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Episode 64
341 Plays6 months ago
News for the week beginning 3 June 2024
and Question of the Week: "Why is it so difficult to rapidly scale a recruitment agency."
#rna #recruitmentnewsaustralia #recruitmentpodcast
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Transcript
Collar Group's Financial Troubles
00:00:09
Speaker
This is the news for recommencing the 3rd of June, 2024. I'm Adele Last. Further details about the state of collar groups finances have been revealed by industry news service shortlist after the announcement of the group's voluntary administration last Monday. The ATO is owed at least $20 million and trade creditors are owed at least another $1 million. Administrators INR in a statement said, a period of significant and unprecedented growth
00:00:37
Speaker
put Collar's ability to balance this against its operating costs under considerable pressure. Shortlist also revealed Collar's largest secured creditor, payroll finance company A Positive, introduced the administrators to Collar founder and CEO Ephraim Stevenson in January this year and discussions had been ongoing during the past four months. The ATO's issuing of a director penalty notice to Stevenson was the apparent trigger for the administrators to be called in.
00:01:05
Speaker
Collar continues to operate as usual for the time being as the administrators take control of the company from Stevenson. A positive founder Danny Marlowe has reiterated the company's ongoing support for the business. The administrators are expected to make an announcement about the options for the company's future after they have conducted a full review of the business expected to be completed by the end of the month. Stevenson has not made any public statements since the voluntary administration was announced and his future remains unknown.
Federal Tech Workers Face Challenges
00:01:35
Speaker
A survey of federal government tech workers by Professionals Australia, PA, found a huge gap in pay, career prospects and major issues with bullying. PA is the union representing around 20,000 workers in IT, engineering, science, mining, pharmacy, management, architecture, language translation and interpreting. Their employment and remuneration trend survey polls around 1,500 respondents and compares sectoral performance.
00:02:02
Speaker
Public sector tech and IT professionals received a median salary increase of 2% while private sector employees received almost three times this increase at 5.8%. As a result, the majority of tech and IT professionals experienced a decline in real wages. Tech and IT professionals working in the public sector were most affected, the PA survey reported. Services Australia has revealed that the pay gap for IT developers between public and private sectors is around $100,000 a year,
00:02:31
Speaker
creating huge recruitment and staff retention challenges. Public sector IT professionals suffered bullying disproportionately compared to their peers in the private sector. Being excluded was the most common antisocial behavior reported by tech and IT professionals responding to the survey. Discrimination bullying were also more common in the public sector. Almost three times as many public sector employees reported experiences of bullying over the previous 24 months
00:02:58
Speaker
compared to private sector employees, said the survey. The survey also noted women working in tech and IT in Australia, covering both private and public sector tech roles, are being paid up to 14% less than men and are twice as likely to be bullied or harassed.
University of Queensland Underpayment Apology
00:03:16
Speaker
One of Australia's largest universities underpaid almost 10,000 casual staff members by more than $7.5 million over seven years.
00:03:25
Speaker
The University of Queensland has sent an email to staff apologising for the mistake, which it said related to the minimum hours of engagement for casual academic and casual professional staff and the use of a different pay rate for casual academic staff with a relevant PhD. The email from Vice-Chancellor Professor Deborah Terry said the period span from January 2017 to December 2023 and the total amount owed to the 9,743 affected staff
00:03:54
Speaker
was $7.88 million. That figure does not include any interest or superannuation. Vice Chancellor Terry said the median amount owed was $243. The underpayment was discovered in a pay review initiated in October 2021. National Tertiary Education Union Queensland Secretary Michael McNelly said the scale of the underpayment was staggering. He said the incident was the latest in a series of underpayment problems plaguing the sector
00:04:21
Speaker
which he has said eclipsed $180 million nationwide. The Vice Chancellor's email said a repayment scheme, including superannuation and interest, would begin on June 14.
