Transcript
Speaker: Welcome everyone and welcome to Jay Starkman, the CEO of Engage PEO.
Speaker: Welcome Jay, how are you doing?
Speaker: You'd be good, Pat.
Speaker: Thank you.
Speaker: And yourself?
Speaker: Yeah, I'm doing fine.
Speaker: And it's a pleasure to have you on.
Speaker: And you were sort of on my list of least likely to capture on this because I know you're busy and you're always moving.
Speaker: And it was fortuitous that we were able to intersect at the conference.
Speaker: And I was able to put the arm on you there.
Speaker: You could run, but you couldn't hide.
Speaker: It's like, Jay, you got to get on the podcast.
Speaker: So thank you.
Speaker: Thank you for agreeing.
Speaker: It really is my pleasure.
Speaker: And so, yeah, so we're going to talk a little bit about Jay, you know, and sanitize out any of the bad stuff.
Speaker: And then we're going to talk about Jay and the PEO industry and do that stuff.
Speaker: So, yeah, so I actually don't know.
Speaker: So where did you start?
Speaker: Are you from Florida or where did you start out?
Speaker: So born in New York, moved to Florida when I was eight.
Speaker: Been here ever since, including college.
Speaker: Wow.
Speaker: And so what part of Florida did you go?
Speaker: Did you move to?
Speaker: South Florida.
Speaker: Went to
Speaker: ended up going to FIU and U of M and just stayed down here.
Speaker: Don't mind traveling, but you don't have to shovel sunshine.
Speaker: I was going to say, and so you weren't driven to go back to New York for the horrible weather?
Speaker: No.
Speaker: At any point?
Speaker: It's a great place to go in July and August.
Speaker: Isn't that the truth?
Speaker: Okay.
Speaker: So, of course, you're a reformed lawyer, I think, right?
Speaker: So you ended up going to law school, right?
Speaker: I did.
Speaker: I mean, I didn't start out there.
Speaker: I
Speaker: wanted to be a fighter pilot of all things.
Speaker: Really?
Speaker: Yeah.
Speaker: And went to the Air Force Academy, hurt my knee there and was utterly discharged and was sort of lost.
Speaker: Went to a local school because I was in a knee cast for about a year after the surgery.
Speaker: And, uh,
Speaker: You know, did well in school and didn't know what I wanted to do.
Speaker: So my dad was a federal judge and said, go to law school.
Speaker: So I said, and I went to law school.
Speaker: So did you ever get your pilot's license?
Speaker: No, I did not.
Speaker: That dream faded.
Speaker: So you went to the Air Force Academy.
Speaker: So you had to do the whole thing and get a member of Congress to write a recommendation for you?
Speaker: I did.
Speaker: Yes, I did.
Speaker: I had no idea.
Speaker: And so you were there for how long?
Speaker: Just a year?
Speaker: A short time.
Speaker: I blew out my knee in basic training, tried to hang out, and it wasn't to be.
Speaker: But if you were in a cast for a year, that's a fairly significant injury.
Speaker: Yeah.
Speaker: Yeah, it was.
Speaker: My knee had to be reconstructed.
Speaker: So this is interesting.
Speaker: That takes me back to where you began.
Speaker: So I see, you know, I was going to joke to say, like, what?
Speaker: You move from New York to Florida?
Speaker: No one does that.
Speaker: Right.
Speaker: I'm from New Jersey.
Speaker: Right.
Speaker: Everybody's in New Jersey.
Speaker: New York just heads down to Florida.
Speaker: But that's interesting.
Speaker: But your dad was a federal judge.
Speaker: So how did that happen?
Speaker: Was he he wasn't a federal judge in New York?
Speaker: He became a judge of Florida.
Speaker: Correct.
Speaker: Correct.
Speaker: Appointed by who?
Speaker: Well, I don't remember.
Speaker: I was very young.
Speaker: You know, he's passed away now, but, you know, that was, goodness, probably 40 years ago.
Speaker: And confirmed by the Senate.
Speaker: I mean, a federal judge, that's a big deal.
