Ketan Gajjar: Thank you. Welcome to the recruitment recruitment Curry show. Today we have Jesse Tinsley, the CEO and founder of job mobs recruiting expert, and who’s going to be enlightening us about scaling through acquisition. Jesse, welcome to the show.
Jesse Tinsley: Yeah. Thanks for having me.
Ketan Gajjar: Fantastic. So Jesse, obviously it’s dynamic situation in the market all over, especially the States and then, Europe with the recruiting industry.
And while we’ve seen. A massive demand last year, for recruiting services and then your, which was more pent up and, lots of companies hiring. We are seeing a totally different situation, as we speak. And while there are lots of companies who are, trying to sustain and, obviously there are lots of companies trying to thrive.
One of the best topics discussed in boardrooms is how do we scale and acquisitions is one of the factors which lots of companies are considering. So yeah, keen to know your thoughts.
Jesse Tinsley: Yeah I think with I think with acquisitions, it’s interesting because there’s a ton of M& A interest the last five years, right?
When the market was extremely hot. There’s not a week that goes by that we get multiple outreach ourselves to be acquired by companies. We had multiple acquisition of unsolicited offers in the last few years as well. I think it’s like the old the old Warren Buffett saying, it’s basically be greedy when others are fearful and others are greedy.
I think that’s brings true in this market as well. So there’s a lot of pain in the market for folks that didn’t prepare for 2023 accordingly, or just got caught in unfortunate circumstances. So I think there’s a ton of merit going out and scaling through acquisition right now.
Ketan Gajjar: So what’s the situation like, in terms of the trends are you seeing lots of companies, up for sale or, are you seeing lots of businesses, struggling to actually, get through these situations for various reasons, right from Staffing to funding, to, obviously to cash flow, number of things.
So what are you seeing right now, in the market?
Jesse Tinsley: I think it’s a mix of all things, right? So I think there’s lots of lots of folks that will levered up with a lot of debt the last couple years. And debt’s fine used in the right dynamic, right? Very common in real estate and lots of other areas where you can get strategic leverage to buy homes.
And that’s great. With businesses, at least in this recruiting space, a bit more risky on the S and B side, right? If you’re under 10 million in revenue and you’re taking out large loans it’s not unheard of. We’ve talked cause we’re obviously acquiring other firms right now. And we’ll be announcing some as soon as next week.
It’ll close on And I think the big thing that you’re seeing across the market, not speaking to those companies in particular is just that folks took on debt and the market did a complete 180, right? And it, you should be a lot more conservative with that. I think I think a lot of owners and founders will moving forward, especially if you’re under a certain threshold of revenue, because we’ve seen companies go from.
20, 30, 40, 50 recruiting consultants out to zero, right? And that’s just
Ketan Gajjar: that’s a massive
Jesse Tinsley: drop rates. I can’t really predict that. , that’s what we’re seeing. It’s still a lot of really good businesses doing quality work. And I think there’s a lot of efficacy to merging with companies that have a good friend.
If I was like, in your shoes, go find the, your biggest competitor in India. And I would go merge with that, like you built a, roll up, I think there’s lots of merit to that because. You can get safe basically like down market. You save on efficiency, right? There’s efficiency savings operations, right?
But to run a recruiting firm of 20 people operationally costs about the same as 100 people, right? So there’s not much of a difference from a back office perspective, from HR, legal finance, right? And then the same thing is true with like software synergies and savings there, right? You have larger volume, you’re going to get more efficiency.
discounts. So it’s a lot cheaper to go and merge and a lot of synergies with customers and everything else and redundancy and capacity planning in this R. P. O. Space to go do that. And I think we’ll see a lot of that over the next 24 months.
Ketan Gajjar: Wow, that’s massive. So in terms of the sectors, are you saying, recruiting companies from, specific sectors like tech or manufacturing, which are Looking at the seven, you are, is this sort of sector agnostic, is this all across the spectrum?
Jesse Tinsley: This is, it’s definitely unique to certain industries that are hit harder, right? So tech, we’ve seen a massive drop in the last year, right? They, you’ve seen those companies drop from 50 to 90%, at least in the U. S. markets. Seems like crypto. So a lot of these companies have, we’ve seen even with our customers without naming anybody there are a couple thousand people and they’ve dropped to five internal recruiters, right?
