We Get Paid to Judge People

Introduction:

This week, we welcome a new regular, Kate Morgan, who joins the podcast along with Paul Downs and Jay Goltz. Kate is the CEO and founder of Boston Human Capital Partners, which provides recruiting and HR services, mostly to other small businesses. After a very difficult stretch caused by the pandemic, Kate’s business has been growing again – but Paul and Jay think she’s leaving money on the table. They think she needs to raise her prices. “I mean,” responds Kate, “we’re growing in an industry that we’re seeing shrinking right now, and so it’s one of these things: Do I want to scare the squirrels and jump up our prices? That’s where I’ve been struggling.” Plus: Are HR people supposed to protect the employees or the business? And after having to lay off a third of his workforce, Paul gives us an encouraging update on how his business is doing.

— Loren Feldman

Guests:

Paul Downs is CEO of Paul Downs Cabinetmakers.

Jay Goltz is CEO of The Goltz Group.

And Kate Morgan is CEO of Boston Human Capital Partners.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Paul, Jay, and especially Kate, who is joining us for the very first time. It’s great to have all of you here. Kate, you founded Boston Human Capital Partners. Tell us what you guys do.

Kate Morgan:
I did, in fact. So in 2011, during the recession, it was a down economy, but I still was oversubscribed with work in finding talent. So I started the company based on process and methodology for recruiting as a consultant. So we work on an hourly basis, and we’ve also started working in HR with three different levels there.

Loren Feldman:
And I’m guessing from the name that the company is in Boston?

Kate Morgan:
Yeah, it is, although we actually work on a national and even international level.

Loren Feldman:
Do you have a physical office?

Kate Morgan:
No. So, out of the 14 years or 13 years we’ve been operating, three of the years we had an office, because I had a lot of millennials telling me they wanted an office. Three years and nobody came to it. So I figured I could save the money and just send everybody back home.

Loren Feldman:
You mentioned you work on an hourly basis. Not every talent or recruiting firm works that way, correct?

Kate Morgan:
Yeah, although I’m seeing more and more switch to ours. It’s funny, I always just felt like recruiters, headhunters, even with retained search, it’s very coin-operated. And we wanted to be able to provide an embedded situation so we can actually help with the employer brand and bring the candidate through the full experience.

It’s tacky to say, but it’s kind of true. I tell my team this: You know, we’re essentially paid to judge people, and we want to make sure that our clients are making the right choice. So even though we’ve sourced those people, we tend to build really strong rapports with our candidates, and so we want to weigh in. We want to help them make the right choice. So that’s why, if we were commissioned, there’s no way we would begin covering any sort of situations where we might have concerns. This model, we can really have what’s the most important thing for our clients, and even the candidates, because it doesn’t do anybody good if somebody joins a company and, six months later, they’re miserable.

Loren Feldman:
By being paid by the hour, though, that means your clients have less certainty about what it’s going to cost them—as opposed to a flat commission fee. Is that an issue?

Kate Morgan:
You know, that’s the question that everybody comes up with. “Well, why wouldn’t you just sandbag it?” And it’s like, okay, well, because this entire time we don’t operate through sales. All of the work we do is really referral based, so we can’t do anything. We wouldn’t be this successful if we weren’t working hard to move quickly. And so the faster we get through and have success, it just helps move us through the market.

Jay Goltz:
Let me help you with that answer, because I’ve been through this. And I just hired a controller. I did it myself. I put right in the ad: no recruiters. But of course, they still came out of the woodwork. And the answer is this: It’s real simple math. The fee—that 30-25-30 fee—is so much money. There is no way that—

Loren Feldman:
What fee are you referring to, Jay?

Jay Goltz:
The contingency people charge 25 percent. So if you’re paying someone 100 grand a year, they’re going to get $25,000. There is no way I can see somebody doing it on an hourly thing, that they could spend that kind of money. I mean, it just doesn’t make sense.

