Recruiter Start Ups Supplement- March 2015 by Redactive Media Group

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March 2015

Starting your own recruitment business A

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Starting your own recruitment business

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Starting your own recruitment business

LEAVING YOUR EMPLOYER AND SETTING UP ON YOUR OWN CAN BRING UP MANY ISSUES. DEEDEE DOKE INVESTIGATES THE LEGAL SIDE TO START-UPS

Swot up on the legals

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In the euphoria following your decision to start up your own recruitment business, reality sets in. If you’re like many who opt to take the plunge into self-employment, taking on the responsibilities of a sole trader or a limited company, the next thought is “What do I do now?”

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Chances are, you are still on the payroll of another recruitment company. If so, tread lightly — make your exit with class, style and admirable professionalism. Even more importantly, especially if you plan to compete within the same sector or locale, do it legally and start your business on the firm footing of best practice. That means fulfilling both the letter and spirit of the contractual terms of your employment agreement with your employer. It also means that you should avoid the temptation to steal away with confidential data that belongs to your employer. In addition, your quest to fulfil best practice should apply to developing clear, enforceable contracts for your business from the start, protecting your own clients and candidates, and outlining specifics of agreements between yourself, business partners and suppliers. “I see the business relationships at their best and their worst — when they start up and when they bust up,” Robert Wynn Jones, partner at law firm Mishcon de Reya, tells Recruiter. Wynn Jones is an expert in data theft and civil fraud with expertise in the recruitment sector. He emphasises that getting back office structures and contractual relationships with your future employees and business partners clearly set out is “absolutely essential”. He continues: “It doesn’t matter whether the business partners and employees are your parents, siblings, lovers or friends — without formalised and clear contractual arrangements, the business and personal relationships and the business itself are often destined for disaster. If the rules of the game are clear and enforceable, the chances of damaging, expensive and protracted disputes are significantly reduced.” He adds, only half-jokingly: “You may not wish to trust lawyers on much, but trust us on this.”

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If dealt with from the beginning, getting your contracts right can be a relatively straightforward matter. More complex is the minefield known as data protection — both in how you have handled data belonging to your previous employer and how you position your new enterprise to manage and protect data of your new business.

Get your Act together Familiarise yourself with the Data Protection Act 1998, which requires anyone that processes personal data about a data subject to comply with eight privacy principles and to register as necessary with the Information Commissioner’s Office. Ignorance can be expensive: failure to comply with the Act can lead to a fine of up to £500k. Robert Bond, partner at law firm Charles Russell Speechlys, warns: “Aspiring recruiters who want to build their own business need to ensure that any personal data they collect for their own use does not, a), put them in breach of their current contractual obligations and covenants — such as those owed to any employer — and b), does not put them in breach of their legal duties [under the Act].” For instance, Bond says: “You cannot use your employer’s workplace to create personal databases using LinkedIn, for example, if the intention is to walk away with such information as this will likely breach employment terms.” However, he adds, “if an individual recruiter uses his own equipment and own time to build a database, then it may be his or hers to use, provided that in his new business, he complies with the [Data Protection] Act and related regulations — ie. the recruiter cannot use personal data for reasons other than that for which he first collected it”. Jim Lister, employment lawyer at law firm Slater & Gordon, elaborates: “Generally, if material arises from or during the employment, then it is not yours. So if you remove client databases, you get the ‘do not pass go’ card. There is also a general duty of confidentiality, so what you have learnt from your previous firm that is not in the public domain already has to stay confidential.”

Look at your contract Lister urges recruiters who currently work for, or recently worked for, another recruitment firm to really examine their employment contracts. Along with data use restrictions, non-solicitation clauses, which restrict you from pro-actively contacting former colleagues, clients or candidates, are particularly important to be mindful of. “The less it says, the better,” he says of employment contracts. “However, even if

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Top legal tips for new recruitment entrepreneurs • Assume you will have a falling-out with an employee or business partner. This may be pessimistic, but it means that if the rules are set out clearly in the contracts between you, the dispute is likely to be far less difficult, time consuming and expensive. • Your most valuable assets are your clients and candidates. These must be protected. • The best way to do this is to have clear and enforceable restrictive covenants in employment contracts and provisions regarding the nonmisuse of confidential information such as candidate databases. • Do not use any confidential information such as candidate databases owned by a previous employer or business. • If a new joiner or business partner brings a candidate database or other potential information to your business, you should closely check the provenance of the confidential information, ensure that the new joiner confirms in writing that the information is owned by him or her and is able to be utilised in your business. • If you discover the information is not the property of the new joiner, do not use the material and consider whether you should continue with the appointment of the new joiner. • Protect your new business from attack on your critical business data. Information security policies and guidelines must be clear, up-to-date and communicated clearly to all data users within the business. These should give clear guidance on when, where, how and what data may be moved. • Seek legal advice on contracts and data protection. (Tips provided by Robert Wynn Jones, Mishcon de Reya)

you have no restrictive covenants some are implied and, in particular, one that you will not remove material that is not yours.” He advises: “If the written contract does contain specific clauses restricting you after you leave, read them carefully and think them through. The law takes a pragmatic view and may interpret these narrowly. In particular, restrictions which seek to prevent you from working in the industry or which last for more than six months may not be upheld.” However, he warns, some fairly crucial restrictions — covering areas such as recruiting former colleagues to come work for you — could well be upheld by a court. “Non-solicitation clauses of former co-workers often are enforceable, and here, 12-month restrictions may be upheld,” Lister says. On the upside, there may be some leeway

when it comes to building on your existing good relationships with clients. “In the recruitment industry, it can be difficult to enforce restrictions relating to clients who might be called ‘promiscuous’ in that they often use a variety of agencies,” Lister says. However, he adds: “Candidates are different. The fact that they are on the market is often confidential. So restrictions relating to candidates may be relatively easy for your ex-employer to enforce.” But as Lister points out further, if the terms of your employment contract forbid you only from solicitation of work from clients and candidates in a non-solicitation clause, you will not be in breach if the clients or candidates seek you out. Besides your phone, a computer and internet access, your best early investment in your new business could well be sound legal advice.

