The economy is a disaster. Doom and gloom everywhere, and the best predictions aren’t particularly rosy.
Things may not pick up significantly until 2010, and some people believe it will take longer.
And when the economy tanks, HR is hit hard. Companies institute hiring freezes, slash budgets and go into hibernation mode. HR vendors are certainly suffering – a recent report predicted Monster’s revenue will drop 37% in the coming year as companies abandon or lower their job posting contracts. And Monster’s certainly not the only HR vendor that’s hurting.
So what happens to HR startups?
In the past year or so we’ve seen an increasing number of HR startups emerge. Some have raised capital, others are bootstrapping. And they’re tackling a broad array of issues in different ways. There have been numerous job matching startups pop up (others have disappeared), startups focusing primarily on employers, others tackling job seeker opportunities. Although most of these companies were started before the economic meltdown became all-too-painfully obvious, it still begs the question: Does the recession spell doom for HR startups?
And the question needs to be asked with respect to new startups that have yet to launch, and those that are already live and rolling.
In both cases things will be tough. And it’s fair to say that some startups will fail – perhaps more than before because of the recession. But the massive problems facing recruiters and HR (which are ultimately opportunities for HR vendors) won’t disappear because the economy is a mess. In fact, things will only get worse.
Almost universally, recruiters will tell you that hiring top people is harder during a recession. And at a macro-level, you can’t ignore the trends – the work force is getting older (even if people will now be forced to work longer than they thought), there aren’t enough young people to fill all the jobs, and the way people are communicating and interacting is changing. A recessionary blip can’t radically change those trends.
How HR Startups Can Survive
Sometimes tough times are the best time to look for opportunities. The same holds true in HR – now is the time to move the needle and reshape (or at least evolve!) the landscape of recruitment. As an example, we’re seeing more and more job seeker specific startups emerging – companies like UpMo and Hunting to Hired. Others like RiseSmart and JobSerf also focus on the consumer side of the business: job seekers.
So what can startups do to survive and ultimately thrive in tough times? Here are some thoughts:
- Painkiller vs. Vitamin: Don Dodge, Director of Business Development for Microsoft’s Emerging Business Team and a veteran startup guy, talks a great deal about painkillers vs. vitamins. Is your solution a “nice-to-have” vitamin or a true painkiller?
He points out that very often companies are more willing in tough times to try new things, if it can be proven to be a true painkiller, and when the economy is tanking that truly comes down to saving money.
- “Me Too” Startups: HR is not unique in this, but there are a lot of “me too” startups. One of the reasons is that it’s quite easy to recognize the opportunities in the market. For starters, it’s a huge market. Secondly, while there are some big, established players, the market (in most areas) is wide open. And thirdly, we’re seeing more and more disruption of traditional businesses (be it newspapers or big job boards as two examples), which is a great time for startups to jump in. Some people even argue that copycat startups are in a better position to win than first movers. That may be true, but the HR space is crowded. Startups need to find clear and simple differentiators that they can take to market and hammer home.
- Balancing Innovation and Tradition: At the end of the day, innovation wins. If you don’t believe that you can’t possibly run or be involved in a startup. But at the same time, it’s absolutely critical that you understand the market’s willingness to be an overall early adopter of innovation. As I’ve heard too many times, “No recruiter will ever lose their job posting on a big job board.” That may be true today, but it won’t hold true forever. Still, HR startups need to be cognizant of traditional models, features, methodologies and messaging. If you don’t innovate, you die. But at the outset, it’s also important to find traditional leverage points to acquire customers.
- Revenue Rules: You’re not going to see a lot of HR startups raising huge dollars for the next little while. The market is just too messed up. And that means you either bootstrap on an extremely tight budget while you search for your business model, or you institute a model out-of-the-gate and make money as fast as you can. I tend to lean towards generating revenue vs. building a business based on other metrics like traffic or free customers, only to run out of money (and therefore time) before hitting a tipping point.
- Thought Leadership: Unless you have many millions of dollars burning a hole in your bank account, you’ll find it hard to generate enough attention, leads and sales through advertising and marketing. It’s noisy out there, and traditional advertising and marketing strategies may not prove as effective as need be. But HR has a growing appetite for information; as things evolve all around us, recruiters are interested in what’s going on and how they can leverage new technology, new strategies, etc. to benefit their efforts. HR startups need a voice. There are lots of examples worth looking at: Jason Alba at JibberJobber for example. HR startups – ideally through the founders – need to establish credibility in a marketplace that’s seen many startups come and go with the “latest, greatest tool.”
