Ketan Gajjar: Hi there. Namaste. How are you? This is Ketan Gajjar from Apnu Ahmedabad. Welcome to the Recruitment Curry podcast. James. Hi. It’s an honor to have you as a guest on the Recruitment Curry podcast. Thank you.
James Caan: Absolute pleasure being here this morning, Ketan. Looking forward to our conversation.
Ketan Gajjar: Likewise. So James what we want to cover today is, obviously the market is on fire, as we see right now and, everybody’s recruiting left, right and center. So what advice, would you really have, so there are two things. One is this sustainable?
James Caan: Yeah, I think we deserve a bit of good luck to Kate and, we’ve had two, three years. where the market has really not been very favorable. The recruitment industry went through a torrid time through COVID. So I think it was about time we had a bit of good luck. So I’m delighted that, our industry has seen an exceptionally good year last year and 2021 or 22 has kicked off really well.
But I think you ask a very valid question, the current. Demand in the market. I think it’s been at record levels that I’ve never seen before. And if one is to go by the stock market generally prices six months in advance. And all the indicators to me are telling me that the stock market anticipates a softening.
Of the economy and the softening of demand. And if we look at macro economics, the world is in a terrible place right now, with the cost of living crisis with the war with inflation, interest rates going up all the wrong signs of facing us, as we enter Q2 of this year. So my gut feeling is there will be a softening, and I think owners of recruitment businesses need to plan and prepare for that.
The barometer that I tend to use, Katen, is job flow. In my kind of 35 year career in this industry, job flow is the key barometer that tells you where the market is heading. And in most of my businesses, what I have found is for the last nine months, job flow has been consistently rising month after month.
But the first month of May, I saw job flow flattening, and that is a good sign that says demand will start to slow down. And therefore, my advice will be to other owners of recruitment businesses, track your job flow numbers carefully, and where you are seeing a potential decline. That is a good indicator that demand is likely to slow down.
Ketan Gajjar: Sure. Sure. So in terms of, when the market softens, what advice would you have for the, agency owners, especially, clients of RP arena as well what should they do? They be doing, in terms of, focusing on sales or processes or, what would be your advice?
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James Caan: mean, I think if you, like most of us, including myself, we had real growth plans for 2022. I put those growth plans on hold because I can only grow if there is demand to support growth. And if demand slows down, I can’t validate or support growth. And therefore, the strong advice would be, is any strategic plans of growth or expansion, should be revised, taking into consideration the potential softening of the market.
Ketan Gajjar: Sure. And in, in terms of the agencies, focusing on, you mentioned about the growth plans, are there, any levers they can leverage, in terms of tech, outsourcing, what would be your advice on those factors?
James Caan: I think one of the great things is I think owners of recruitment businesses, we took a very tough lesson through COVID, COVID stretched our business skills to levels we’ve probably never used before.
And I think, especially me, managing our cost space. Was the primary motivator, during difficult times. And the best advice I would give is look at your cost space and manage your business, in a very considered way and maximizing the investments you make, the people you have, the infrastructure that you have.
Because probably in the last 18 months, we’ve all grown very nicely. Business has done very well. And we’ve probably all grown. very quickly. The question today is the growth that we’ve achieved. Is that sustainable with a slower job flow number? So my advice would be manage the cost space and manage it well.
Ketan Gajjar: Sure. Sure. In terms of, all the businesses that you’ve invested in have you outsourced, for any of the businesses and, what has been your experience like if you have, and would you recommend?
James Caan: Yes. I think a number of the businesses that I’ve invested in have.
Adopted an outsource model. Most of those decisions are taken by the founders of the businesses I’ve invested in. And it has worked well in some cases and not in others. Where we have seen real success is where the owners of the businesses have really bought into the concept of outsourcing and what does that really mean?
That means that. The general psychology is when we hire people because they’re in our sights, we manage them differently. When we outsource, there’s a phrase out of sight and out of mind, and that’s where the problem lies. So businesses that I have that have tried it and said it didn’t work is because they treat the people differently because they can’t see them.
And when I look at businesses that I’ve invested in. That have outsourced and they literally treat the people the same way, but they just happen to be based in a different location. And I think COVID has really taught us that today, the world we live in, you can frankly work anywhere. And the concept of outsourcing, I think today is way more acceptable than I think ever before.
Because previously we had this barrier that unless you were in my office, it didn’t work. Whereas now, look around the world. People are working in all sorts of locations and places. And, the office is becoming optional rather than mandatory. So I think the principle of acceptance of outsourcing is probably the best I’ve ever seen it.
But going back to your point, when any of the businesses that are invested in when they succeed is when they’ve taken somebody From an outsource provider, and they treat them the same way they have regular zoom calls, they interact with them, they treat them like their employees, because in all intents and purposes, they are their employees, they are full time employed by them.