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Starting your own recruitment business

Setting off on the road FOR ANYONE ABOUT TO EMBARK ON A NEW RECRUITMENT BUSINESS, DISCOVERING HOW ESTABLISHED RECRUITERS STARTED THEIR JOURNEY CAN BE A HELPFUL EXERCISE. COLIN COTTELL SPOKE WITH THREE RECRUITMENT ENTREPRENEURS...

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Starting your own recruitment business

Sinead Hasson Founder, Hasson Associates Sector: Research and insight Founded: 2008 First office: Lower John Street, Piccadilly, London Initial funding: £50k (savings and overdraft) Previous Employer: RPCushing Start-up essential: Good IT The start of the world’s worst recession since the 1930s was not perhaps the best time to launch a staffing company. But that is exactly when Sinead Hasson decided to leave the security of her previous company to launch research and insight recruiter Hasson Associates. As the recession deepened in 2009, Hasson says now: “That was the only time I thought ‘what are you thinking of?’.” But despite her plans going “slightly awry”, the company not only got through that difficult year, it actually made money. Having worked for market research recruiter RPCushing for more than three years, Hasson says she had reached the stage where she had done as much as she could working for somebody else. “My only choice was to set up my own company,” she says. Hasson had never envisaged becoming a one-woman band, but always intended to create a proper company, with all the necessary infrastructure. And after a few months of hard work, she had an office, a brand and a website. Hasson started the business with £50k, a mixture

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of her own savings and a bank overdraft. But in retrospect, she says she overestimated the amount of money needed. “I needed enough money to pay for a serviced office for six months, and to pay for another person’s salary,” she says. Hasson says her greatest fear was not being able to recruit the team she needed to be successful. She had a list of experienced recruiters she wanted, but she was never 100% certain they would take the plunge and join her. “That’s a big risk for people to say ‘Oh, that sounds like fun, I will join you’,” she says. However, Hasson’s fears proved groundless, and the addition of four new staff members meant that space was soon at a premium at the firm’s serviced offices in London’s Piccadilly. Hasson’s concern that she might not get paid for months was similarly unfounded, with all clients paying on time, and some even paying early. “They knew we were a start-up, and they really understood the importance of that,” she says. Nevertheless as the recession began to bite, the new company experienced

some nail-biting moments. A potential cashflow crisis was averted only after the team agreed to changes in when they received their commission. “They said ‘Yes, that’s fine, let’s do that’,” says Hasson, who emphasises the importance of hiring a team of people you can trust, and who understand “how you want to work and what your values are”. “As an individual, there are only so many jobs you can do,” she adds. Hasson sometimes wonders whether it would have been better to set up the company earlier in her career. However, she acknowledges that her previous recruitment experience left her better prepared for the challenges she went through, such as recruitment freezes and losing a client — that would otherwise “have totally thrown me”. After overcoming the worst that the recession could throw at it, the company outgrew its serviced office. In 2012, Hasson Associates passed the £1m a year turnover mark, and it has continued to grow since.

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James Ballard Co-founder of Annapurna Recruitment Sector: HR, technology and change Founded: 2008 First office: Borough High Street, London Initial capital £45k (between himself and two other founders) Previous employment: Huxley Associates (SThree) Start-up essential: Great product James Ballard, co-founder of HR, technology and change recruiter Annapurna Recruitment, will never forget the first day at the then-fledgling firm he co-founded back in 2008 with Charlie Appleyard and Nigel Fox. “It was probably the smallest room imaginable that you could fit three bodies into — it was tiny,” he recalls. “It was like, ‘We have got the telephone — what do we do now?’.” “It was quite scary,” Ballard continues, “because we had put ourselves in a position where we had to deliver. We had responsibility for our families and our mortgages, and we had put our life savings into the business. It was an ‘all or nothing’type scenario.” Frustrated by not being able to pursue their own ideas in the more corporate environment of Huxley Associates, Ballard says the feeling of ownership in running your own company was both amazing and empowering. However, as well as the inevitable hard work and the sense of responsibility came other challenges, like retaining enough cash to stay afloat.

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“As soon as you click ‘go’, you are running out of money as a new business,” he says. Ballard reckoned it would take £10k to keep the new company going for the first three to four months. However, helped by winning retailer Woolworths as its first major client, the three founding partners were soon making placements. This left the firm in the enviable position of not needing any external funding to supplement the original £15k of life savings each of the three partners initially ploughed into the new venture. That’s not to say that the new firm didn’t face trials and tribulations in its early days. Not least of these, according to Ballard, was the “nightmare scenario” of a break-in at their offices in Borough High Street, which resulted in the loss of all the company’s laptops, and with them a lot of Annapurna’s vital data. “It just showed how small and vulnerable our business was. It was horrible,” Ballard shudders. “But it is just one of those things,” he continues. “You just have to get on with it.

We had to start again, you have no choice.” The new company also made mistakes, particularly in recruiting new staff, something that came to a head when four or five of its staff left within a month. “We were too nice,” says Ballard. “We let them drift rather than set performance management systems … we hired the wrong people.” Ballard identifies a number of factors that he believes contributed to the new firm successfully getting off the ground. “We never felt it was a risk because we had a solid business plan and a solid brand behind us that we felt was different and would stand out,” he says. And he highlights the importance of working with people you can trust. “If you are going to be successful, those relationships have to watertight, because they are going to be tested,” he says. With Annapurna now in its seventh year, and revenue expected to reach £8m, the strength of those relationships is such that the company’s three founding partners are still together.