Now, in my case, I used my accounting firm in the last round. They rang up a pretty big bill and couldn’t find anybody. Then they sent me to a recruiter. He sent me a horrendous resume that had like six jobs in five years. And I said to the recruiter, I go, “What do you—?” She goes, “Oh, they should send it to me first.” I go, “Oh, so I should pay $300 an hour for you to screen bad applicants?” So I got rid of both of them. And so I think what you’re doing makes perfect sense. It’s honest, and I think you’re right. It’s not tacky to say you’re paid to judge people. Yeah, that’s what it is. It is what it is. So, good for you.

Kate Morgan:
Thank you. Thank you. I appreciate that.

Loren Feldman:
Kate, how big is the business?

Kate Morgan:
So right now, we have nine people.

Loren Feldman:
And your revenues?

Kate Morgan:
Before the pandemic, we were tracking to $3 million, and then that crashed it. So right now we’re about $1.4 million.

Loren Feldman:
And do you have a specific target market? Do you specialize in helping any particular type of business?

Kate Morgan:
We operate with a proven process methodology that transcends into other markets. So when I started, I was 100 percent focused on software, but through the years, we just got pulled into these other things. We had a half-a-billion-dollar shipping and dredging company that called us and said, “Hey, can you help us with this particular role?” And we’re now doing a bunch of work in life science, med devices. But even the no tech, low tech. You know, it could be accountants, like you had mentioned there, as well as even landscapers. A lot of the skilled trades, too, are really having a difficult time finding talent. So, we’re happy to help.

Loren Feldman:
You’ve made a couple of references to your methodology. Can you tell us about it?

Kate Morgan:
So, I’ve been in the talent acquisition space for a very long time. I’m on the wrong side of 50, so I never like to bring the actual number in.

Loren Feldman:
Join the club.

Kate Morgan:
Yeah, so there was a moment in time where, actually, I broke away for almost four years and I did enterprise class sales. And when I went to sales, I ended up learning a lot about how to run a highly-effective sales pipeline and how to really manage it. And what I found with the enterprise sale is it’s very long. It takes 18 months in some instances to close a quarter of a million dollar deal.

Well, if you take that same blueprint, and you kind of tweak it a little bit to fit for an individual, it’s the same process. So we’re still going through figuring out exactly what their pain points are, how to get them really engaged. And that starts even with the prospecting, how we effectively prospect, because it’s all of this narrative that people don’t take jobs, they take companies. So in order to get them to talk to us, we really have to put that concept in front of us. So that’s how we have been so successful in all of our searches.

Loren Feldman:
Including this year? Obviously, there’s been a lot going on, a lot of uncertainty. A lot of people have talked, even on this podcast, about holding back on investments and not looking to hire—if anything, looking to unhire. How has that affected you?

Kate Morgan:
Well, I mean, my exhilarating panic attack actually happened in January, 2023, because I do actually believe that if you’re in the hiring space, we tend to be the barometers. And so, Big Tech actually got hit in October 2022. By January, I was like, “Oh my god.” Things were just coming off the rails. And so, that year, we dropped 37 percent.

Last year, we ended up growing 22 percent, and it’s all because we said, “We need to step back. We need to relook at how we’re approaching the industry.” So we did that. Again, we started looking at deviating, if you will, from our ICP, starting to look at other—

Loren Feldman:
ICP?

Kate Morgan:
Yes, our ideal customer profile.

Loren Feldman:
Thank you.

Kate Morgan:
And so, I think we’ll probably grow another—you know, I’m going to be a little bit more conservative, but I think we’ll probably get another 12 to 17 percent this year. Because now we’re taking the time to address HR and move away from just pure hiring. Because there’s so much that needs to happen. We had a real shift. Particularly during Covid, all of these companies that were just jumping in and hiring heads of HR, they were actually using CFOs less. So now there was like a real imbalance in our clients we were seeing. So I think what we’re going to see now is more need for fractional HR, rather than bringing in HR that we’re just told for about five years to simply attract and retain employees. There’s a lot more to it now.

Jay Goltz:
So how much do you charge per hour?

Kate Morgan:
Well, without it sounding like a science project, there’s a couple of different levels. So when we look at individual contributors, depending on the search, it can be $125 to $105. And then we say for each position, it’s about 15 hours a week. When we kick off a role, it actually could take us a little bit more than that, but we’re just going to charge that 15 hours because—

Jay Goltz:
So what’s the hourly charge?