Accordant Group's Financial Struggles
00:04:32
Speaker
New Zealand publicly listed Accordant Group, owner of recruitment brands AWF, Madison Recruitment, Absolute IT, Hobson, Levy and Jackson Stone and Partners, reported group revenue for the year ended 31 March 2024
00:04:49
Speaker
of $212 million, 6.6% lower than the prior year. The after-tax loss of $10 million for the year included $6.5 million of goodwill impairment on the Madison recruitment acquisition. AWF was the only accordant brand to report a rise in sales with a 7.9% improvement compared to the prior year's result. The company's market capitalization stands at just over $16 million New Zealand dollars.
Arthur Grand Technologies Discrimination Issue
00:05:19
Speaker
The US Departments of Justice and Labor last week announced that they've secured separate agreements with an IT recruitment agency, Arthur Grand Technologies, over a discriminatory job posting seeking only white candidates. According to the Justice Department, a recruiter working for Arthur Grand subsidiary in India posted a job advertisement in April 2023 on job website Indeed for a business analyst position with the company's sales and insurance claims team in Dallas.
00:05:48
Speaker
The posting included a bolded note stating, only born US citizens, and in brackets, white, who are local within 60 miles from Dallas, Texas, then also in brackets, don't share with candidates. The position was intended to serve two clients, HTC Global, an IT company based in Michigan, and Berkshire Hathaway based in Omaha, Nebraska, best known as investment guru, Warren Buffett's holding company.
00:06:15
Speaker
The company earlier denied approving the ad and said it had been placed by a disgruntled worker looking to embarrass the company. Under the Justice Department settlement, Arthur Grant will pay the US Treasury $7,500 in civil penalties, train its personnel on the INA's requirements, revise its employment policies and be subject to departmental monitoring. Under the Labor Department's conciliation agreement, the company will pay $31,000 to compensate those who filed complaints.
00:06:44
Speaker
Additionally, Arthur Graham will provide training for all company employees involved in recruiting, selecting candidates or tracking expressions of interest for open positions.
Multiple Jobs in Australia: Economic Challenges
00:06:54
Speaker
One in five Australians are working a second job to keep up with rising costs, and almost half are afraid they will be let go, according to a survey by the world's largest recruitment agency, Randstead. An annual employment survey of more than 6,000 Australians has found inflation and an employer-driven job market are pushing workers to take on a second role, while 18% are working more hours with their current employer to make.
00:07:18
Speaker
ends meet. Two in three are staying at their job rather than seeking better pay elsewhere and only 12% had received a pay rise that kept up with rising costs, the RANSED data revealed. The survey reported 44% of Australian workers were worried about losing their job despite the jobless rate sitting at 4.1%. However, with consumer sentiment drying up and tighter margins for businesses, the federal government forecasts the unemployment rate could rise to 4.5% next year.
Return-to-Office Policies: Impact on Performance
00:07:48
Speaker
Recently released research shows bringing workers back into the office is making no difference to the bottom line, but employee satisfaction has plummeted as a result. Mark Ma, an associate professor of business administration for Pitt Business, analyzed companies that had forced employees back to the office five days a week. All these companies were part of standard and pause 500 firms, which are the largest companies listed on the US stock exchanges.
00:08:15
Speaker
The results showed that while many of the companies said that they were bringing employees back to the office to improve the bottom line, there was no significant changes in financial performance or to the value of the company after the mandates were implemented. However, a sharp decrease in employees' job satisfaction was recorded. Other research on the topic by global consulting firm Gartner shows that on average employees are 8% less likely to report an intent to stay in their role when their boss issues an RTO mandate.
00:08:43
Speaker
for high performing employees, however, the costs for companies are even greater, as employee intent to stay decreased by an average of 16%. According to Gartner, high performing employees who often interpret return to office mandates as a sign that their organization does not trust them to manage their workload.
00:09:03
Speaker
The unemployment rate across OECD countries remained at 4.9% in March, unchanged from the prior month. The OECD highlighted that the rate had been at or below 5% for the last two years.
00:09:16
Speaker
In March, 15 OECD countries reported a rate below or equal to 5%, including Germany, Japan, Mexico, and the United States. Overall, the rate was unchanged in 22 OECD countries.
Scaling Recruitment Agencies: Collar Group Example
00:09:31
Speaker
It rose in eight and it declined in two countries. And that's the news for the week beginning the 3rd of June, 2024. I'm Ross Clennet.