That’s unheard of. You can’t even ignore, let’s just take a low attrition number of, 15, 10 or 15%, that’s a couple. A couple hundred people and, five, five recruiters aren’t gonna be able to fill a couple hundred engineer roles if they want to fill those, especially when the market starts to take back at all.
So I think there’s gonna be a huge uptick with after 2020 and 2022 layoffs that we’ve seen, you’re gonna see companies do a lot of augmented support. I don’t think that I think people might say that I’m shilling RPO, but it’s really not the case. I think it could be a consulting recruiters directly, RPO can be recruiting on demand, but some type of augmented workforce that can flex up or down based on the market dynamics, I think, is very wise moving forward just with how volatile the markets are.
Ketan Gajjar: Yeah. And, I think I can resonate to that because. We are seeing lots of demand where, you know, from staffing agencies where, they are, literally inundated with the number of applications and their recruiters, they don’t have enough time to, sift through the applications.
And then that’s where, they’re looking for support. Like you mentioned, there are a number of avenues, not just RPOs, recruiters can, support in, in number of ways. So in terms of the best practices, Jesse, for acquisitions, could you share your experience in terms of how should companies go about, how do they start?
We’ve lost you there, Jesse.
Jesse Tinsley: Sorry, I was saying a lot of it’s relationship based. And I think it’s interesting because it’s just like a recruiting, right? Like the best recruiters obviously have the skillset, but they also have the network, right? So if I started software engineering search tomorrow, I know five best people that I just call up right in the Bay area. Same thing with MNA, right? You want to have those relationships formed years in advance with all the different MNA brokers or the potential like strategic buyers. This is going to help make like your life a lot easier, as opposed to looking at down market when they’re getting a ton of inbound, right?
I think we announced that we’re going to strategically go buy companies and we’ve had three dozen companies reach out to us in the last month. With the recruiter. com news and then that the strategic partnership we signed there, and then making some of those announcements. We’ve had just an outpouring, which is very flattering.
But, the folks that are rise to the top there for us or folks who know you have established relationships with, and so that’s my, the first step is I start building those relationships long before you need them, or want to do it. It’s definitely the first step. If you’re looking to sell your business other than that, I think there’s lots of other things you can do that will help prepare your business, like audited financials and starting to go through stuff like that.
But That’s that’s probably the best thing. Focus on the relationship piece. Obviously, make sure you’re doing it when your revenue is at least increasing. You don’t want to be going into decline, like a deflationary Revenue decline. It’s going to be tough to sell. And again, I would mainly pivot.
There’s a lot of horror stories with like private equity firms. I think strategics generally going to be a better a better outcome for many owners because private equity playbook as I’ve learned earlier, my crew had an offer back in the day is they’ll say Hey, we’ll give you a million dollars, right?
Whatever it is. And They’ll string you along for three months. You go through all the painstaking diligence and then the very end they’ll be like, by the way, we’ll give you a million dollars, but, and then they’ll put like some crazy term in where it’s oh, you only get 10 percent up front and then you have to earn out the next 90%, right?
Or whatever it is. Flip the script on you pretty quick.
Ketan Gajjar: Sure. Obviously one key takeaway on this point is that start networking before you actually need it. So start now, if you’re thinking, three years down the line or whatever time down the line.
Jesse Tinsley: Just like job search, right? The recruiters should know the right recruiting firm owners should know this better than most. Yeah. You need to network for your next job basically before, before you need it. Thing is true of acquisitions.
Ketan Gajjar: And then when it comes to evaluating, of course, it’s the numbers, that, that matters the most, but, apart from the numbers and, the building figures, what are the factors, are of utmost importance?
Jesse Tinsley: Yeah. So I think there’s a few things that are like going to be really important for any of those is like how you structure your contracts can make a huge difference. In fact I’ve advised a few consultancies that were in the recruiting space, just in different like ancillary business services, whether it be marketing or design.
I was telling them how they should structure their contracts, but actually when they go to sell in the next couple of years, that the firm will be worth more. 200, 300 percent more just because of the way they structured their contracts. It’s stuff like that makes huge valuation, different differences that most people wouldn’t even think about.
It’s really minor things. Your customers want to push back on an example of being just like putting retained money into different payment payment formats in your contracts, most people just bill. Bill net 30. You can get pretty creative with stuff. And so that’s one of the things is like how you structure your contracts.