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Starting your own recruitment business

Tony Goodwin Antal International Sector: Executive search Founded 1993 First offices: London; Warsaw, Poland; Budapest, Hungary Previous employer: Harrison Willis Initial capital £10k Start-up essential: Absolute determination It was back in 1993 that Tony Goodwin, founder of international professional recruiter Antal International, left financial recruitment consultancy Harrison Willis to plough his own furrow in the uncertain world of recruitment, emboldened by his belief in the opportunities for professional recruiters in developing overseas markets. Not only did Goodwin face the usual anxieties experienced during a start-up, he also faced the challenge of launching a new business in Eastern Europe — at the time very much a new frontier for UK recruiters.

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“Someone said to me at the time that he looked forward to seeing my ads in the Financial Times in Bulgarian, Russian and Polish, but I couldn’t even speak any of the languages,” he says. Clearly undeterred, Goodwin’s early foray into Eastern Europe meant paying for apartments in Budapest and Warsaw that were used as offices by a Hungarian and a Pole who he had trained as recruitment consultants in London. Within two years, however, the new company was sufficiently established to

have proper offices, not only in these cities, but in Moscow as well. And since then, Antal has grown into a global network of 120 offices in 30 countries. In the company’s early days, Goodwin himself was based in London, where he operated from a serviced office near Putney, equipped only with a telephone, “a computer I couldn’t turn on, a fax machine and a lot of self-belief”, he said. The most difficult thing was learning to trust people that were working 2,000 miles away from him. “Most people set up their business where they are based, where they can see what is going on 9-5,” he says. In the early days, he spent a lot of his time both on the telephone and in person explaining to his new staff “in simple language” what his business model was. Had he done this a year after the business had been started it would have been too late and the business would never have taken off, he says. The new company faced other challenges too, not least when competitors keen to enter this developing market headhunted its staff. “This caused us some pain as we lost some good people,” Goodwin admits. “We were the victim of our own success,” he adds. On the positive side, however, he says that starting Antal freed him from the constraints of being employed by someone else and the frustrations of the corporate environment. Goodwin says he relished the freedom that starting and running his own company gave, in particular not having to attend “interminable meetings”. “I did consider going in with a partner, but I thought we would end up arguing too much,” he adds. Goodwin started the business with £10k in savings, but after billing £357k in his first year, he found it wasn’t necessary to use all of it, and he was able to draw £15k in salary. Goodwin bemoans those who start up a recruitment business, expecting to draw only a reduced salary compared to what they previously enjoyed in the corporate world. “They are just giving it a go with other people’s money, they aren’t really entrepreneurs; they don’t really get it,” he says.

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Advertorial

PLANNING FOR SUCCESS

Starting a recruitment agency from scratch can be a daunting process just like creating any new business. However, having a blank canvas gives you the opportunity to get everything right in the first place and structure your business correctly. Channelling the passion and enthusiasm which inspired the decision to form your own business into a coherent plan from the outset will give the new agency the optimum chance of succeeding in what remains a challenging and often crowded market place. RACS Marketing offers budding entrepreneurs the following five tips to help them create their new recruitment agency: 1. What’s In a Name? Choosing an appropriate and relevant name for your business will ensure it will be both memorable and captivating. There are many potential approaches for a business name ranging from the funky (Blue Gecko or Top Banana are two real life examples), to the use of an individual’s name or initials; of course there is no right or wrong, but entrepreneurs should consider the impression conveyed by the name of the business. The word Google is now synonymous with a cool, dynamic and youthful brand, whilst IBM conveys a more serious and corporate message. The availability of a suitable domain name should also be a factor as you want your web and email addresses to reflect your business name as closely as possible. 2. Target Audience With thousands of recruitment agencies already in existence, defining your precise target audience is an essential facet of your business planning. Perhaps you have experience and contacts in a specific sector, or maybe you have spotted a gap in the market, but in each instance your precise market should be defined from the outset. Identifying your sector(s) will help you articulate your business offerings and unique selling points which will, in turn, impact on your branding, marketing and sales strategies. Do not be afraid to highlight your credentials and the reasons why you formed the agency in the first place; potential clients and candidates will both be attracted to an agency with expertise and knowledge of a particular industry. 3. Defining The Brand The word ‘brand’ is massively overused in business circles and is far too often

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professional and invest the time to thoroughly communicate your business idea. A stylish logo and associated company image will instantly establish your agency as a serious player and give it an air of professionalism; we are constantly astounded by how many agencies fail to present themselves as a cool-looking company as ﬁrst impressions really do count.

confused with merely a logo or a corporate identity. Both these visual elements are vitally important, but so are the emotions, promises and services offered by the business. Adopting a customer-service driven attitude from the start will help define the ethos of the business and provide an operational framework for the dayto-day running of the company, staff recruitment and marketing narrative. Establishing a clearly defined strapline, list of values and mission statement will help all those involved understand the agency’s philosophy and add clarity to the business as a while. 4. Looking Good Once these first three points have been successfully completed, you are in a position to design a logo and corporate identity for the business. Try and resist the temptation of doing it yourself just to save money as this will inevitably cost you more in the long run. Source a reputable marketing agency or

5. Invest Online Everyone knows that a great website is essential to the success of any business, so choose a proven supplier to build yours. Always ask for references and case studies before you embark on the project as web agencies are notorious for not delivering sites either on time or to budget. Demand a contract and include ﬁnancial penalties if your supplier fails to meet the brief or launch the site on time. Start by writing a site map which highlights the structure, navigation and interactive elements along with any other key elements such as social media feeds, jobs boards or video content. Always ask for at least three different designs and do not sanction the build stage until you are totally happy with your chosen layout. In terms of content, write or commission concise copy with lots of calls to action to appeal to the site user; use original images or those purchased from a reputable stock library (iStock or Shutterstock) and never publish images copied from the web! Once launched, ensure your site is linked to Google Maps and has Google analytics tracking software included; both are free tools and will help track the performance of your site. Andrew Pinnell Marketing Director RACS Group racsgroup.com