Speaker: No, no, he was...
Speaker: Administrative.
Speaker: So the administrative branch.
Speaker: It's more local, but yeah.
Speaker: Okay.
Speaker: Got it.
Speaker: That's still, that's a significant title, a significant slot.
Speaker: That's it.
Speaker: Okay.
Speaker: So you get out of law school and what'd you do first?
Speaker: You didn't get into the PO industry right away, right?
Speaker: No, I wanted to jump in and start my own firm.
Speaker: My dad said,
Speaker: You're stupid.
Speaker: You don't know anything.
Speaker: You don't work at a law firm.
Speaker: My dad told me the same thing.
Speaker: Yeah, exactly.
Speaker: So, you know, make your mistakes on somebody else.
Speaker: So I went to a very large, prestigious at the time, law firm in Miami.
Speaker: And I was there three years.
Speaker: And the main thing I learned there was I didn't want to work for anybody.
Speaker: The main thing you learned was you didn't want to work for a big firm in Miami.
Speaker: Correct.
Speaker: So I left there.
Speaker: after three years.
Speaker: So we're now in 91 and started my own law firm with a friend.
Speaker: And we grew that to, I think we had about 20 lawyers at some stage.
Speaker: Wow.
Speaker: And you were doing general practice, Jay?
Speaker: I was a litigator.
Speaker: I was a commercial litigator.
Speaker: Okay.
Speaker: And was there for about a decade in 1999,
Speaker: I had the good fortune of arguing a case before the United States Supreme Court, which was a great experience.
Speaker: Scalia was tough.
Speaker: And after that, what kind of case was it?
Speaker: It was a racketeering case in an employment setting.
Speaker: So I was doing a lot of employment law back then.
Speaker: And I lost.
Speaker: I should have lost.
Speaker: And after that, I migrated a little more out of practicing law to more of managing the firm.
Speaker: We had about 50 employees.
Speaker: And around 2000, I realized that, wow, I really liked...
Speaker: the business side more than I liked the legal side.
Speaker: So one of my clients at the time was starting a chemical, well, a technology company for the chemical industry.
Speaker: And I helped them prepare a business plan and I helped them recruit a CEO
Speaker: who came from IBM.
Speaker: This was late 90s, early 2000s, when everybody was leaving big companies to start up technology companies and make their fortune.
Speaker: And in the recruiting process, which I ran, I really grew fond of the recruited CEO.
Speaker: And one of his first acts was to bring me aboard under him.
Speaker: And I was very fortunate with that because being a CEO, in my opinion, is not a natural skill.
Speaker: It's something that is learned and you have to be taught to do it well.
Speaker: And this gentleman coming from IBM, which at the time had one of the best training programs in the world, and he was in the top 200 there.
Speaker: really took me under his wing and showed me how to do it.
Speaker: And then he left because the timing was not so great.
Speaker: Technology companies in at the turn of the millennium and the product was being delivered to chemical companies.
Speaker: And when markets shift, chemical companies just stop on a dime.
Speaker: CapEx just
Speaker: So it just wasn't to be in that iteration.
Speaker: But I learned so much there.
Speaker: And that was 2001, 2002.
Speaker: Got it.
Speaker: So, okay, I'll pick up back there in a second.
Speaker: I am stuck back on two things.
Speaker: First of all, Air Force Academy argued a case before the Supreme Court.
Speaker: Like, what?
Speaker: We just sort of breezed right through that.
Speaker: So I'll pick up, I promise, back at where we left off.
Speaker: But I mean, I've been to a couple of arguments in the Supreme Court, right?
Speaker: So what was that like?
Speaker: I mean, were you pretty amped up?
Speaker: Let's see.
Speaker: It's 1999.
Speaker: So I am...
Speaker: 35.
Speaker: And you don't have anything that can prepare you for this.
Speaker: There are people there that argue professionally.
Speaker: And so what they tell you,
Speaker: And I was fearless back then.
Speaker: It takes years to realize that you should be afraid of certain things.
Speaker: But I wasn't afraid of anything.