Kate Morgan:
Yeah, so it’s $105 to $125, depending on—

Jay Goltz:
Okay, that summarizes the issue I have with my accounting firm. I think I misspoke a minute ago. I think they were charging like two and a quarter an hour, which at the moment, didn’t seem like a lot—until I did the math. And I go, “That’s a lot of money to be paying for someone who is not—” It just didn’t work. And I would tell you, what’s changed today compared to 10 years ago, which is why I think what you’re doing makes sense, is: a) LinkedIn. You really need to be good at LinkedIn to be able to recruit, which is a skill-set none of my people have.

Two, you can’t ignore the Baby Boomer thing. There’s less people out there looking for jobs. I went to a seminar on it. The guy went through the math and showed it. Our workforce has shrunk. I can’t tell you that I had a great success with my thing. I got one perfect guy, I think, and I got another 150, like, why did you apply for this job? Nowadays, they just hit a button, and boom, they applied. They don’t even put a stamp on the envelope anymore. So I can understand where what you do makes perfect sense for a company my size.

Kate Morgan:
Well, I really appreciate that. We do, actually, a lot of executive search as well with the same model. So there’s one competitor we have—more in the Boston area, but we bump into them in New York, as well, and Austin—and I found out that, for their retained search, it’s $130,000 for the executive search. I charge $225 an hour when it’s an executive search.

But we’re still coming in remarkably lower than that, and people are actually feeling like they have a true partner, as opposed to somebody who’s just trying to slam bodies into seats. A little bit more information on the executive search front is: Industry averages show that, for an executive search, it takes about four to five months to find that person. We’re typically half that time.

Paul Downs:
I’ve got a question for you. So you said, I thought I heard $1.4 million in revenues?

Kate Morgan:
Yes.

Paul Downs:
And nine people?

Kate Morgan:
Nine this year, yes.

Paul Downs:
Is that nine full-time?

Kate Morgan:
No, the HR folks right now are more on a fractional basis to us.

Paul Downs:
How many full time equivalents?

Kate Morgan:
Then it’s the six beyond that.

Paul Downs:
Okay, because the ratio of revenue per person is on the low side, particularly if it’s nine into $1.4 million. But on the other hand, you don’t have an office, you don’t have to buy materials or anything, so maybe it works. But I’m just wondering whether you’re underpricing. Because $102-an-hour in the trades barely gets you a plumber’s apprentice.

Jay Goltz:
I charge that for pretty much hanging pictures. No, you’re right, that’s just not a lot of money these days.

Paul Downs:
Yeah. I mean, when you come in with such a price and performance difference between your competitors, do you ever think, “Maybe I’m leaving money on the table here?”

Kate Morgan:
Every single day.

Jay Goltz:
If you would have told me $150/hour, I would have thought, “Oh, that’s a really good price,” because I’m telling you, I just paid two and a quarter and got terrible results.

Kate Morgan:
Yeah, the point is that we want to be able to—yeah, this is the problem. Like, I will tell you, and my team will tell you, probably: I don’t pay great. You know, I’m not off the charts. I’m kind of mid-ground, if you will. And, actually, we are struggling with profitability, looking at our profit margins right now. But in the same vein, I mean, we’re growing in an industry that we’re seeing shrinking right now, and so it’s one of these things: Do I want to scare the squirrels and jump up our prices? That’s where I’ve been struggling.

Jay Goltz:
And if you ask me, “Jay, what’s the biggest mistake you’ve made in business?” I would tell you—and I always say this—I was always afraid to charge more, and it cost me millions of dollars over the years. And I’m totally with Paul. I think you could easily get $130-140 and get over the emotional part, which certainly I know what it means. It’s just you are under market.

Paul Downs:
Yeah, that’s why you’re growing at the moment. I mean, it may also be other things, but clearly you’re cheaper than all the alternatives. So it’s not: What does it cost me? Or: What do I feel about it? It’s: What’s plan B if they decide not to go with me? And if the next choice for them is 40, 50, 60 percent higher, you’ve got some room to raise your prices, honestly.