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04/02/2015 12:25

Starting your own recruitment business

Funding growth GRAHAM SIMONS LOOKS AT THE DIFFERENT ROUTES START-UPS CAN GO DOWN TO SECURE FUNDING FOR THEIR NEW BUSINESS, AND ASKS THE EXPERTS WHAT ARE THE BENEFITS AND RISKS OF THE VARIOUS METHODS You’ve decided to start up on your own as the boss of a new recruitment agency and you’ve reached the point at which you are seeking to secure finance to help you on your way. But what sort of information do you need to provide to would-be financiers? What should go into your business plan? How much funding is enough? Should you contribute any financing yourself? What sort of targets for the business will you need to set to secure the funding? And what’s the difference between a safe bet for financiers and someone who is likely to be dismissed out of hand? When starting out on your own, the first thing to consider is just how you wish to finance your business. For some start-ups, it will come down to a choice between getting help with paying your invoices each month or going down the route of trying to land significant financing from a recruitment financier in the form of a joint venture. If you choose help with paying your contractors each month, there are two

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commonly available routes. Invoice factoring enables you to release cash for your business using your invoices as collateral. You continue to supply goods and services to your customers while the outsourced back office company collects the payments. Another method known as invoice discounting allows you to release cash for your business. In essence, you continue to manage your credit control, while the outsourced back office company’s involvement remains confidential to customers. So if you select this route of financing, what sort of information will the provider require? David Thornhill, managing director of Simplicity, a firm which offers both invoice service solutions, told Recruiter it requires proof of your existence on the electoral roll, your National Insurance (NI) number, a good personal credit history and a valid passport as proof of your identity. But Thornhill adds just proving you are who you say you are will not be enough, as you also need to come armed with a “profitable” business plan.

Planning for the future So what needs to go in to your business plan when approaching such companies? Simon Dodd, marketing manager at Hitachi Capital Invoice Finance, recommends asking a number of questions: “Does your business plan cover the following key points: Where will you get your new customers from? Why will they give you the business over who they currently use? What are your costs and can you build a profitable business in the long term? “The finance company will want to understand why your company will be a good company to fund, so your personal experience is a key part of the business plan too,” Dodd says. But a business plan isn’t worth the paper it’s printed on unless you’ve worked out all the costs: “The key is to have a fully-costed business plan and work out the costs and expected income over at least the first 24 months, ideally three years. “This will then help you determine if your new venture is viable and the amount of funding you’ll need,” he says. “You should also look at business grants

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from local government or Enterprise Zones.” And a cashflow statement couldn’t hurt, Dodd advises. “Prepare a cashflow statement to understand when you need to pay important bills, eg staff, rent, telephone bills and when you’ll get paid by customers,” he suggests. “Are there any funding gaps in the first 24 months? If so, how can you bridge these gaps? Can you ask for improved payment terms from customers or do you need a bank overdraft; or if you expect a gap most months, consider using an invoice finance provider. “You definitely need to plan ahead and it’s easier, less stressful and normally cheaper to put finance in place before you need it,” Dodd adds.

Money, money, money So you’ve got a good business plan: how much money should you be asking for? According to Thornhill, the amount of cash you can secure rests on the individual company. “There is no perfect/standard formula for the amount of cash you’ll need to start-up,” he says. “We have seen many people build a successful business with only a few pounds, working out of their back bedroom, through to those who have planned and saved enough to run the business without taking a salary for the first two years. “You’ll need to assess your own individual situation concerning your personal overheads, and how much money you’ll need to live on each month.” For Hitachi Invoice Finance, Dodd says the amount of money you need depends on a number of variables including expected sales, target customers, growth ambitions, the sector, your premises and route to market “Predominantly we will look at your predicted turnover to provide an indicative figure of the amount you could receive,” he adds. “Of the invoices we agree to buy from you, we will then release up to 85% of the invoice value to you immediately, with the remaining amount, minus a fee, once the invoice is settled by your client.” But what if you go down the joint venture/recruitment finance route? Steven Conway, operations director at Bluestones, which provides funding and support for start-ups, told Recruiter: “Normally, we spend circa £25k per partnership to get them off the ground but this varies, depending on the nature of the business.” Meanwhile, Adam Fletcher, merger and acquisitions (M&A) director at Invest|R, which provides seed capital to start-ups, told Recruiter: “On average, the funding we put into our joint venture start-ups is

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Eight top tips for start-ups seeking finance • Know how you wish to ﬁnance your new business, whether that’s invoice ﬁnancing or through a joint venture • Have the necessary documentation available to prove your identity • Have a good business plan • Make sure you’ve worked out the costs of your business plan • Ensure you know how much money you’re looking for • Consider putting in your own funds if going into a joint venture • Be clear on your goals for your business • Most importantly, ensure you have the necessary experience; industry veterans are far more likely to secure funding

anywhere between £200k and £500k.” While you may have secured outside funding, should you be putting in any money yourself? Fletcher certainly seems to think so. “I would not do a deal in a seed capital capacity unless they [the start-up] were sharing some of the risk,” he advises. “I don’t mind taking the majority of the risk but it’s absolutely essential that they co-invest accordingly. It comes back to what the individual wants and what their aspirations and desires are. Getting seed capital for a start-up depends on the desire of how fast they want to grow the business and how much support and guidance they need in order to set that business up.”

Stay secure But Dodd urges caution when potentially parting from your own cash: “Most new start-up businesses fail, so finance companies usually want some security in case your business doesn’t work out; they don’t want to lose their money. “The level of security varies by the amount of money needed and the type of finance requested,” he adds. “A business overdraft may not require any security but you’ll only be able to borrow around 5% of turnover. A mortgage or second charge on property will free up more money, normally at a low interest rate. Although the property would be at risk if your business fails.” For invoice finance, he says, the security comes from the sales invoices, which are in effect owned by the finance company that typically advances around 85% of the invoices. “Then when your customer pays they’ll release the remaining 15% less their costs,” he explains.