Another is going to be like actual net profits and how like efficient revenue business. Basically, growing a business versus selling business are two very different mindsets. My best recommendation there is going to be focus on What you normally focus on within the business, even when you’re selling, because otherwise it doesn’t happen.
At least you’re in a good spot because it can be quite distracting for many owners.
Ketan Gajjar: Sure. I know this is personal, probably to every business owner, but. If somebody’s thinking of selling, their staffing business, recruiting agency what size, do you think, they should consider before actually, entering out into this avenue?
Jesse Tinsley: That’s a great question. I don’t know if there’s a size per se. I think it’s going to matter. The relationship piece. But there’s like a local maximum in this space for. A lot of firms get stuck between about two and 5 million in revenue. And that is probably a, a good size to go do.
Like the first thing we talked about was just go merge with another firm that’s doing two to 5 million.
And then I think the other options, once you’ve done that, then yeah, if you’re eight, 10 million plus, you can go to acquire it pretty easily. Obviously it’s easier and easier as you go up markets.
But that’d be my recommendation. There’s a lot of firms that fall for yeah, one to 5 million in revenue that kind of gets stuck there.
Ketan Gajjar: And then, so there’s another interesting angle to this, which is negotiating a good deal. Of people will be interested in, Hearing about, what are the [00:11:00] best tips,
Jesse Tinsley: Yeah yeah, it’s a great question. It’s it’s a little, it’s tricky. So I think the first you have to figure out unpacked, like what’s a good deal.
But I think it’s also, if you’re staying on as a founder, it’s really not getting the best. I think it’s getting an integrative solution, right? It’s if I was buying your company, I’m like, Oh what’s, what does that look like from a fair deal for each side, right? 55th, say for 50, like maybe you get 51 percent more value than I did 49.
I think something like that and try to meet in the middle because you have to work with this buyer for the next two to three years. So if you over negotiate over promise and under deliver. It’s not going to work out well for anyone, right? There’s some high percentage of companies that go through acquisition end up in, litigation.
But part of that is, is, founders or buyers over promising and then under delivering on the actual terms of the deal. And so I think the biggest thing is just try to come up with a fair deal, especially with like strategics with people you have a relationship with. I think trust goes a long way.
If I was selling my company. I would go with the company that I [00:12:00] trusted like for 10 percent less over a company offering, more money to to do the same thing. So I think that’s a big thing is the relationship piece. More so like the money, making sure like your customers are taking care of your recruiters.
And then also like that you can work with them yourself. There’s like multiple factors there.
Ketan Gajjar: And then, you mentioned, about the contract. The other thing that you really need is clean books of accounts,
Jesse Tinsley: Yeah. If you’re starting to get like higher end revenue spectrum that we talked about, like eight to 10 plus million, I think you can definitely start to get up and just pay for audited financials.
If you want to exit the next year or two, that’ll save you a lot of time and effort and be really good. It is a little expensive, but Probably worth it. That ends, it’ll make your life just so much easier during diligence.
Ketan Gajjar: Yeah. You don’t want to cut any corners there.
Jesse Tinsley: Yeah. Yeah.
Recently with what was the acquisition? I’m blanking on the the bank with bank acquired the software startup. You know what I’m talking [00:13:00] about? Where she, for the CEO fraudulently increased user data, right? I forgot the name. Put it in the show notes, but yeah, it was interesting situation, similar thing.
Obviously diligence wasn’t that deep and I think it was, I think it was J. P. Borden Chase that bought them, but it could be wrong. But anyways I think huge investigation and facing criminal charges for fraud obviously do not do that, but I think it goes without saying, but yeah, there’s interesting stories on both sides of deals not working out.
Again, I think the biggest takeaway is that I would build relationships, work with people. Journey is just beginning on acquisition, right? So it’s like only the first part of that company’s journey in a lot of cases. So yeah, a decade or two run thereafter.
Ketan Gajjar: You mentioned, the start of the conversation, Jesse, You’ve gone through some acquisitions recently as well.
You had a number of inquiries. Can you share some examples, some case studies off, what’s the process like, what’s the experience like for the, both the parties?