Speaker: But they tell you, listen, it is such an imposing atmosphere.
Speaker: Memorize the first 60 to 90 seconds of what you're going to say.
Speaker: Memorize it.
Speaker: So that you can do it, you know, with a gun pointed at your head so that you're prepared.
Speaker: And so I stand up and probably the only time in my life, my knees buckled.
Speaker: I was that nervous having seen all of the pomp and ceremony there and talking to these incredibly, you know, smartest people in the world.
Speaker: And for those who haven't been there, it's not a cavernous place.
Speaker: It's small.
Speaker: Like they're right there.
Speaker: They're right there, but higher than you.
Speaker: Oh, yeah.
Speaker: You're down here.
Speaker: They're way, way up there.
Speaker: Exactly.
Speaker: So it's a little it even adds to the pressure.
Speaker: Right.
Speaker: and you're prepared for this for six months, nine months.
Speaker: And they start firing questions at you, but they give you that 90 seconds.
Speaker: And then they stop you mid-sentence.
Speaker: And the rest of it was a blur because it was just questions from each side.
Speaker: And it was a split decision.
Speaker: It was six to three against.
Speaker: But the...
Speaker: You get a question from Scalia, who was against me, who was just so smart.
Speaker: But then there'd be a question from somebody else who was on your side.
Speaker: And they'd be battling each other through their questions to you.
Speaker: And your head just spins.
Speaker: So it was like nothing I've ever done in my life.
Speaker: Next to my marriage and birth of my children, it's the thing that has left the biggest imprint.
Speaker: the things I've done.
Speaker: And you would say like one 10th of 1% of all the lawyers in the country have argued with the Supreme Court.
Speaker: I mean, it's just such an unbelievable.
Speaker: I mean, it's got to hear something.
Speaker: I mean, I'm sure it's infinitesimal, but it's just because there's a Supreme Court bar of people in DC who do that, right?
Speaker: Yes.
Speaker: Then if you're not one of those like 20 or 30 people, the Supreme Court are pretty slim.
Speaker: Yeah, no, ridiculously so.
Speaker: And, you know, it was great.
Speaker: But what it taught me afterwards was,
Speaker: was it was really hard for me to go back to being an everyday lawyer.
Speaker: You know, I just couldn't do it anymore.
Speaker: I had reached what lawyers consider the pinnacle.
Speaker: And that's why I went more to something I enjoyed, which was business.
Speaker: Yeah.
Speaker: Okay.
Speaker: So let me fast forward that again and pick back up.
Speaker: I'm sorry for the distraction, but I was so unbelievable.
Speaker: And next time I see you be prepared to talk a lot more about that because that's a fascinating.
Speaker: It's your show.
Speaker: Unbelievable.
Speaker: But OK, so fast forward back to where you were and you had your mentor and person from IBM.
Speaker: It's really interesting where I where I cut you off is when you said I learned a lot from that experience.
Speaker: So what what would you say were your major takeaways from that?
Speaker: Oh, that's easy.
Speaker: Patience.
Speaker: How so?
Speaker: As a lawyer, especially, it's all about deadlines.
Speaker: It's all about your goals and setting standards that you insist upon, as opposed to having to rely on others to do things.
Speaker: And sometimes they don't do it like you would do it.
Speaker: And you have to
Speaker: be patient with their process because it's not yours.
Speaker: So, you know, patients tolerance the same, you know, in the same vein, you have to get much better at delegation.
Speaker: You can't do it all.
Speaker: You know, when I fast forward, I will talk about that again when we talk about engage.
Speaker: And then the third thing, which was very difficult for me, um,
Speaker: was that as a lawyer, there was never any need
Speaker: to put on a happy face.
Speaker: There was never any need to be the constant rock that encouraged people.
Speaker: You know, and the old saying, if a CEO sneezes, the company gets a cold.
Speaker: You cannot wear your emotions on your sleeve.
Speaker: And that was something I did wrong at the chemical industry company.
Speaker: I'm at the technology company before that.
Speaker: So he really taught me to whether it's good or bad that's going on, it's just part of the job.