Kate Morgan:
Yeah, well, that’s where we’re kind of at this strange point where, if they don’t go with us, they go with nothing on the software side.

Jay Goltz:
That makes sense.

Kate Morgan:
They’ll post and pray and hope, because nobody has the pockets that they used to have to move forward.

Jay Goltz:
So I put right in the ad: No recruiters. Well, I had all the big guys calling me, I guess. Robert Half, I had a couple of others. They were polished sales people, and they kept pounding away on me. That’s what everyone else is paying for. They’re making their money by getting their foot in the door somewhere, and that’s what the other clients are paying for. They’re not paying for them to do recruiting. They’re paying these people to go out and find new business, which is why that business model is so screwed up.

Kate Morgan:
Exactly. It’s still chum in the water for them. But here’s where it comes back. You just told me that I should raise my prices. Yes, as a better business, they could. Feasibly, you could look at them and say: They’re actually better business people.

But from my perspective, I’m looking at it from: I have people fully employed. I have profits now. Am I wildly profitable? No, but that’s how my model has always worked. I take people from outside of the industry. I don’t want people with previous recruiter experience, because I usually spend so much more time trying to retrain them. And so, basically, I can start billing for somebody who’s really junior, who’s actually going to be of a far higher caliber than any other recruiter out there.

Jay Goltz:
You said: They were better business people. It depends what your definition of a better business person is. If it’s just making money, I’m sure you’re right. They make more money. If it’s about feeling good about what you do for a living and providing value and being honest and being a good citizen, that’s not being a good business. So it depends on what your definition of a better business person is. I want to feel good about what I do and know that I’m giving a good value to people. And it’s not just about money. Money’s part of it, but it’s not just about money.

Kate Morgan:
Exactly.

Paul Downs:
On the other hand… [Laughter]

Jay Goltz:
It’s about money.

Paul Downs:
If you can get more money, you can do all the things that you’re doing now, except better. You can pay your people a little better. You can reward them when they do a good job.

Loren Feldman:
That was not an argument not to raise prices, right, Jay?

Jay Goltz:
No, not at all. No, we’re on the same page.

Paul Downs:
Well, okay, but I’ve heard the rationale of and I’ve lived the rationale of: I’m doing the best thing for my people, for myself. And I’m honest, blah, blah, blah, blah, blah—and that is self-delusion. It’s an excuse to not take a hard look at what you’re trying to accomplish and to just get your head around the idea that if you can get more money in the door for the same amount of stuff, everybody’s going to be better off.

Jay Goltz:
I one hundred percent agree with you. It’s finding that balance. And it seems to me and Paul, at the moment, that your balance is too much on being afraid of charging. You’re still giving a tremendous value if you charge another 10-20 percent.

Paul Downs:
Yeah, I mean, what were you, at $102/hour, you said?

Kate Morgan:
No, $105/hour.

Paul Downs:
$105/hour, whatever. So you go from $105 to $109. You just raised your pricing by 4 percent. Nobody’s going to notice that. So you could probably go to $120 at your low end, and then whatever you said, $120 going to $140, and everybody will be happier. And your clients, well, they’re either going to go with you or they’re not going to go with you. But the difference in money between those two price points is not going to make as much—it’s not as big a deal to them as it is to you.

Jay Goltz:
And I would add, it’s price elasticity. I would never say you won’t lose them. You will lose some business, but the point is, you won’t lose enough business to negate the price increase. It’s simple math. If you raise your prices 20 percent, and you lose 10 percent of the business, you’re still way ahead of the game.

Kate Morgan:
Yeah, one of the challenges that we just recently had: We were talking to somebody—they were, actually a head of HR—and somebody on my team was saying that they were like, “Yeah, we’re just going to go with an independent contract recruiter, because we know that person’s work and we can get them for $50 or $60.”

So we do have, particularly in the software space, a little bit of a challenge here, because that’s what we’re contending with. We don’t have a lot of competitors that are doing what I’ve done and successfully still executing on that. So that’s a little bit of the rub where, every day I’m like, “Do we do this? Do we raise the prices? What do we do?” Because we want the length of contract as well.