- Understand the HR Ecosystem: The HR ecosystem is large and complex. There are lots of vendors, and I’ve often said that it’s impossible to move one inch to the left or right without stepping on a whole bunch of toes. Understanding your position in that ecosystem is critical. And, you need to understand how you can work with those around you; going it alone in the world of HR is very hard.
Startup success is always based on a few factors: team, execution, innovation, money and luck. It’s almost impossible to time the market (although ignoring it completely is like walking around blindfolded), and regardless, you don’t have any control over it. HR startups aren’t doomed – I expect we’ll see plenty of them emerge in the next year, and we’ll have our share of success stories as well. Startups need to shift expectations, look to revenue, manage cash flow like maniacs and survive until the inevitable upswing of the economy. You need to look for opportunities created by the recession: new ideas and businesses, sales pitch and marketing adjustments, strategic partnerships, etc.
Best of luck…
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January 27th, 2009 at 11:46 am
I hope and pray that the recession does doom 90% of the HR start ups! That is what we call a culling of the herd, and the truly good start ups will survive. This same thing happend when the dotcom bubble burst and it was a good thing for the market survivors and consumers. The number one problem with most start ups and all crappy start ups (you know who you are 90%), is that they don’t have a true economic value proposition, or plan to make money. They know what’s “cool” or what they “hope” will be the next big thing, but it’s not based on any fact driven methodology. I’m sorry, but if you aren’t prepared to measure performance and show me in fairly concrete terms what my expected ROI is, then screw you, you deserve to die a painful death.
January 27th, 2009 at 12:30 pm
I would have been very interested to hear your thoughts on pricing & value for Start ups. I also would have been very interested in hearing any thoughts that you may have had on pricing in relation to Monsters project 37% decline for ‘09. Overall I thought a pretty good, well thought out post; I was just left wanting to hear more in these areas.
January 27th, 2009 at 1:24 pm
Jeff – thanks for the comment. Sometimes I think it’s best to leave things on the table in order to encourage comments, discussion and potentially some follow-up posts. But you bring up some good questions.
Without a doubt, startups (and non-startups) are going to face price pressures. Companies are combing over their budgets carefully and squeezing vendors wherever they can. I would prefer if companies took a hard look at ROI and value vs. squeezing on price indiscriminately, because it helps those companies that are providing genuine value rise to the top; some of which may be startups that are trying to disrupt the big guys in the space.
I would certainly argue that the price of a job posting has to drop, and will continue to drop. There are more and more free and cheaper options in the world of job postings specifically that puts too much pressure on price.
For startups, when they hit the stage of starting to earn revenue, I would say that most of them are flexible with their pricing. They may go out with $X price per month but negotiate on a case-by-case basis. In some cases that’s part of the necessary price evaluation phase of a business, because regardless of how much pre-evaluation/testing you do, the rubber hits the road with respect to revenue only when you really start charging.
And I’m definitely interested in other people’s thoughts as well.
January 27th, 2009 at 1:57 pm
Whether you are startup or an established Professional Employer Organization you are going to face many trial and tribulations. Getting expectance and recognition by clients is a key way to generate new clients and survive as a start up. I think HR companies are going to see a relative boom considering companies are looking to down size or eliminate the internal HR department, in effect looking for an outside HR company with competitive pricing.
January 27th, 2009 at 2:50 pm
Cheap pricing or not is certainly a value proposition to the customer at the early stage. I think customers are more easily to be sold on the pricing in recession time.
Innovation is cool and good, but HR is suspicious on new tool or result while trying the new stuff regardless the economic situation. Cost saving is the #1 reason I see a new HR startup can gain market or win customer in this environment.
January 27th, 2009 at 8:15 pm
Hey TZ u tell it straight but cost saving isn’t #1, it’s #2. The #1 reason a new hr startup can win customers is that they…MARKET THEMSELVES!
We talk to three to seven different hr startups every day and invariably they’re focused on some ‘unique’ innovation [exemplia gratia: "we're the first ones to put salt on our french fries!"] when first order of business needs to be MARKETING THEMSELVES.
Great post all around…cheezhead is king.
Gregg Dourgarian
CEO, Tempworks Software
January 29th, 2009 at 12:58 pm
Great post,
Unfortunately I have seen a lot of start-ups go under, since everything else them is sinking. However, I feel smart companies that act fast can take advantage of opportunities due to the economic climate.