Speaker: And you have to be the same person in either situation.
Speaker: Yeah, that's a great point and a great lesson, right?
Speaker: Because the CEO is going through highs and lows.
Speaker: The world can't know that.
Speaker: Right, it's exactly right.
Speaker: And look, it's been successful.
Speaker: I have people here at Engage Now with me that have been with me for 25 years across three different companies.
Speaker: Getting people right
Speaker: is the job of a CEO.
Speaker: It's not the other stuff.
Speaker: You can hire strategists.
Speaker: There's plenty of consultants that can do just about everything except the people part.
Speaker: Isn't that true?
Speaker: I say all the time, we're not in the PEO business.
Speaker: You're in the getting the right people on the bus business.
Speaker: And making sure that they are all rowing at the same time and direction.
Speaker: Amen.
Speaker: Amen.
Speaker: Yeah, that's a challenge.
Speaker: Whatever business you're in, you're not in that business.
Speaker: You're in the business of getting the right people.
Speaker: Absolutely.
Speaker: And when you do, it's magic, right?
Speaker: I agree.
Speaker: For me, the last 12 years, it's been magic here because the right team is in place.
Speaker: It's fabulous.
Speaker: But it's all you've accomplished.
Speaker: You just you just wait.
Speaker: You know, you hold your breath and hope you keep it together.
Speaker: Yeah.
Speaker: So, OK, so then what was the move to the PEO industry?
Speaker: So did you lose a bet or what?
Speaker: So my introduction to the PEO industry was at that chemical industry company.
Speaker: We were a customer.
Speaker: We used a PEO and we had, I don't remember, somewhere between 100 and 200 employees.
Speaker: And I had grown very close to the executive team of that PEO, including the founder of it.
Speaker: That PEO that we were a customer of was AlphaStan.
Speaker: Oh, wow.
Speaker: Okay.
Speaker: And...
Speaker: when the chemical industry wound down, not the chemical industry, I'm sorry, when the technology company, it was called OneCat, when it wound down, I spoke with them and agreed to come aboard as president with a wonderful man named Bob Beck.
Speaker: I never knew Bob, but I've heard his name a lot.
Speaker: Yeah, rest in peace.
Speaker: But, you know, it was a great introduction to the industry
Speaker: And it's so interesting because I didn't, you know, I had wound down that job.
Speaker: I was, okay, what am I going to do next?
Speaker: Wow, this PEO thing was so instrumental in what we were doing at the chemical technology company because, look, candidly, I thought workers' comp was a tax.
Speaker: I didn't know any of this stuff.
Speaker: And I had somebody that was handling it.
Speaker: We had, you know,
Speaker: over 100 employees.
Speaker: We had one HR person and it was just wonderful.
Speaker: So I get there and I realize that the reason that I had become so familiar with the executive team of AlphaStaff was that we were one of their largest clients.
Speaker: I think we were their largest client.
Speaker: I would think.
Speaker: That was a shock.
Speaker: So at the technology company, we were selling our services.
Speaker: Our clients were like Vulcan and
Speaker: Dow and DuPont were, you know, it was, you know, Fortune 500, Fortune 100 companies in an incredibly slow moving industry.
Speaker: Technology was not, but the chemical industry clients were.
Speaker: PEO was the opposite.
Speaker: And I couldn't get my head around it first.
Speaker: The fact that this was an industry built around helping small businesses, right?
Speaker: You know, because my goal was to take a small company and make it big.
Speaker: And here was an industry that catered to that small stage.
Speaker: And, you know, without using any names, there were lots of players, prominent players in the industry that were saying things like,
Speaker: if you have more than 100 employees, you're not a good fit for a PEO.
Speaker: And I knew that wasn't the case because we had more than 100 employees as a client and it was a godsend.
Speaker: So that's why I focused from that first day I got there, which was 2003, when, you know, Alpha staff at the time had like 6,000 worksite employees.
Speaker: to really trying to fashion a service and a delivery mechanism that could get to larger clients.
Speaker: Yeah, yeah, yeah.