00:09:52
Speaker
Question of the week this week prompted by more news about the Collar Group and their voluntary administration. Why is it so difficult to rapidly scale a recruitment agency or at least in this country? Adele, what do you think? This is something that obviously is all over the industry at the moment in terms of what people are talking about and trying to perhaps find some lessons learnt from the Collar situation at present.
00:10:21
Speaker
It's got to be to do with the people. I think the biggest resource in trying to scale a business and therefore the biggest risk is obviously trying to hire people and the investment you're making in salaries. It's always the biggest cost to a business anyway. And when you're trying to scale, it's going to rapidly grow. You're going to try to hire experienced people. They are costly. And so that's the starting point for me.
00:10:47
Speaker
And typically those people are going to need above market salaries. They're going to need above market bonuses and commissions. And when you look at the businesses like Cola and I think Future You being a recent example,
00:11:01
Speaker
that certainly what was well publicised around the industry was pretty decent based salaries above market and also bonuses and commissions. And of course, the other thing is if you're looking to scale rapidly Adele, you need senior people who mostly are not fee earners themselves. So they're gonna be bringing in teams of people. So it's not just expensive people, but you've got expensive people who are in non billing roles.
00:11:27
Speaker
And that's, boy, that's certainly putting a lot of pressure on your cash flow. Absolutely. I think also, and I don't know if it's the case in this case as a disclaimer around collar situation, but I often see a lack of planning, a lack of long-term strategic planning by a lot of business owners, even down to something as simple as a business plan. No, they either don't have one, they don't like to do one, they don't maintain it.
00:11:54
Speaker
They don't see the point of it. They feel restricted by having a business plan. But that's the map for everybody in which to find the treasure, so to speak. That's what we're doing and then how we're going to do it. And if that's not clearly documented and defined, it's really hard for people to follow where you're going.
00:12:12
Speaker
And a very important part of a business plan is risk management or risk mitigation. And that's something that's even more important when you're trying to grow a business rapidly, because you've got a lot of people, there's a lot of pressure to generate sales quickly. There's pressure to just potentially take shortcuts. And you've got people who are all relatively new,
00:12:39
Speaker
systems and processes can't be that robust because they're all relatively new. All of those things create much greater risk. And that is something that a good business plan outlines and certainly would seem from what we know about the demise of Collar, or at least in terms of going into voluntary administration, that their risk management was lacking.
00:13:08
Speaker
Yeah, there is a really slim margin of error when we're talking about companies scaling at that sort of speed. But what are the other things you think that make it so difficult?
Prioritizing Sustainable Growth in Recruitment
00:13:19
Speaker
Well, I think Collar again is a good example. Clearly, as we've read in shortlist, that A positive were funding the invoices of the Collar contract on higher business. Now,
00:13:33
Speaker
Nothing wrong with that, except you've got to make sure you get your margins right, because otherwise the financing costs can eat up a lot of the margin. And again, the pressure to bring in sales quickly inevitably means you're pitching for lower quality work or lower margin work.
00:13:53
Speaker
And if you're also having to factor in payroll financing, it's really not leaving much for the covering of overheads and consultant salaries. I mean, just to give you an actual real life example, Ignite was Clarius.
00:14:09
Speaker
they have a debt of finance facility. And in the 2022 and 2023 financial years, that facility cost them $4.3 million. And in the same two year period, they only made $7.4 million of gross profit after they paid the consultants. So that is an enormous amount. That's more than half of the gross profit
00:14:35
Speaker
that was left after consultants were paid going to debtor financing. And obviously, I don't know the specifics of Collars debtor financing, but it does show you that if you're reliant on debtor financing, it's going to take up or eat up a very large amount of your expenses very quickly, particularly if you're pitching and winning low margin work. And as you said, it's about really understanding how your margin
00:15:03
Speaker
is constructed what it's made up of because I don't think enough recruitment agency owners and people who are even doing the pricing and the bidding understand how to do that properly and understand that there is a cost of goods sold just like in any other manufacturing type business. There is a cost for our delivery and a lot of people don't understand that or don't even bother to work that out. They're not looking at for every dollar we make how much are we actually getting into the bank after
00:15:33
Speaker
all of those things like salary costs and debt of finance and, you know, obviously keeping the lights on and all of those things. So I think it's a general understanding, okay, I've got to make enough money to cover all that stuff and have a little bit of profit. But are you really understanding what each dollar
00:15:48
Speaker
what each hourly rate is costing you and how much you're getting out of it. And again, when you're looking to build quickly, those things are not pored over. They're not seen to be as important as getting out there and building sales. And that leads to another problem with scaling or attempting to scale a recruitment business quickly is the pressure because
00:16:13
Speaker
You've got money that needs to be repaid. You've made promises to investors or you've got commitments to financiers. And so from the top, every day, there's a sense of, well, what work have we won? What invoices are going out?