One thing I saw on TV the other day was how new businesses are actually starting due to the economy – people who are laid off are becoming entrepreneurs and taking a new route in their professions. This is great! I really think the current “situation” will spawn a new generation of companies over the next several years.
Cheers!
Jessica
Akken Staffing software and Recruiting software”>
January 29th, 2009 at 11:58 pm
In current financial times, the start-ups have got a very hard road ahead but it all boils down to “survival of the fittest”
Check out this post regarding a strategy adopted by Australia tourism to combat recession.
http://www.vfreshers.com/best-job-in-the-world/
Hope you find it interesting !!
January 30th, 2009 at 3:21 pm
Nice post.
As someone who has vetted, influenced and made many go/no-go decisions from the “Big Company” perspective regarding HR/recruiting solutions, the follow descriptor nails it for me.
“Painkiller vs. Vitamin: Is your solution a “nice-to-have” vitamin or a true painkiller?”
I would say that it’s the biggest showstopper in green lighting and adoption of a innovative HR/Recruitment solution. In my experience, the most common mis-steps in getting that green light have been:
1. they don’t present a crystal clear line of sight to how it will actually kill the pain vs the band-aid or just be a nice to have.
2. they solve for the generic market pain, but don’t easily scale to solve for the acute pain that is showing up for a specific industry or function.
3. Vendors didn’t take the time or just don’t have the intelligence of the “pain” to demonstrate real application for that companies that pain.
4. They don’t put skin in the game in the form of a pilot. By the way, I don’t think vendors should do free pilots vs discounts and I also think it should require a measurable service level agreement because many corp. recruiters wont step out of there comfort zone to work and will then scapegoat it as not working or some other excuse.
Much of the above may be the basics to some, but I can’t tell you how many vendor pitches I’ve sat through that completely miss the opportunity to execute the above and lose the biz. In some cases it’s clear to me that they don’t have recruiting in the trenches experience as a reference.
Thanks again for the thought provoking post
January 30th, 2009 at 5:35 pm
Craig – Great comment.
The painkiller vs. vitamin debate is a critical one, but it’s also tough in HR where there are a ton of vendors, and their value propositions and messaging overlap considerably (and perhaps more their messaging than their value proposition.)
What I’ve seen is a propensity for major scope creep on the part of customers – where you go in with a key painkiller for a specific problem only to get embroiled in trying to solve other problems as well.
There’s no such thing as 1 painkiller for EVERY problem, but I understand the inclination towards that mentality – and that’s extremely challenging for startups that are focused on solving 1 thing well.
January 31st, 2009 at 10:10 am
More Powerful Than Pain-Killers, Faster Than Quality Vitamins
In the 1980s marketer Regis McKenna articulated the use of ’silver bullets’ as a solution to the scope-creep/no-decision yuck that even pain-killer solutions encounter, and his lessons apply equally well to hr startups today as they did then to silicon valley garage shops.
Some trace ‘Silver bullets’ back to ancient folklore as being the only way to kill witches, goblins, vampires and werewolves, so no surprise they work also on corporate buying committees.
The tough part is figuring out what your silver bullets can be. I wrote a post http://www.staffingtalk.com/2009/01/silver-bullet-your-way-to-staffing.html on how one of my companies found its silver bullets.
Free-trials, consultations and training often make good silver bullets for HR startups. Put some work into it.
How can you make your silver bullet authentic and cost-efficient? How can you market your silver bullets? Tough but necessary issues for a startup to address.
February 1st, 2009 at 3:51 pm
Sometimes we don’t have enough words to describe the variations of the same thing (e.g. the famous saying that northern natives have 12 words for “snow”).
The truth is that any enterprise, large or small, at one point or another is in startup mode- either a whole new line of business, pushing an organic innovation, or keeping up with the competition.
People (acting in firms) don’t only buy to ease pain or to help ensure health (painkillers v. vitamins). To extend the metaphor, people buy to get stronger faster (steriods), for sheer experience (LSD), or maybe to look and feel cool (tobacco).
Some startups are bringing innovation that simply can’t be had elsewhere, while others are bringing better value to existing forms, while still others think they are doing one or the other but are actually net value eaters.
The depression will spell doom for many startups, but it will be the cause of creation too as people seek ways to make a living and to do things better.
One thing I have realized along the line is that “HR” is a vast field, and growing by the month because human capital is replacing financial capital as the key driver of business success- and maybe even more so when financial capital temporarily does become scarce and heavily scrutinized.
So another frame for this question is this: How does HR stack up as a marketspace during this situation as compared to other marketspaces ? The answer is likely “pretty darn good”.