing

The End Of Staffing

Reprinted from Forbes Magazine.

Staffing is a big business — an enormous business, in fact. How many industries can you think of that can support over 140 companies with at least $100 million in revenue — just in the United States?

It’s dominated by a set of slow-moving giants, like Adecco and ManpowerGroup. Each generates tens of billions in revenue annually.

I've had an opportunity to get to know the industry up close. When I was an entrepreneur, I started and sold a company at the nexus of edtech, careertech and recruiting. And since I joined 1984 Ventures, a venture capital firm that invests in seed-stage companies, we've invested in several tech-enabled staffing companies. Those experiences have led me to a clear conclusion: This is an industry that's going to look radically different in 10 years.

How It Started

The need for staffing companies arose early alongside the growth of large corporations and the entrance of women into the workforce during World War II. For instance, three of the largest staffing companies — Manpower, Robert Half and Kelly Services — were started in the 1940s. They expanded quickly in response to the need of large companies to access short-term labor pools.

As time has gone on, the largest staffing companies have spread through the use of hundreds of offices and an international on-the-ground presence. And where they truly excel is in their deep sales relationships and integration with Fortune 1000 companies. But in the past few decades, technology has begun to change the way that people are hired for full-time roles — through job boards, applicant tracking system (ATS) platforms, training and education tools, mobile apps and more — and while that tech hasn't infiltrated the staffing industry yet, it's coming.

Today, we’re seeing the application of artificial intelligence (AI) to hiring. Startups are just figuring out how to attack this challenge, but within the next few years, some companies will emerge that are tackling this in a meaningful way. But the world's best AI engineers may not want to go work for a company that was started in the 1940s.

All of this spells big trouble for big staffing. So, on top of rapidly improving tech, why is the staffing landscape radically changing?

W-2 Vs. 1099 Employment: One of the change drivers is the evolution of W-2 vs. 1099 employment. In some instances, government regulations are starting to require staffing agencies to employ people as W-2 employees — such as in senior care. In addition, staffing agencies that employ workers as W-2 employees are much more attractive to workers. Here's why: The W-2 designation reduces employees' tax burden, freeing them from paying "self-employment taxes" as well as making them eligible for insurance, worker's comp and so on.

Startups in this space are beginning to incorporate this into their business models from the beginning by onboarding candidates as their own W-2 employees. In the meantime, the giants of the industry are just starting to recognize that market needs have changed at all.

Changing Expectations: Another driver of transformation is the expectations of contract workers. Today, 1099 work is attracting more and more talented people, and staffing agencies are going to have to demonstrate increasingly more compelling value to compete for them.

Candidates don’t want to walk into offices to sign up for work opportunities. And once they’ve signed up, they want education, guidance and more while they’re waiting for jobs.

For example, companies like Lambda School and Juno College of Technology are offering education and training first and then taking a piece of the candidate's salary after they help her or him land a job. While these companies and their peers aren't staffing agencies, they are changing expectations.

Given the emerging alternatives, working with a staffing agency that's going to place a candidate in a temporary job and take a large chunk of her or his salary without offering any training on the front end is going to look increasingly unattractive. If a candidate desperately needs a job, then she or he may choose to work with a staffing agency for the sake of finding work faster, but, in general, talent will gravitate toward better value propositions.

Other Catalysts: A range of additional catalysts are driving real change in staffing as well, from AI and better candidate matching to the desire of companies to hire teams rather than individuals. A potent brew of changing times, expectations and technology are on the cusp of radically shifting the staffing landscape, upending longstanding public companies and creating new tech-enabled juggernauts.

There's low-hanging fruit in this industry, and entrepreneurs are taking advantage of the tectonic shifts taking place. In fact, just embracing the best practices that have emerged in full-time hiring and applying them to a staffing model would give entrepreneurs an advantage over incumbents. Imagine a company that captures candidates through web and mobile, offers digital training options and connects them with employers through AI-driven matching and W-2 hiring. Then think about the shift in technology, culture, business model and capabilities that would be required for traditional staffing companies to compete.

Sharp, tech-savvy startups are beginning to attack the space. Venture capital firms are funding them. A range of companies (including some of our portfolio companies) is applying technology to a space desperately in need of it — and the market is rapidly responding. Each of these companies will take bites, worth hundreds of millions or billions, out of the staffing market — and vertical by vertical, they’ll whittle it down.

Victor Doty

Retired Career&Technical EducationDirector Henderson Co

5 年

Well done my friend!

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Aaron Michel

Founder-Turned-Investor

5 年

Uber's newly unveiled approach to the shift/gig market helps point towards how this space may evolve over time. Thanks for the article Rahkeem Morris.? https://www.google.com/amp/s/techcrunch.com/2019/10/03/uber-launches-a-shift-work-finder-app-uber-works-starting-in-chicago/amp/

Rahkeem Morris

CEO & Founder at HourWork | 1/2 Vice Chairperson @ Franklin Cumming Tech | Fmr. Mass Future of Work Commissioner

5 年

Excellent write-up! Gave me a lot to think about. From my conversations with owners and executives of staffing companies, I'm witnessing a willingness to embrace technology that I haven't seen before.

Well said, being on the staffing & project front, I’m seeing a shift in patterns of what clients (companies & candidates) are requiring ...project based deliverable teams vs individual staffing and training focused on career growth. Exciting times for the staffing industry.

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