00:16:29
Speaker
And if there's a dip just a day or two or three, then surely the person or people at the top are then feeling like, oh, a little bit stressed. They're putting pressure on their leaders who are putting pressure on their consultants. So there's this cultural problem or potential cultural problem of people just feeling under pressure the whole time. And the only thing that really matters is making a sale, getting an invoice out.
00:16:56
Speaker
And that's not conducive to a strong culture. It's not conducive to people feeling relaxed at work or feeling like that they can make sound and consider decisions. It just becomes all about sales. And of course, the moment people feel too pressured, they're going to start to crack. They're going to take leave, mental health leave. They're going to resign. They're going to start gossiping. And all of those things are going to undermine
00:17:25
Speaker
the attempts of the business to build sustainable and quick sales. That's a really important one, I think, Ross, because there is a really important connection between how safe people feel, how psychologically safe and how culturally safe they feel in their role in the organization and their ability to perform. Because if you're feeling, like you said, under pressure, if you're feeling that, you know, it's a bit of kind of
00:17:53
Speaker
owner whiplash, you know, they create this whiplash situation where they're changing direction or they're, you know, quickly making decisions and changing things back and forth. And it's really hard for a lot of people in the business to follow that or to understand, okay, we're going here now, we're going there and I don't understand what's happening and, you know, and then there's doubt and then there's mistrust and then there's fear and that, you know, it filters all the way down. So I think that one is
00:18:19
Speaker
a really important one, maybe a bit of a sleeper in it because people won't think about that until much later. But culturally, that is, you know, that's a killer, that start of that kind of situation where people feel under panic all the time in a panicked situation leads to poor performance straight away.
00:18:37
Speaker
And I think the other thing around that is that often when very good people have been hired in numbers quickly, there's the temptation to make promises that aren't going to be kept to say something to get someone to join. And I know, and I wrote about this in my Future You blog that one of the promises made to many.
00:19:06
Speaker
of the senior people, I don't know how many, was about equity and about the potential acquisition of the stake in future you and many months went by where promises were made about, yeah, we're getting there, we're getting there, we're getting there and
00:19:24
Speaker
people finished up leaving because these promises about this equity scheme were just not fulfilled. And then people just go, Oh, well, it was all hot air. And so they left. Now I'm sure the future you leaders were genuine in wanting to provide equity.
00:19:42
Speaker
provide equity, but they didn't have the detail quickly enough for the people who wanted it. And so ultimately, those people went, nah, I've been sold. It's a broken promise. And I'm basically out of here to broken promise. And then
00:19:57
Speaker
That again is another problem in attempting to scale quickly, the temptation to make promises that you haven't fully thought through, you haven't fully costed, you perhaps don't understand how much work is involved. Like that's a massive risk. Yeah. So in terms of growing a recruitment agency, you know, I guess what we're both saying is sustainable growth is always going to be
00:20:24
Speaker
far more attractive than rapid and large scale in a really quick period of time. I mean, grow from the bottom up, not from the top down, and you're much more likely to grow profitably and sustainably. And if you look at the history of businesses now that are either close to 100 or more than 100,
00:20:48
Speaker
businesses like Six Degrees Executive and People to People and Sharpen Carter, many others. I know it's just that those businesses I know a little about, they are all slow burns. They are all businesses that have grown profitably slowly and they haven't gone through a huge hiring spurt. And I think they are model businesses for long-term sustainable, profitable growth.
00:21:15
Speaker
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