Jesse Tinsley: Yeah. Yeah. So let’s say [00:14:00] the process generally looks like you’re
hold on one sec. My browser set it to shut down. The process is pretty straightforward. If you were to like reach out, we generally, if we didn’t know each other, it’s just a normal conversation, talk about your business conceptually, sign a mutual NDA, do a deeper dive, try to understand the nuts and bolts of it and how it would possibly work functionally.
Let’s say that those two hours of calls combined go well might be Might do a deeper dive to like financials or something like that move to an LOI come up with a baseline agreement for a deal. It’s pretty, usually like a pretty lightweight letter of intent to purchase and some type of valuation and some terms that you’ve discussed with the owner.
And then from there you basically go through like due diligence, which is. Who you’re working with, could take anywhere from two to four months. And that’s where you’re gonna want to have all [00:15:00] your accounting and finance book buttons up. I think a lot of, and then also like just your business operations sales rhythm, it’s gonna be really distracting for a founder.
So the more operations people you can get plugged in the better if you have an M and a a specific attorney that focuses on this stuff. Great. And that’s it. Thanks. That’s going to save you a lot of time and effort because that could be a whole a whole different part of diligence that takes a long time.
And then from there wrapping up and closing is relatively simple compared to compared to the rest of the process, right? I think diligence is usually painstaking for most small business owners because there’s just a lot a lot of docs and whatnot to share.
Ketan Gajjar: Sure. Sure. And then, we covered the sort of due diligence part and so in terms of the risks when it comes to, transactional and not non transactional risks, in this entire process and the challenges, the entire process has what are those?
Jesse Tinsley: Yeah. So there’s a ton of risks, I think for business owners, right? So most acquisitions are going to have two different tiers. So [00:16:00] let’s say you get it, let’s just say figuratively speaking, a million dollars for your business, maybe you get some amount of that up front and then you have an earn out, right?
So the biggest risk is to get on the earn out side. So you really want to partner with somebody like one you trust to that you can know can hit that earn out. I think our advantage, at least how we look at the market is I was to buy your business in the RPO space. I know that we as a team can operate it.
Maybe not as good, but 95 percent good and definitely better than any private equity buyer that you’re going to get. So I think that’s like a big thing. It’s like, where are you going to actually hit your out? Because a 10 million offer and a 1 million offer, like the 1 million offer could in theory be worth more depending on how it’s structured.
Because 10 million could be zero essentially. And so that matters, I think more you think about your offers is making sure. you understand the terms and who you’re working with because a lot of earnouts aren’t hit because of that.
Ketan Gajjar: And, in terms of the top challenges, what are those top two or three challenges that you’d outline, in the process?[00:17:00]
Jesse Tinsley: I think the top challenge, just as a small business in this context is going to be that actually operating the business at a high level while you’re going through diligence, right? Diligence will take another, it’s a full time job on top of being a CEO of a small business. You’re already doing a ton of different things.
So I think that’s the biggest thing. It’s like focus on the health of the company. If diligence takes a little bit longer. It’s not going to kill the acquirer. It’s much better that your business is in a better situation. So I would focus there and then focus on your acquisition second. But I think a lot of founders flip those priorities and I think it’s the wrong way to do it.
Right.
Ketan Gajjar: And then, I have been really keen on, understanding about your journey because you tweeted this, I think last month, how you’ve grown the business, in 10 years. So please share the story.
Jesse Tinsley: Yeah. Genesis story, I started recruiting or sourcing rather when I was 15 years old, I grew up in Silicon [00:18:00] Valley.
My mother was a director of TA at the time. So I did that sourcing chores to get to allowance. Then I went to college right out of college, started a job moms in 2012. And been doing it ever since like 11th year. And Still having a lot of fun with it. Really not one of the only like larger privately owned, a hundred percent food strapped companies in the RPO space that I know of.
I don’t think, I think everyone else in the Baker’s dozen list is got private equity money. So our goal is just to stay privately owned. I think it’s a huge differentiator right now, especially cause we’re able to just focus on quality. We don’t care about profits. We don’t have limited partners that we’re trying to.
Payout or public shareholders to pay out, right? Our focus is on our people and which benefits our customers. And those are our priorities. The money thing is less important, but that’s the quick overview of my background and journey of the last 10 years.