Find your goal You need to be clear about your business goals but what does that equate to if you’re after seed capital? Fletcher has some answers: “The objective is to create a business that will operate with us that would generate circa £800k to £1m in profits by year three.” So can just anyone set up as a recruitment business provided they have a good business plan? Thornhill told Recruiter: “We would look for people with a successful track record within recruitment and expert knowledge of their sectors. “However, we see that the difference between success and failure is down to the individuals involved and their drive, determination and passion to succeed,” he adds. Bluestones’ Conway says: “We look at the growth sectors mainly. Most of all, the group invests in the people. A ‘roll your sleeves up and get it done’ mentality is a must. You need to live, eat and breathe recruitment.” Invest|R’s Fletcher adds that if you’re set on starting up on your own as the boss of a new recruitment agency, you must have a proven track record, still bring in sales, know your sector inside and out, and be able to attract talented individuals to your organisation. “If we find an entrepreneurial individual with a proven track record in both sales and management, who has succeeded in an employed capacity, but wants to exercise that entrepreneurial flair and start up their own business, often they want know-how, expertise and support functions — and usually they want capital.”

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Sponsored Sponsoredfeature Q&A

3R STARTS A RECRUITMENT REVOLUTION Starting up a new business can be a daunting prospect. In the first three months, all sorts of emotions rise to the surface, from excitement and determination to nervousness and even fear. Recruiter’s Vanessa Townsend spoke with some of 3R’s recent recruitment start-ups to understand the trials and tribulations of their first year’s trading No matter how determined and positive you might be at the thought of working for yourself, as well as facing the IT and the technology challenges (see the interview with 3R’s IT director Ralph Holloway, below), there are the financial and back-office issues to work out, where you are going to run your business from, how your new brand is going to look, a website to design… And that’s before you even start doing what you do best – recruiting. Daniel Gray, co-founder of supply chain and procurement specialists Total Supply Chain Solutions (TSCS), said 3R offered him and his co-founder Simon Jones a fully-packaged service, “taking away the headache of creating a website, setting up a CRM [candidate relationship management] system and dealing with invoices”. He told Recruiter: “They gave us everything we needed to set up a business, over and above in fact. They deal with all the background noise. 3R allows us to focus on recruitment.” Daniel had been a director at several recruitment firms before setting up TSCS in June last year, so he was certainly experienced in the industry. “But I had never run my own business before,” he said, “so it was a lot for me to learn.” However, with 3R’s input, the fledgling company was allowed to flourish. In fact, TSCS has just taken on its first employee. “We have achieved our first-year business plan in six months,” Daniel said proudly, “way ahead of schedule!” (Daniel and Simon are pictured at the top of p19.)

Carter Schwartz is another start-up with experienced, well-established recruiters at the helm, specialising in the health, social care and education sectors. Managing Director Adam Carter told Recruiter that 3R was fundamental in taking on the start-up clutter so he could concentrate on growing the business. “The back-up support is critical,” he said. “3R really helped us with that; they understand the nitty gritty.” Starting by himself in

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August 2014, Carter has grown the company to a team of six, with ofﬁces in London and Bristol, and a possible Leeds opening not far away. Steve Emsley set up Gemstone Recruitment, specialising in the education sector, at the end of September last year. He admitted it was a shock to the system to go it alone and a bit of a rollercoaster ride. “I had to take the plunge and do things I had never done before,” he said, “such

How can start-ups compete on a level playing ﬁeld? Among the many concerns recruitment start-ups might have is how to compete on a level playing ﬁeld against much larger agencies with their thousands of pounds worth of highly sophisticated IT systems and technology. Recruiter’s Vanessa Townsend spoke to 3R’s IT director Ralph Holloway to see how 3R technology gives start-ups the competitive advantage

Ralph Holloway 3R’s IT Director

Chris Powell Operations Director

A software developer for the past 25 years, Holloway designed and developed the CRM [customer relationship management] and IT systems for an AIM-listed recruitment business, from when its turnover was £2m up until it was turning over nearly £400m. “For new startups, the biggest headache is often the software – the IT set up,” Holloway said. “Recruitment is not pure sales – you need the technical element in balance with the sales. It’s a big hang up for any start-up.” Clients are now using social media to perform direct recruitment of the easy-to ﬁll-roles, leaving the more challenging roles for agencies to deliver. “Technology has driven these changes and technology can provide a competitive advantage through the use of

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Founders of start-up ﬁrm TSCS Simon Jones (l) and Daniel Gray (r) with 3R’s Chris Powell

Mike Bowler Managing Director

as all the back ofﬁce, IT stuff, and a website. 3R have taken away all that hassle.” 3R have set up Steve with their accountancy partner, helped him with the legal documentation, managed his invoice factoring requirements and designed a website incorporating his ideas and input. “I wouldn’t know where to get all that support if I was doing it myself,” he said. “It’s freed up so much time and effort, leaving me to do what I’m best at doing.”

Principle Careers is a husband and wife start-up consultancy, specialising in psychiatry and mental health recruitment. Simon Jay and his wife Hayley had been wanting to set up their own business for some time, but the potential risks of starting a new company – both giving up their full-time jobs – made them wary. “We first contacted Mike Bowler at 3R about 12 months before actually going forward with the new business,” Simon said. “Mike never pressurised us, never tried to sell us anything, so that made 3R stand out.” To give Simon and Hayley the financial confidence, 3R introduced them to an investor and since June 2014 Principle Careers has run using a blend of 3R systems and support services already engaged by the investor. “We are now a team of

innovation,” Holloway explained. “Innovation is a key driver for competitive advantage. A Formula 1 race lasts over 300km, but the winner may win by only a few meters. The competitive advantage is therefore only 0.0001% but you remember the winner and not who was second.” Holloway said 3R’s philosophy is ‘Innovation drives competitive advantage’, which is why 3R makes use of technology skills of staff that have worked in the recruitment industry for many years. “We know what works. We designed our systems to use the latest technology. It is entirely based around the Cloud and the ability to BYOD (bring your own device). We link in with the major service providers to provide the latest technology offerings.