Speaker: And that's really what we tried to do there.
Speaker: So that's how I got into the PEO industry.
Speaker: Yeah, so that's great.
Speaker: And I knew you'd come through AlphaStaff, but I didn't know that you had been a client of AlphaStaff.
Speaker: I had.
Speaker: And by the way, I didn't even know this, but at the law firm that preceded the technology company, we also used a PEO and I don't remember what it was, but we had always used PEOs.
Speaker: And, you know, I just thought at the time that the combination of the technology background and the legal background
Speaker: was a good fit, which is why I jumped into the industry without knowing that much about it.
Speaker: I just thought it was a great product.
Speaker: Let's learn it.
Speaker: I came to under Bob and then took over for Bob in the seven years that I was there.
Speaker: So in the seven years when you got there, they had 6,000 worksite employees.
Speaker: When you exited, and I'll get to that in a minute, what was the worksite employee count?
Speaker: 70,000.
Speaker: Damn.
Speaker: Damn.
Speaker: Okay.
Speaker: So how'd you do that?
Speaker: You know, it was a function, a little different than we did at Engage.
Speaker: It was some larger clients.
Speaker: It was, you know, look, I think our average client size there was like 40 employees, which wasn't that much larger than what the industry was doing at the time.
Speaker: But we hired a lot of salespeople.
Speaker: For a company our size, we really invested in salespeople and
Speaker: And Bob, his father was the CEO and chairman of Prudential.
Speaker: Wow.
Speaker: Robert Beck Sr., just a force of nature.
Speaker: And because of that, our board at Alpha Staff was filled at the time with high-level insurance, right?
Speaker: guys.
Speaker: And so Bob had pioneered before I got there, trying to go through market.
Speaker: I didn't love the way he was doing it at the time, but trying to go to market through with referrals from insurance agents.
Speaker: He was actually trying to get them to sell the product.
Speaker: But
Speaker: there have been a few PEOs that have tried that.
Speaker: It's not really effective.
Speaker: Insurance people know insurance and that's what they sell.
Speaker: So I didn't think that was a great way to go about it.
Speaker: But with lots of feet on the street, plus the agency channel, which I think accounted for about 50, 60% of the business back then, and one acquisition,
Speaker: There was one acquisition, an insurance company called Selective Insurance owned a PEO.
Speaker: I think it had about 15,000 worksite employees.
Speaker: But everything else was organic there.
Speaker: Wow, that's impressive.
Speaker: And by the way, we have this ongoing debate here, you know, because so much of our marketing materials are, you know, a great solution for small business.
Speaker: And a bunch of people, you know, members are like, hey, quit saying small business.
Speaker: Okay.
Speaker: What's your average client size?
Speaker: 22.
Speaker: Okay.
Speaker: You know, yes.
Speaker: But, uh,
Speaker: Yeah.
Speaker: So were you able to upsell and get some because you certainly knew what you're talking about in terms like, no, I came from a 200 person company.
Speaker: I mean, is that a space you did crack?
Speaker: Is that a space we can crack?
Speaker: We made inroads is the best way to describe it by identifying some industries that were well suited to PEO, hotel chains, restaurant chains,
Speaker: large doctor's offices.
Speaker: So by looking at these companies and they, you know, what they had in common was decentralized, multi-location, multi-state, but larger, often growing by acquisition.
Speaker: We migrated up, but I don't want to understand what we did there, but we were a PEO.
Speaker: There wasn't anything newfangled or special with maybe some of the business coming from the insurance agents and a
Speaker: top end sales force.
Speaker: I've never been good at training young salespeople.
Speaker: There are some PEOs.
Speaker: In fact, there's a large PEO.
Speaker: Again, I'm not going to mention any names, but there's a large PEO that I asked the CEO, a national public one, what they do better than anybody.
Speaker: And his answer was, and this is years ago,
Speaker: We train young salespeople.
Speaker: And I said, wow, that's never would have thought of that.
Speaker: And I realized that in some models, you got to do that.
Speaker: I've never.