Jay Goltz:
I think that’s a sales function that you need to explain to them that paying someone $50 an hour, which is not even close to a lot of money—like, how qualified is that person? You’ve got to question. Compared to what you’re offering, it seems like a great value proposition to suggest, “Yes, you’re paying me more, but it’s going to pay for itself.” I think that makes sense, because anybody who’s smart in the world is not working for $50 an hour.

Loren Feldman:
Kate, let me ask you this. You said you expect to grow this year. Do you expect that growth to come from the recruiting side or from the fractional HR side?

Kate Morgan:
I think it’s going to be a mix. I will always just naturally gravitate toward talent acquisition, because that’s my blood, but we will see a lot more HR. HR is, in a lot of ways, like marketing, where people just lump it together, but there’s really varying levels. You have your people ops that are really focused on more of the infrastructure in the day-to-day. You have business partners who can really coach the managers, and then you have the more executive advisory services. So, we’re active in all three.

Loren Feldman:
And how do you charge for that?

Kate Morgan:
So for the executive level, it can be anywhere from $185/hour to $225/hour. The business partner tends to be more. And again, it really depends on the type of client. No tech, low tech is going to be lower. But that’s usually $95/hour to $105/hour, and then people ops is about the same as well.

Jay Goltz:
A huge problem in business is that most businesses, by far—when I say most, meaning 90 percent, don’t have an HR person. They’re not big enough to justify having an HR person, and the boss is doing it. And the boss probably has no background whatsoever in it. Really, the law, the whole thing. It’s a real problem, and those companies that have 20, 30—most businesses don’t have 100 employees. So if you’ve got 30 employees, who’s playing HR person? The boss, or the boss’ assistants. There’s a lot to it, and it’s got tremendous exposure.

Kate Morgan:
Oh my gosh, yeah. I always say, “The business thing is easy. It’s the people who make it hard.” And I think I would agree, you don’t need a full-time HR person below 100 people, unless you have significant—like professional services, where you’re hiring junior people, and you have to start to figure out a career track for them. It depends on the environment. But most companies, if you’re under 100 you don’t need a full-time person. And matter of fact, you won’t necessarily have the revenue in a lot of companies.

Jay Goltz:
I was just gonna say, it’s not “need,” it’s: “can’t afford.” I mean, there’s no money to pay the person.

Kate Morgan:
Exactly, or if they’re going to bring in any big programs that are going to cost a lot of money. Yeah, you’re gonna pay too much for little return.

Loren Feldman:
Do you have a lot of competition in that space? Are there other people offering the same service?

Kate Morgan:
We see it, but again, we’re seeing in Boston, more individuals that are coming to the table, and they get kind of passed around, but not not like what we’re offering.

Loren Feldman:
Paul, have you ever considered hiring a fractional HR person?

Paul Downs:
No. [Laughter]

Loren Feldman:
And why not?

Paul Downs:
Well, I’ve only got 20 people, and the nature of my workforce is that the personality types that go into this field just aren’t all that troublesome. And you know, everybody has some problem employees, but most of the HR stuff is just understanding how to log into the health insurance website and make a change, or something like that. I don’t have a huge amount of work to do. I mean, I do it. If it amounts to even an hour a week, I’d be amazed.

Jay Goltz:
Well, the problem is, you’re right. In a small size, you can do it yourself. I’ve lived through the whole growth thing. I’ve got 130 people now, maybe 125. It’s when you get to 50, 60, 70, 80, you can’t afford to do it yourself. But that’s a big salary to bring in, and to go get someone who’s cheap could cause so many problems.

You know, my old joke—and it’s not a joke—used to be that the most expensive thing in the world is a cheap lawyer. I might say the second most expensive thing is a bad HR person. I mean, think of the damage they could do to your company if they’re not good at hiring and firing and coaching. So the problem is, there’s lots of companies in that 30 to 60-70 people that it’s hard to justify a salary, but it’s almost a job, which gets to your fractional thing.