Ketan Gajjar: And then you shared some numbers as well on the tweet how you hit those [00:19:00] numbers.
Jesse Tinsley: How do we hit those numbers? I will, it’s funny. We’re having a conversation around it. So it was a one like through, through strategic acquisition, right? So that’s helped us. We’ve rolled up two companies, at least that the RPO sector and service sectors of those companies in the last few months one of which was smaller and then the The strategic partnership with recruiter.
com and basically acquiring that services business has helped growth, right? Basically it’s very additive for us. So that’s one of the things, but other than that, just focusing on quality and having staying power, the space is very high churn. We looked at like a competitor analysis from 2017 recently, and there’s one company left on that list.
They definitely aren’t privately owned anymore but there’s out of like dozens, right? They’re all just gone, right? Owners retire or sell or and so I think if you really want to do well in this space, get in it, have a North star where you’re trying to go and focus [00:20:00] for a decade and you can do a lot of great things.
Ketan Gajjar: Definitely. Scaling through acquisition is one of the avenues that you’re looking at as well, isn’t it? In terms of, companies approaching you right now. To work with you guys and then, you help them scale what is your sort of ideal client or, rather ideal, target company that you would want to acquire in terms of this?
Jesse Tinsley: Yeah. Yeah. Yeah. There’s a lot of ideal profiles. So I think we’re we’re looking for, again, going back to the merger piece of who’s high, has a high quality high, like really well regarded brands. Type companies and then companies that are strategically advantageous, right?
Geographically and otherwise, and different customer bases and segments. So we’re looking at something like international acquisitions as well. And yeah, more on that, but I think the that’s the high level overview. We’re looking at it as a growth strategy, right? This has never been done in the private equity space.
No one’s rolled up RPOs ever. This is just, as far as I know, I’ve been in this space for 11 years now. I’ve never heard of it, seen it. I’ve talked to other firm and [00:21:00] owners that have been really successful and yeah, it’s just never been done. In uncharted waters, but I think of the same fundamentals applying in private equity rollups as they do for RPO.
So we’re excited about it.
Ketan Gajjar: Of course. So this is the time for, recruiting businesses, if they want to scale quickly and then grow obviously you work with a business like yourself to excel from here on and take advantage of the processes, systems, everything, expertise.
Jesse Tinsley: Totally. Yeah. It’s if we’re, if you’re acquiring emerging threat business, it’s one plus one equals three. It’s weird as that sounds because of the synergies and growth, it’s much harder to scale something with just a I was sharing with somebody recently, actually an owner, we were looking at acquiring a firm.
And it was that, if I was to go start a firm today, myself, with all my connections and everything else, it would be really challenging. Even if I had a couple of people, but if I then merge that company into a hundred plus person company, it has everything in place. Everything’s already built.
Now you can just start running, you just start sprinting. You have to do all the laying of the tracks, you’re just on, You’re on the path taking off, as opposed to [00:22:00] just trying to lay the path, which is what SMP owners are trying to do, which is much, much harder.
Ketan Gajjar: Totally. There’s a clear precedence of, what’s next.
And then you already walked through that journey and then, invented the wheel. So that’s the better way.
Jesse Tinsley: Yep. I know we’re coming up on time, but we’d love to we’d love to. If there’s anyone that has live questions, I’m happy to chat about, we get a lot of questions about recruiting recruiters at JobMoms.
I think we had a post last week that had quite a bit of traction for all the hiring we’re doing internally and happy to answer questions if there is any or just talk about that briefly in closing. So folks have information on that.
Ketan Gajjar: And I’m sure, you LinkedIn as well, isn’t it?
Jesse Tinsley: Don’t reach out to me on LinkedIn.
I can’t I added a den another comment. I haven’t checked my LinkedIn in a bit. There’s so many hundreds of messages in the last week, so I can’t can’t keep up with everything, unfortunately. But if they email recruiting at job moms. com, [00:23:00] we will definitely get back to them. Just please put the, position in the subject line that you’re interested in or we’ll make sure that you get contacted or at least followed up with.
But yeah.
Ketan Gajjar: Perfect. Sounds good. So Jesse, thank you very much for being on the Recruitment Curry show. Really enjoyed the conversation and yeah. Good night from India.
Jesse Tinsley: Yeah. Likewise. Thanks for having me. Cheers. Cheers.