Speaker: So we have a very high powered, high priced sales force that accomplished those goals.
Speaker: Probably hired from that company that was training the young salespeople.
Speaker: Right.
Speaker: Because some graduate.
Speaker: Right.
Speaker: Right.
Speaker: And, you know, look, so I think we got up over 40 worksite employees per company, but it wasn't.
Speaker: It wasn't.
Speaker: a fine-tuned product yet there to do that.
Speaker: So inroads, but didn't accomplish the goal.
Speaker: Yeah, yeah.
Speaker: So obviously there's a lot of M&A, and we'll get to that a little bit more in depth.
Speaker: But then walk me through the decision to do
Speaker: sell AlphaStan for the decision to exit.
Speaker: You're going along.
Speaker: I was a hired gun, right?
Speaker: I had a small piece.
Speaker: Just as typical CEO.
Speaker: The decision was made by Bob after the growth that we had had.
Speaker: I mean, we'd grown tenfold.
Speaker: And it had been, I mean, he had formed the company, I think, seven or eight years before I got there.
Speaker: So the money that had come in, the initial investors and his money, because there were probably, I don't know, 50 investors.
Speaker: I'm not sure how many.
Speaker: It had been 12, 13 years since they had put money in.
Speaker: So it was time to realize it.
Speaker: It was sold to a private equity group.
Speaker: We saw things differently.
Speaker: And I exited.
Speaker: Mm-hmm, okay.
Speaker: About, I want to say,
Speaker: maybe a year after they came in, maybe two years actually.
Speaker: Yeah, I stuck it out for two years and we mutually agreed that it wasn't a great fit.
Speaker: They had certain conceptions of where they wanted to take the company, which were not consistent with what I thought was best.
Speaker: And I suggested that they get somebody that could do what they were looking to.
Speaker: And since then I've had many companies
Speaker: private equity partners.
Speaker: And, you know, they all ask you the same question, what are you looking for?
Speaker: And the number one answer learning from that experience was unity of vision.
Speaker: You have to have the ownership, the CEO, the executive team, all sharing the same vision for where a company is going to go.
Speaker: And then
Speaker: that vision can be evangelized throughout the entire organization.
Speaker: But if it is not uniform at those upper levels, it's chaos.
Speaker: And I woke up one day and said to my wife, this isn't fun.
Speaker: Yeah, sounds like it.
Speaker: So what was the distance between that and engage?
Speaker: Two years.
Speaker: Okay.
Speaker: Quite candidly, I didn't have any plans.
Speaker: I know that there have been some exits and then people decide, knew when they exited, they were going to start their next thing.
Speaker: I wanted nothing to do with PEO.
Speaker: I had a little bit of a bad taste from that series of events.
Speaker: And again, nobody was a bad guy.
Speaker: I don't want to convey that the wrong way.
Speaker: It was just that
Speaker: the direction of the company under their ownership needed to change what I had put together.
Speaker: So it was time for somebody else to come in and take it in that direction, which I didn't believe in.
Speaker: So I had a few thoughts about what I wanted to do.
Speaker: And I actually got pretty far down the path of one of them.
Speaker: I even considered being a lawyer again.
Speaker: And I had done well, so it really wasn't about the money.
Speaker: But I had at the time, and again, I got to be careful about what I say because there's still confidentiality around this.
Speaker: I was recruited to go run a national PEO at the time.
Speaker: Mm-hmm.
Speaker: And I said, no, no, I got to wait till my non-compete is up to even talk to you.
Speaker: And then talk to them and realized, oh, the industry hasn't changed that much from when I first jumped in.
Speaker: Because this is 2011.
Speaker: Wow.
Speaker: It hadn't changed that much.
Speaker: 2012.
Speaker: And I realized that there was still, well, there were some very big names.
Speaker: There was really no clear market leader.
Speaker: And
Speaker: the industry had still not solved for this thing that I had seen back in 2003, which was it fits from larger clients.
Speaker: It really does.
Speaker: So I looked at buying a couple of PEOs.
