CHICAGO (Aug. 27, 2010) — Creativity and entrepreneurship go hand in hand, so it's no surprise that small-business owners often seek innovative solutions.
For example, an entrepreneur might want to hire more employees but would rather not incur the expense of additional salaries. That seems like an either/or proposition, but some are finding that they can have it both ways thanks to an unlikely ally—the recession.
The unemployment rate is still high, which “puts you in the driver's seat,” says Mark Schwartz, CEO of Lake Zurich, Ill.-based Product Development Technologies Inc., a product design firm. “It's like buying a house. If you're a cash buyer in this market, you have a lot of clout and can get a better house than you could otherwise afford. Well, it's the same thing for employers.”
Mr. Schwartz and other employers are finding a pool of talented job seekers who are not only willing to work for lower salaries, but are increasingly agreeable to compensation terms that allow companies to limit their risk. Job candidates are jumping at offers whether they are performance-based, incentive-laden contracts for salespeople, compensation packages that offer equity to employees of all levels or temp-to-hire arrangements. In the process, they're landing serious talent.
“The people we've hired lately, they've all been superstars. It's really remarkable,” said Mr. Schwartz, who instituted a temp-to-hire program for the first time in PDT's history. Of the 13 people hired since November—a 10 percent increase in the company's workforce—eight came through the temp-to-hire program.
“Normally, when the market is tighter and pickings are slim, you don't get people this strong. To me, that's evidence that the recession went pretty deep—companies were cutting really good employees, not just the bottom ones.”
PDT isn't the only company using temp-to-hire to stretch its capacity without committing to hiring full-time staff. Technisource Inc., an information technology staffing firm, has seen a spike in the volume of temporary employee and outsourcing requests it receives from small-business clients over the last six months.
“It's a typical entrepreneurial type of strategy. Our small-business customers are concerned and cautious, but they're also looking for an opportunity for growth,” said Taz Stephens, regional managing director at Technisource, based in Fort Lauderdale, Fla.
The temp model doesn't work for all businesses, so some have offered an ownership share in the company, a concept close to the heart of an entrepreneur. Libertyville, Illinois-based Forcelogix Inc., which sells software that helps businesses manage sales operations, grew to 12 employees from seven in 2009; it offered a stake in the company to the five people it hired last year.
It will do the same for the three to four hires CEO Patrick Stakenas expects to make in 2010. Forcelogix launched in 2005 and went public on the Toronto Stock Exchange last year.
“We brought people in for [salaries] that were sometimes lower than what you might expect to see in the marketplace, but we were able to offset that with equity in the company,” Mr. Stakenas said. “When the market is slow, or people are concerned about the business itself, you need incentives to offset the wages they would have made in a better economy. We were able to do that and keep our expenses low.”
When and if the economy improves, entrepreneurs might not find as much top-quality talent willing to work under creative compensation arrangements. For now, though, they are capitalizing on one of the few advantages afforded by the recession.
This article ran in Crain's Chicago Business, a sister publication of Tire Business.