We’re at an exciting time in the world of work. Businesses are using new methods to hire in a pinched labor market, and recruiting is changing rapidly in response.
For several years now, the staffing industry has faced a sense of impending disruption, though the exact source of the anxiety has morphed over time.
Fear #1: Uber
At first, it was the fear that Uber or a similar two-sided digital marketplace was going to take over the staffing industry just as it did the taxi industry. When a clear winner failed to emerge after many attempts, the staffing industry had a variety of reactions.
Some took it as a sign that their industry was safe from serious disruption for the foreseeable future. “See? It’s a relationship business. It can’t be replaced by an app,” they said.
Some, wary and uncertain, got back to business-as-usual but kept an eye out for signs that the early majority had successfully adopted some of these new ideas. “I’ll switch over when the market is ready and the ROI is proven beyond a doubt,” they said.
Others, ranging from global conglomerates to small startups, pressed on in search of answering the question, “What does mobile, on-demand, automated technology look like for our staffing business?”
Fear #2 – Consolidation
That led to the second wave of worry: consolidation. Some of the largest agencies leapt ahead of the pack with advanced new platforms, leaving their smaller competitors to wonder where their long-term place might be in the industry. Small agencies live and die on the strength of their relationships, but what if their clients could pay less by using a labor marketplace? Would they still justify the higher margins paid for the personal touch?
Before anyone could really answer that question, COVID hit and upended all projections. It was sink-or-swim, adapt-or-die. If you were lucky enough to serve an industry that was deemed essential, you survived the turbulence and maybe even made out better than before. If you didn’t, you stopped to reevaluate where to go from there.
Meanwhile, the tech industry had also paused to reevaluate. It may have gone unnoticed in the staffing industry, but in these last few years, the thinking out of Silicon Valley has been converging on a very similar answer to what the giant staffing agencies have been pioneering. The VC-approved term is “vertical labor marketplace”.
Vertical Labor Marketplaces
All-encompassing labor marketplaces like Indeed or LinkedIn, the thinking goes, can’t adequately serve each vertical with the right experience. By focusing on a specific target like healthcare, IT, or light industrial, vertical labor marketplaces are able to achieve both the necessary scale for supply-demand balance and the optimal experience for that industry.
What does that have to do with staffing agencies?
Think about it like this. If a tech startup is focused on a single vertical, they might be able to overcome the home court advantages of staffing agencies with the superior client and candidate experience of a marketplace that’s tailored for the needs of that space. In healthcare, for example, Trusted Health, SnapNurse, and Nomad Health are able to give long-standing agencies a run for their money.
I’ve played out this dynamic in my own career. At a previous startup, AquaMobile, we were able to bootstrap a two-sided vertical labor marketplace by focusing on an underserved niche: swimming lessons. We leaned on the technology to do the heavy lifting of allowing customers to book instructors, while the small administrative team worked on campaigns to boost supply and demand, handled complex operational work, and responded to customer issues. Although there were unique challenges to booking swimming instructors that originally required a lot of human involvement, we were able to automate away most of the marketplace operations over time because we relentlessly focused on the specific needs of that niche. We then scaled to take over the US & Canada market for swimming instructors.
This lens also helps us understand why Uber succeeded in transportation and food delivery but their UberWorks initiative didn’t make much headway into staffing. In trying to launch a labor marketplace with dozens of job titles spanning light industrial, hospitality, and retail, they weren’t able to achieve a critical mass or provide a great experience for candidates and clients in any one area. The disruption from COVID and an unprofitable core business killed any hopes they had of iterating the experiment to success.
Fear #3 – Indeed’s “Flex”
Near the end of 2020, already a turbulent and crazy year in unimaginable ways, the staffing industry got another nasty surprise going into the holidays. Indeed had launched a new product, IndeedFlex, that offered companies a way to directly staff for light industrial jobs.
On the surface, this seemed like it might not be that different than other tech-first entrants like Uber who had made similar plays and failed. But there are several crucial things that make Indeed a very different kind of threat. In addition to having the same deep pockets and sophisticated technical know-how of Uber, they have two additional resources: staffing knowledge and meaningful stores of data. Their parent company, Recruit Holdings, owns and operates staffing agencies around the world and has a front-row seat to all the operational efficiencies and typical pitfalls of traditional staffing models. They’ve also been collecting agency data for years, and understand what kinds of jobs perform well in a digital arena, and why.
State of the Industry
9 months into 2021, here’s where we stand:
- COVID accelerated the digital transformation that would have taken years to happen otherwise
- Most of the top 20 agencies have built, bought, or acquired their own staffing platforms. The early leaders like TrueBlue, AMN, and Aya have been showing off their success on their recent earnings calls.
- Indeed is the latest tech company attempting to cut out agencies and build its own two-sided labor marketplace, Indeed Flex. They’re starting with the light industrial sector but likely to expand beyond that if they succeed.
- Vertical labor marketplaces in healthcare staffing are starting to demonstrate impressive ROI to clients and hook candidates with seamless experiences.
So far, most of the staffing industry has responded with just enough technology to fend off the challenge. As many have realized the hard way, however, it’s not easy to get their team to think fluently in tech. Agency leadership wants to have a tech toolset they can wield flexibly and creatively to solve their business problems, but instead they get stuck managing a dozen software vendors, half-baked integrations, and infinite rounds of training. The results are often more limiting or distracting than empowering.
And so a pivotal question emerges: can agencies become good at technology faster than tech companies become good at staffing?
Thankfully, we don’t need to answer that question. There is another path forward.
In the next part of our four-part series, we explore the rise of staffing platforms and how they offer tech-forward agencies a lift in growth and profitability.