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ﬁve and we plan to recruit ﬁve more this year,” Simon added. During the past year 3R has got to know many more recruiters who want to start up their own business but still need a little help from an investor – perhaps a small cash injection to cover short-term salaries or large investments to fund ambitious plans. 3R also has a network of investors able to provide funding and/or hands on mentoring and management support. Mike Bowler said: “We’ve considered providing an investor service for new recruitment start-ups, but realised that it would be impossible to cater for such a diverse range of needs. Each recruiter/investor relationship is different and must be a perfect match if the business to succeed, so we have decided to be matchmakers instead, and keep providing the support and infrastructure to back each newlyformed partnership.” 3R remains very hands-on with Principle Careers, offering the new company advice and support. Simon told Recruiter: “3R like to stay involved. They’re nice people to work with.”

These include Microsoft Azure & Office365, Burning Glass, BroadBean and MailChimp.” 3R’s systems are developed in house, “hence we have the ability to listen and react to the needs of our Associates, and develop and release enhancements that aid their effectiveness and improve their competitive advantage”. Innovation is key to gaining the advantage over the “big boys”, whose IT systems are often so large that the wheels of change grind very slowly, Holloway said. To get the CV in front of the client the fastest, 3R has designed truly mobile systems, which means recruiters can work on anything from a desktop PC or a laptop, to a tablet or even a smartphone. “You can work where and when you want to, to tie in with your candidates. Even outside work hours is simple. Larger organisations can stifle that access.” 3R’s systems are intuitive and easy to use, “but the support is there if it needs to be”, Holloway said. To ensure 3R’s systems were in line with technology trends, Holloway compared features of 3R’s CRM to those featured in the Top 10 Technology Trends for 2015 (www. gartner.com/newsroom/id/2867917). Out of the 10, four are not relevant to the recruitment industry and 3R is delivering on the other six. So with no cost outlay on servers, the flexibility of working from any mobile device, and innovative solutions and software futureproofing, 3R can take away the technology headache from start-ups, allowing them to compete with the big boys from day one. Ralph Holloway, MBA Technology Management (Open) uk.linkedin.com/in/ralphholloway www.freedom3r.co.uk

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Starting your own recruitment business

Hatching out with support from the start COLIN COTTELL INVESTIGATES THE BUSINESS INCUBATORS THAT CAN OFFER NEW RECRUITMENT FIRMS THE BEST POSSIBLE START TO IMPROVE AND GROW THEIR FLEDGLING BUSINESSES

With a telephone and a desk, pretty much anyone can set up a recruitment business in the UK. However, a substantial number of entrepreneurs who launch their own recruitment businesses face the prospect of shattered dreams. And according to UK commercial insurer RSA, half of UK business start-ups fail within the first five years. Partner with a business incubator, however, and those dreams face a far better chance of becoming reality, as well as significantly increasing your chances of survival. According to ‘The Rise of the UK Accelerator and Incubator System’, a November 2014 report by telecommunications company Téléfonica UK, the twoyear survival rate for UK businesses in an incubator programme was 91% compared with 76% for all small businesses. The figures in the report were based on responses by 35 business incubator organisations. Grant Kaveney, founder and director of GKR London Property Recruitment, one of staffing industry start-up support and venture capital fund Recruitment Entrepreneur’s incubated businesses, is in no doubt about the benefits of partnering with an incubator. Kaveney credits the advice and support it has received from Recruitment Entrepreneur with rapid growth in the company that has seen staff numbers jump from three to 14 in the past nine months. “We were basically winging

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Business incubator: an organisation that provides start-up businesses with a range of services, support and advice, sometimes including investment funding

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Starting your own recruitment business

We’re interested in people who are serious about the sector, not ‘one-man bands’ looking to make a bit of cash Graeme Read, Network 3R it before,” he acknowledges, but he says now the company “has a proper structure in place, and staff get regular training and have a career plan from day one”. It would seem that Kaveney is not the only aspiring entrepreneur to seek such support. Since 2013, Recruitment Entrepreneur has had 2,300 applications for investment funding, out of which it has backed 11. The start-up support company has financial backing from James Caan, founder of investment group Hamilton Bradshaw.

Since January 2013, four recruitment companies have entered HCIG’s early incubator phase. So what exactly do business incubators offer fledgling staffing businesses? Depending on the business incubator’s business model, this “handholding” as Reynolds describes it can include help to develop a business plan, marketing, legal advice, as well as training. Back office support covering finance, payroll and accountancy, HR, and IT and business development may also be available. Equity funding may also be provided.

Growing demand Demand is clearly hotting up for such services. Graeme Read, chief executive at Networks 3R, which launched its business incubator service in autumn 2014, emphasises that the staffing sector is crying out for business incubators. According to Read, there is a lack of industry knowledge and experience among owners of new staffing companies. “They are very good at the front end, the sales side, but not necessarily great business managers or leaders,” he says. Helen Reynolds, CEO of independentlyowned investment house RIDA Group, which has been running its business incubator since 2006, agrees that while the owners of new staffing companies have generally been successful consultants, “they may never have had exposure to the commercial aspects of running a business”. She adds: “This might be something as basic as ‘how does VAT work?’ or ‘how do I actually pay that temp?’.” Graeme McKinnon, managing director of Select Appointments, the franchise arm of Staffline Group, which has recently become more active in the business incubator market, agrees: “People who run their own recruitment agencies get ‘maxed out’, they struggle with wearing so many hats. It is really difficult for them.” For Tim Cook, CEO at Human Capital Investment Group (HCIG), which takes equity in its incubated businesses, the issue is slightly different. “It’s quite easy to start a recruitment business; the barriers to entry are relatively low,” he says. “What is not so easy is to get them to some scale.”

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Perfect match? However, owners of start-up and early stage recruitment companies must be aware that finding a match that fulfils the needs of both sides is not necessarily straightforward, despite the range of services offered by the burgeoning growth in business incubators targeting the sector. HCIG typically targets successful recruiters, either coming from large companies in the industry, or from small, privately-owned companies, specialising in niche markets. In contrast, Networks 3R and Select aim for more of a mix, including those who are completely new to the industry. “We are interested in people who are serious about the sector, not ‘one-man bands’ looking to make a little bit of cash,” says Networks 3R’s Read. Recruitment Entrepreneur founder Amy Golding says her business is “totally agnostic” about the recruitment sector. “More than anything we back people — strong, experienced recruiters with the potential to become a business leader and the ability to inspire others to come and work for them, and someone we can tell wants to learn and wants to make it work.”