And therefore, if you treat them that way, you get fantastic productivity. But, if you treat them in a different way, like a poor second cousin, the outcome is no different to if you treated them that way, and they worked in your office. And that is where I think the magic lies. So you know, there’s a particular business that I’ve invested in, and he was a bit cynical in the beginning, because it was like, Oh my God, it’s a bit of a headache, it’s a different time zone, they’re in a different country, do they know my culture?
And I said, Look, unless you try, you never know. But right now, if you look at the financial benefits, the numbers speak for themselves. And he eventually, I think he took three outsourced individuals. One of them didn’t make it. They replaced him with another one. And then at the end of four months, I think he hired another two.
And I think the last call I had with him, I think he’s got 23 which is, Astonishing. It’s 50 percent of his team now is based out of India. And the thing that is even for me been quite surprising is these are not resources. These are actual people doing the job. So they’re sourcing candidates that engaging with candidates, they’re arranging interviews and they’re closing transactions.
And the thing that he was telling me that really surprised me was some of the guys out of India are billing in excess of 10, 000 a month. And the conversion between gross margin and profit, is nearly 75 to 80%. In the UK, if you convert at 20%, you’ve done phenomenally well, but to be converting at 70 or 80%.
Is off the charts. So today his business is significantly more profitable because he’s managed his cost space in a way that even where he’s generating lower fees from clients because of his cost of services dropped significantly, he’s actually making more money today. So I think when it works, it is excellent, but it is not easy to make it work because people don’t like change.
And this is different. You’re managing in a very different way. So I don’t think it’s the principle of outsourcing. That’s the issue. I think it’s the principle of adjusting your management style and changing your management style to suit a new environment. If you can make that change, I think the service can be excellent.
Ketan Gajjar: Sure. Sure. Of course. And then that’s one thing that, in, in my experience as well, working with agencies, I’ve told them that. You have to treat your, offshore team members or outsourcing members, just like you treat your, teams in the UK and then, having commitment and a champion to drive this project is, most imperative.
James Caan: Oh, absolutely. And I think, there’s one particular business that I have. He’s now got nearly 60 people based out of India. And he has got exactly what you’ve just described. He is appointed as a champion, as a director of the company, been there 10 years. And this chap, Alex, it’s his full time job, is the relationship manager between the Indian operation and the UK business.
And he’s a very senior guy, been with the firm 10 years. But that’s all he does. He wakes up every morning and his job is to make sure is, are my people in India focused, motivated, engaged? Do they feel part of the team? What are the problems they’re having? And his job is to unbottle any issues.
And that’s how serious Jason has taken, the concept of outsourcing. So I think people sometimes question the model. They question the principle. Is it right? Is it wrong? They’re based out of India. What about the time zone? Yeah. Actually, from experience, what I’ve learned, actually, they’re not the issues.
The issues come down to how are we going to manage somebody we don’t see every day. And if we can adjust our management style and approach and treat them in the same way, but recognizing we’re using technology, the model works. There’s no question it can work. You only get out of it what you put in. And, a number of my businesses, when they first started the process, they’d hire a resourcer offshore, they’d send a couple of jobs.
We would go by. Nobody would speak to them. The guy in India got a bit demotivated because he wasn’t getting feedback. Then when they did speak to them, the candidates they generated probably weren’t right. They said, Oh, the guy doesn’t know what he’s doing. And, you give up. But the truth is, we didn’t really put much effort into it.
If you put the correct amount of effort. And if you treat them in the same way that you would have done, because if you’d hide that resource in your office, you’d be speaking to him every day. How’s it going, John? Did you forget the candidate? You give him feedback. He talked to you. And, there will be a real relationship.
And surprisingly, the chances of his success are very high. So I think it’s an actually understanding that we have to change our method of operation, our communication, our management, if we can make that change. This can [00:13:00] be an incredibly effective way of delivering a high quality service to our clients and delivering a service in a way that makes it way more profitable.
Ketan Gajjar: Of course. And then, it’s an entire mindset changes and it mindset and behavior. And then one thing that I often come across, as a question from the UK recruiting owners is. How will my candidates take if an Indian calls them from India? And then my response to them is always, I’m an Indian.
I could be sat in your offices in London or Manchester, and then they wouldn’t question. So as, as far as, the com skills are, nice and clear. I don’t believe there’s a worry that, okay, fine. If it’s an Indian or any Asian who’s contacting your candidates.
James Caan: The good news of the UK is that we are a very multicultural society.
The UK has, every nationality under the sun and, in my business, we have many nationalities, from English to American to Spanish to German, etc. And, I think our clients employ people from every part of the sector. So actually, I think we represent our clients and our clients employ people, from a multicultural environment.