Speaker: We, friends and family and myself had put together a little war chest and,
Speaker: And all of the things that I looked at, I realized I'll have to change so much.
Speaker: And I didn't have that much money at the time.
Speaker: I had to do my own market research.
Speaker: But I did, I'll never forget this.
Speaker: I went to large company CEOs, large being had to be over 100 employees.
Speaker: And I said to them, look, I've been here, done that.
Speaker: What would cause you to either go PEO,
Speaker: Or if you made that decision for whatever reason to select a PEO.
Speaker: And I got the same thing again and again was look, it's not payroll.
Speaker: If I just needed payroll, there are people that can do payroll for pennies and they do it really well.
Speaker: It's also not the insurance products because that's what insurance agents are for.
Speaker: And there's tons of that.
Speaker: Yes.
Speaker: There's some value to the overall outsourcing value proposition and
Speaker: I hate the phrase, but one throat to choke, right?
Speaker: But what we really could use help with is HR.
Speaker: We're larger, we're multi-state.
Speaker: We have more interesting issues.
Speaker: We have issues that aren't something that the typical account manager, which is the typical PEO model,
Speaker: is familiar with.
Speaker: So if you could help there, that would be really valuable.
Speaker: Interesting.
Speaker: And that's what I used to decide to go start Engage.
Speaker: And it was, you know, a business plan to recruiting my first executives, uh,
Speaker: first was a technology friend that has been with me since the technology company.
Speaker: Um, and second was, uh, a woman and friend to this day, Mitch Seltzer.
Speaker: Sure.
Speaker: Yep.
Speaker: I went over to, uh, you know, put together engage.
Speaker: Um, and, uh,
Speaker: You know, she helped with the operational side and I owned the sales side and I was salesperson number one.
Speaker: But that matters, doesn't it?
Speaker: Like when the CEO is, when you're doing sales calls, you're not insulated, right?
Speaker: Well, look, I'm a sales guy at heart.
Speaker: I mean, I was a sales guy when I was a commercial litigator.
Speaker: But, you know, as a startup,
Speaker: I've done two now.
Speaker: And it's different.
Speaker: When you go to that first sales call and the client asks you, so how many clients do you have?
Speaker: And I'll never forget, I was brazen.
Speaker: So my answer was, can I count you?
Speaker: Because the answer was not good.
Speaker: I didn't get that deal, but I polished that up a little later.
Speaker: But no, it's a tough thing.
Speaker: We knew what to put together.
Speaker: Right.
Speaker: We knew to put at the time it was HRP in place.
Speaker: We knew that we had to have an account manager, a payroll processor, you know, some workers comp product, et cetera.
Speaker: But getting from concept to clients is always the tricky part.
Speaker: And that first year, you know, we added about a thousand worksite employees selling this different product.
Speaker: But it was, it was a slog.
Speaker: Yeah.
Speaker: But you guys had really explosive growth after that.
Speaker: I mean, is it, first I knew you guys were a startup and second, I knew you weren't a startup anymore.
Speaker: You were, I remember attending a NAPIO meeting.
Speaker: And yeah,
Speaker: Hurlberg walks up to me and we had always been colleagues and friends and competitors because he was at Oasis.
Speaker: I was at Alpha Staff.
Speaker: We live 30 miles apart and we had both grown our companies for many years and we both would take employees from each other for years.
Speaker: So he's like, what's the PEO here?
Speaker: And I'm like, I am the smallest PEO here.
Speaker: I am the PEO.
Speaker: And he laughed and he said, not for long.
Speaker: He's such a good guy.
Speaker: But, you know, we started, our first client started in 2012.
Speaker: Okay.
Speaker: And today we have about 80,000 worksite employees.
Speaker: So in the better part of a decade, we've grown from zero, literally, to 80,000.
Speaker: And I think that's faster.
Speaker: Well, I know it's faster than any other PDM.
Speaker: Yeah, absolutely.
Speaker: And so I'll ask you what I asked with Alpha staff.
Speaker: How?
Speaker: This time I've got a better answer.
Speaker: Okay.