Different business incubator firms also take varying views on how much they expect business owners to invest of their own money. HCIG insists on it to go alongside the usual £500k in backing that it provides. “It always gets hard in months six and seven, and if you are invested you will work through it, and if you are not, it is easier to walk away,” explains Cook. Although “relaxed” about the precise amount of investment required from the business owner, Cook adds that he expects the sum “to be meaningful but not crippling”. McKinnon says that Select expects new franchisees to have sufficient capital “to hit the ground running”. This ranges from between £12k and £50k, he says. As a subscription service, Networks 3R does not have any such requirements.

Pay back The way that business incubators are remunerated for their services also varies. Select Appointments takes a flat 20% of its franchisees’ gross profits. In contrast, Networks 3R clients pay an initial fee of £10k and £750 a month, plus an additional £150 for every additional member of staff to receive its basic service, although clients can opt for more expensive packages. HCIG charges transactional fees for centrally provided services, such as payroll. In addition, as a majority shareholder, it receives a share of profits in line with the size of that shareholding. It also benefits, as does Recruitment Entrepreneur, from any growth in capital value when it exits the business. According to Cook, after taking half of their remaining equity in cash and retaining the other half in the business the original owners of HCIG’s early phase incubator businesses “typically end up owning 1015% of the business”. RIDA, which also invests in some of its clients, has a policy of taking only a minority shareholding, typically 25%. “There is a good reason for this,” explains Reynolds. “The person

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Starting your own recruitment business

Why wouldn’t you want to create that same model, but have a slice of equity for yourself? Tim Cook, HCIG started the business because they wanted to be their own boss. They are not looking for that dramatic shift where all of a sudden they have got someone they are reporting to.” Golding says that Recruitment Entrepreneur takes equity on a case-by-case basis. Business incubators who take equity in a business, such as Recruitment Entrepreneur, will also have representation on the board of that business, with Golding sitting on the board of GKR London Property Recruitment, for example.

Timeframe matters When deciding which type of business incubator best suits their needs, recruitment entrepreneurs will also need to consider the timeframe over which they are looking to receive support. Networks 3R offers a subscription service initially for a minimum of three months, after which clients can dip in and out of its services. Select Appointments’ franchisees sign up for five years, with the possibility of two further five-year extensions. RIDA’s relationship with its clients is open ended, with one company receiving ongoing support and advice for the past five years, says Reynolds. HCIG and Recruitment Entrepreneur’s relationships with their incubated businesses are similarly open-ended; however, a typical timeframe before they exit is likely to be three to five years. Business incubators say they have a vested interest in the success of the companies they advise and support — after all, they say, it’s what the success of their own business depends on. However, this does not necessarily mean that the relationship between a business incubator and its partner company will always be sweetness and light, particularly when the former has invested in the business.

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Key considerations before business incubators invest in your business • Are they buying your company or investing in it? • Who is providing the funding (including any parties sitting behind them)? • What is their track record in supporting recruitment businesses? Do they understand recruitment? • How much are they putting in and in return for what shareholding? Remember, you will no longer be the sole owner of the company. • What rights will their shareholding attract — voting rights, rights to appoint directors or the CEO? • How long will they invest before they expect to see results? • What will happen if they decide to pull their funding? How much notice will you get? Will you get pre-emption rights ie. ﬁrst option to buy back the shares and at what price, or can they sell to a third party you don’t know? • Make sure you have a properly drafted agreement that sets out your respective rights and obligations, how to terminate and the consequences of termination. Source: Recruitment & Employment Confederation Legal Department

Asked what HCIG would do if one of its incubated companies did not achieve the targets agreed with HCIG, Cook responds: “We are not going to spend money forever in a business.” However, he points out “to date none of the companies have failed”. Not that he believes they should: “We are not asking them to achieve anything that they haven’t achieved before. What this is about is, if you are a good recruiter, why wouldn’t you want to create that same model, but

have a slice of equity for yourself?” Business incubator companies can undoubtedly play a valuable role in helping recruitment start-ups get off the ground and in accelerating their growth. For those owners of recruitment start-ups convinced of the benefits, the choice of which one to go with may come down to how much they are willing to give away in equity or profits in order to improve the chances of realising their business dreams. If recruiters are happy this is a price worth paying, then partnering with a business incubator that takes a share of equity or profits can truly be a win-win. Otherwise, a looser relationship in which they simply pay for services as and when they need them may be a better option.

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Sure, they all offer a payroll and employment service, but can they add value and a second, secure income for the future. At Originem we’re here to work with you every step of the way with a long-term vision to add value to your business. We’ll get you started then help you to grow From day one we’ll support you and keep life simple for you and your candidates. • Industry leading service standards • On-line account portal • Dedicated account manger • Support of qualified HR team • Legal services • Full employment rights for your contractors • Maximum candidate take-home pay You don’t have to pay umbrella service charges forever When your agency grows there will come a time when owning your own umbrella company starts to make long-term sense. Starting your own umbrella company is easy with Originem. Quite simply if you have the contractors we can take care of everything else from the back office to HR. You’ll drive more profit from your business and *earn an extra £100,000 each year from every 100 contractors that you process. If this seems interesting to you, ask to see how we have done this for other companies like yours.