So I think we’re just matching, the demographics of our customer base. And, do clients mind or object? Not really. You come to the UK. Regularly you come and meet clients. You do business with people in the UK. And it works the same way. So it’s not something that I’ve personally experienced to become a barrier.
Ketan Gajjar: Sure. Sure. So basically, going back to our first point is, when the market softens, you’d obviously focus on the cost base and then outsourcing is one of the levers to obviously, utilize. To manage your cost base and actually, drive up your operating profits.
James Caan: Absolutely. I think we definitely did that. During the [00:15:00] COVID period, we look, we looked at outsourcing much more carefully because we found that job flow was just non existent. And the other area that we found is in certain sectors where I have businesses where margins are much lower. The truth is we find it very difficult to actually make money in industries where fees are just too low.
In the UK, the price of energy, the price of offices, salaries, and everything’s going up, nothing is going down, but there are sectors of the market where our fees are coming down, they’re getting commoditized, they’re getting highly competitive, clients are going in house, RPO.
Businesses are signing up to a much larger kind of vendor type agreements. So we are seeing a lot of price compression, which makes it very hard to still make a return. And therefore, if you can look at outsourcing in those areas, you can actually still, maintain a very healthy business and a highly profitable one.
I think if the market softens, which I think it will, it’s definitely an option worth considering. But I also think that if you happen to be in sectors of the market where you’ve seen price compression, this is another alternative, because if you have to deliver using a UK cost model, there’s very little margin involved.
If you can use an offshore model, where your cost base has been dropped, in some cases by 70%, your margins in terms of profitability can actually be higher than in your conventional business.
Ketan Gajjar: So even after, obviously from a cynical perspective, the risk versus returns are still much higher in the outsourcing model because at the end of the day, what you’re risking is, when you recruit anybody, it’s still a risk, you’re recruiting talent.
You don’t know, how they will deliver, onshore or offshore. And then going back to the thinner margins, outsourcing is still, one of the major drivers with a number of clients that we have as well, across sectors, be it healthcare. It finance and recruitment.
It’s clearly working for them exactly on the points that you mentioned.
James Caan: I remember many years ago when I first came across the idea. I actually flew to India myself and visited a number of outsource centers in India. And the thing that really shocked me that was beyond anything I could have imagined is how companies like Microsoft or Dell or General Electric.
There are literally companies that have 20, 000 people employed out of India with one client. I saw, I think GE had 16, 000 people operating Out of India running their global business. I went as a real cynic because I thought, I’m trying to manage somebody who lives in a different country.
They, they’re on a different time zone. They don’t understand my business. They don’t know my culture. I could think of 20 reasons why this was just gonna be a headache. But actually the thing that really got to me was how some of the larger companies had really committed to this strategy, but they’d committed in a way that I could never have imagined where not taking one, two, or three, but they’d built entire functions and departments.
Of 10 and 15 and 20, 000 people, and these people consistently engage with their international customer base, and it works because you wouldn’t have 20, 000 people if it didn’t work. I think, looking at some of those organizations gave me the confidence to say, I should stick with it. Because.
Sometimes when something doesn’t work, we give up too quickly. And I think because I saw that other organizations that I really respected had shown that level of commitment made me decide that I shouldn’t just on the first hurdle. Throw the towel in and not blame the product, but reflect on me and say, did I really do the best that I could do?
And actually, I think making it work was changing our own behavior and our own approach to what we did. And that’s what I think changed. And today, I think collectively, across the portfolio of businesses that I have, we probably have 200 people based out of India today. So I think it’s definitely worked, but I would certainly say, Katen, it’s not easy.
And, but you’re right, hiring people in the UK is not easy, getting them to perform and succeed is not easy. So yes, they’re both difficult. I think psychologically, we’re always going to believe it’s harder because it’s a different country and a different time zone and et cetera. But that has to be offset against.
The price difference.
Ketan Gajjar: Sure. Sure. Definitely. And then, lastly, what would be our, final giveaway in terms of the advice to the agency owners, of course, focusing on the job flow, but apart from that what would you tell them to make sure that they’re sailing through.
James Caan: I think, we’ve had a very good period over the last kind of 18 months. I think our balance sheets probably are, in a very good shape. And I would say my final piece of advice is, cash is king, preserve cash for rainy days, because there may be rainy days ahead. And therefore, if your balance sheet is strong, and you preserve cash, you’ll be fine.
And we will look to see. As the markets recover, which they always do, we just want to be ready to take full advantage, of an uptick in the market. And, we’ll see some days of sunshine yet again, I’m sure.
Ketan Gajjar: Fabulous. Thank you. Thank you very much, James, for your time and valuable insights.
And then hopefully, we see you in India sometime soon.
James Caan: Indeed. Look forward to wish you every success.
Ketan Gajjar: Thanks, James.
James Caan: Take care.