Speaker: And by the way, you guys also, I spoke to a group that Midge brought up here a couple of years ago.
Speaker: It impressed me that you had like, you know, the garden variety HR person, you know, answering the phones were lawyers.
Speaker: Yes, that was the difference, right?
Speaker: So we brought, we turned the model on its head a little.
Speaker: The PEO motto that I grew up with has an account manager that's delivering HR services.
Speaker: And when the questions come up that are a little outside the normal HR world, that account manager at some PEOs becomes a Google lawyer, right?
Speaker: What do I do if?
Speaker: And at the end,
Speaker: Other PEOs, that account manager will go to a legal support person, get the right answers and deliver it.
Speaker: So at Engage, what we do is very different.
Speaker: We have that same account manager, but they're focused on account management.
Speaker: They're SHRM certified as well.
Speaker: And they do deliver some HR, but the stuff that's in their alley and
Speaker: partnered with them hand in glove is an HR, we call them HR consultants, but they're lawyers, they're labor and employment lawyers that are also delivering the HR service to the clients.
Speaker: Because again, the product was designed to solve that, can we go to larger clients?
Speaker: So we built that product
Speaker: And quickly realized, I'll date ourselves because I said this to somebody else that was a little younger and they said, what's that from?
Speaker: But I realized quickly that if we built it, it was not going to just come, you know, so feel the dreams.
Speaker: But we realized that if we were going to go get larger clients, we had to have a referral channel.
Speaker: that was going to be able to deliver us the opportunities to the decision makers.
Speaker: A typical PEO sale, your salesperson is calling in, maybe working in the center of influence, but if you call in
Speaker: to a 20 person company, a 10 person company, I don't know what the exact numbers are.
Speaker: I think average size is somewhere in the 20 range.
Speaker: About 22.
Speaker: Okay.
Speaker: Low 20s.
Speaker: You call into that client, that prospect, you have a shot at getting to a decision maker.
Speaker: If you're calling into a hundred, 200 person client, you're going to get a gatekeeper.
Speaker: And if
Speaker: heaven forbid you get a director of HR, also known as the kiss of death for PEO, you're just not gonna get anywhere.
Speaker: So you have to have referral partners that can take you to that larger client decision maker.
Speaker: And for that, we partnered with insurance agents.
Speaker: And the insurance agents
Speaker: You know, look, they resell.
Speaker: That's what they do.
Speaker: So their stock and trade is relationships.
Speaker: You know, I joke with my PNC friends that they have the best golf games on the planet and they have those relationships.
Speaker: So if you have a differentiated product, which Engage did, if we have these referral sources partnered because you can't let agents sell, PEO, partnered with
Speaker: tenured, experienced salespeople, you're able to grow like we have.
Speaker: Our average client size before the M&A that we did, or excluding the M&A, is about 75 employees per client.
Speaker: Wow.
Speaker: It's about three times the industry average.
Speaker: Yeah, absolutely.
Speaker: Yeah, that's impressive.
Speaker: And so...
Speaker: If you're selling to a company that much larger, you can grow that much faster with the same amount of deals.
Speaker: Absolutely right.
Speaker: Absolutely right.
Speaker: So yeah, I talked about M&A a little bit before.
Speaker: So talk to me about acquiring and being acquired, right?
Speaker: Can I take one step back first?
Speaker: Yeah, sure, sure.
Speaker: So the other thing that really drove me
Speaker: progress to get to these larger clients was Napio driven or ESAC driven, I'm not exactly sure.
Speaker: And that was 2014.
Speaker: where the industry suddenly became legitimized.
Speaker: I forget what SBEA stands for, but with the Federalist Sufficiency Act is embedded in my brain.
Speaker: Yes.
Speaker: Okay.
Speaker: And I remember because at the time I had gotten roped into being on either the NAPIO or the ESAC board.
Speaker: And there was a vote
Speaker: on whether we should continue to pursue that federal legislation.
Speaker: And fortunately, I was on the right side of it, but I don't mind telling you that it was not a unanimous vote because back then the people on the board, there were a large share of them that thought it was a pipe dream.