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Starting your own recruitment business

Tough questions practical tips NOW IT’S TIME TO THINK THROUGH YOUR START-UP IDEA, BY CONSIDERING SOME TOUGH QUESTIONS AND PRACTICAL TIPS

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1. Fools rush in

Think through the implications of starting a business before you jump in with both feet. Helen Reynolds, chief executive at staffing industry investment, advisory and consultancy services firm RIDA, advises: â&#x20AC;&#x153;Starting your own business is not all about you. Are your family, partners ready for this? Do not underestimate the support you are going to need from those close to you. Starting your own business is not about giving yourself instant flexibility, days off and being able to take the whole of the summer holidays off. This is the time to be honest about your abilities. Ask friends and family what they feel your strengths and weaknesses are, and listen to what they tell you.â&#x20AC;?

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Starting your own recruitment business

Choose a business model and structure that suits With a wide range of business models to choose from, each has its pros and cons. For instance, becoming a franchisee can be an attractive option. However, it may mean being tied into a relationship for 10-15 years. Another option is working with an ‘incubator’ company which provides infrastructure and operational support, as well as funding. However, this can require business owners to give up significant shares of equity and future profits (see feature on p20). Recruiters also need to decide whether they want to operate as a limited liability company or as a sole trader. Seek professional advice.

Have a business plan “You need to think about how you are going to grow the business, whether you are going to take on staff, and how much money you expect to bring in during the first year,” says Teresa Batchelor, co-founder of PR, marketing and digital recruiter CC Blue Recruitment. A business plan can also be helpful for recruiters looking to bring a partner on board or to attract external finance from a bank. Ann Swain, CEO at the Association of Professional Staffing Companies (APSCo), advises recruiters to be realistic when drawing up a business plan. “There’s no point in your sales, turnover and profit forecasts being nothing more than a wish list — they have to be based on solid facts,” she says.

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Start-ups need to have a clear focus and understanding of their intended market. APSCo’s Swain says: “This means defining your market’s size and your share of it, knowing who their customers are, and identifying any market trends and what is driving them. You should also list your competitors, and know how much of the market they have.” The Recruitment & Employment Confederation (REC) points out that the recruitment market is highly fragmented, with specific industry sectors affected by particular issues. For example, sectors such as healthcare, teaching and construction are subject to particularly high levels of regulation.

Understanding and being compliant with recruitment-specific legislation will protect against possible legal sanctions, as well as loss of reputation and business. Legislation affecting the recruitment industry includes the Conduct of Employment Agencies and Employment Businesses Regulations 2003 and the Agency Workers Regulations 2010. Staying on top of current tax requirements governing travel & subsistence schemes and umbrella companies is also crucial. However, recruiters also must be up to speed on equality legislation and data protection issues. In addition, it is important to have a good understanding of the business and structures involved in the supply chain to ensure legal responsibilities are met, says Paul Chamberlain, head of employment and pensions at law firm Brabners.

Understand Keep on top your of relevant market regulation

Don’t be a ‘me too’ business New entrants to the industry must have a good understanding of what they will bring to the sector, and what makes them different from and better than their competitors, advises the REC. “The recruitment market is already busy, so they need to ask themselves why should a client turn to their business?” And having decided to focus on a particular market, Be Kaler, founder of digital recruiter Futureheads, warns of the danger of new businesses being diverted from their original business plan, for example venturing into new sectors that are beyond their expertise. “Do what you are good at and stick at it. Don’t get excited by what is shiny and new, even though it might be tempting to turn away from your core business,” she says.

Look beyond the banks for finance

Banks can sometimes be reluctant to lend money to new businesses without a track record of previous success. However, thanks in part to the internet, recruitment entrepreneurs now have a wide range of possible alternatives. A popular option is peer-to-peer lending, through which individual savers can lend money to firms. Vehicles for such finance are companies like Funding Circle, Ratesetter and Zopa. An alternative source of funds is crowdfunding through sites such as Crowdcube.com and Seedrs. com, where entrepreneurs ask the public to put money into their proposed venture. Alternatives are business incubators that can provide access to funds (see feature on p20). Investment through business angels, or individuals willing to invest in new businesses, is also an option.

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Get your branding right A catchy yet business-appropriate name may take some time to dream up. But is well worth spending the time to get it and your branding right so that they accurately reflect what you do. This means checking at Companies House that no one else is using the name, ensuring that you can create a web address or URL, as well as designing a logo and marketing material. To keep costs under control, investigate around your area through local business networking groups for providers of affordable web design — with references you can check. You may end up doing business with another aspirational start-up!

Keep an eagle eye on the cashflow

Nine out of 10 small business failures are caused by poor cashflow, according to business information provider Dun & Bradstreet. So making sure you don’t run out of cash is essential for any fledgling recruitment business. “Maintaining your cashflow means being absolutely rigorous about monitoring your cash position and credit control — you are a business, not a bank,” says APSCo’s Swain. “If your terms state ‘payment within 30 days’, then you should be on the phone on day 30 to ask why the invoice hasn’t been paid.” For those recruiters that don’t already have sufficient funding in place to bridge the gap between paying their temps and getting paid by the client, invoice finance, which allows businesses to borrow money on the basis of their raised invoices, can be a good option.

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10.

11.

Employment lawyers highlight the importance of recruitment start-up owners protecting their business from the very outset. One method is through the use of restrictive covenants for key members of staff that they hire. These help you hold employees accountable if they leave the business, join a rival company and attack your client base in their new role, says Brabners’ Chamberlain. Employment contracts should also be drafted carefully to include confidentiality clauses, garden leave provisions, and clauses dealing with company property and the use of professional networking sites like LinkedIn and Viadeo. “These are well worth investing some time and money in early on to save time and money in the future,” says Flora Mewies, an employment lawyer at law firm Ward Hadaway (see the feature on p6).

Starting and running a staffing company from scratch can be a lonely business. However, there is plenty of advice out there to help. Recruitment industry bodies, such as the REC, APSCo and TEAM (The Employment Agents Movement), offer members advice as well as practical support on a variety of topics that can help start-ups get off the ground successfully. Another information source is www.greatbusiness.gov.uk, a government website, which can direct start-up recruiters to a range of support and advice, from business forums to how to find a mentor. The website also offers practical advice, such as writing a business plan and how to register a new company.

Protect your business from the outset

Take advantage of available information and advice

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