Kate Morgan:
Yeah, and I will say, I’ve worked with some amazing CFOs and controllers who really have their wits about them when it comes to human capital. But again, now we’re seeing so many people that have reduced their financial support partners to fractional as well. If I know a client, we’re going into a startup that has some funding, if they have a CFO, I’m always, “Phew, this is going to be a breeze.” Because I think, with human capital, it actually sits so close to finance. And over the last five years or so, it’s kind of pulled away from finance, which makes no sense, because that’s your most expensive asset. That’s your human capital. When they want to chop down 10 percent of your expenses, they go right for your human capital. So that’s why I love working with really top-notch CFOs.

Jay Goltz:
I would agree with you 50 percent that that’s absolutely connected, but there’s another 50 percent of just having the skill-set, the instincts of interviewing, and figuring out who the right people are, because I’ve suffered tremendously over the years with having the wrong person in that job.

I had an HR person for a short period. I asked her how she interviewed someone, and she said, “Well, I gave them the benefit of the doubt.” And my head almost exploded. I said, “No, your job is to give no one the benefit of the doubt. That’s your job. Your job is to assume everyone’s lying to you and then go find out whether that’s true or not. That’s your job.” She was gone a month later, thank God, because anybody with that mentality—what could be more dangerous than an HR person who gives people the benefit of the doubt?

Kate Morgan:
Well, thank you. And actually, I had a conversation with an HR professional a few months back, and basically she said, “Well, I’m here to protect the employee.” And I said, “No, you’re not. If you want to protect the employee, go be a lawyer.”

You protect the—I use this term a lot—the fidelity of the company. The fidelity of the company means you’re going to be operating correctly. You’re going to do the right things for the company. And the employees are going to also feel that, because all of the laws are really geared toward the employee and the employee benefits. So all you have to do is really police that and coach internally. Then everybody’s happy.

Jay Goltz:
I’d be okay if they said half my job is protecting the company and the other half is protecting the employee. I’ve got no problem with that, because there’s certainly some truth to that. But to suggest that? That’s frightening. I mean, you’re right. They should be an employment lawyer or something. That’s frightening. And this person, think about it, she said that out loud. You didn’t read her mind. She actually said that out loud to you and thinks that’s a good thing to tell somebody.

Kate Morgan:
We joke internally in my team, we call them candy-dish HR, because they really don’t know what their true place is in their company. And I can spot them a mile away when I have a candy-dish HR person versus a true business partner.

Jay Goltz:
So what do you think? I have my own number in my head. You want to hire a competent HR person who takes care of all the details, doesn’t make mistakes, has got a good instinct for interviewing. What does that job pay in Boston dollars?

Kate Morgan:
In Boston, you’re probably talking about—and if we’re in software, high-tech—you’re probably talking about $250,000.

Jay Goltz:
Oh my god. Okay, well, forget software for the moment. [Laughter] I was gonna say 100 and a quarter for a business that’s not high-tech.

Loren Feldman:
Jay’s in Chicago, Kate.

Jay Goltz:
But Chicago should be similar to Boston, I would think.

Kate Morgan:
Well, when we get away from the high-tech, I have a woman on my team, Manuela. She’s really an ace. She just joined us. But I brought her on specifically to work with a client out in Western Mass. In Western Mass, the compensation is about 20-percent less. It’s non-tech. So we were trying to find somebody for about $100,000 there. I’m sorry, but every single person I spoke to—I mean no judgment—but it sounded like they drank and smoked all their lives, and there was no level of sophistication to them. And that’s a problem to me, because you have to have that level of sophistication.

Jay Goltz:
And I’m telling you, I believe this to be true: The reality of the situation is those companies that have 50, 60, 70, employees that are going to bring someone in, they think that they’re going to get someone to do this job for 75 grand—and, quote-unquote, that’s a lot of money. And I know this because I’ve done it. They don’t realize all the stuff this person doesn’t know, and the exposure they’re putting their company at, both legally and the exposure of just not hiring the best people in the marketplace. So I don’t think that the typical small business owner understands the true role of an HR person and the incredible benefit and protection to the company that they provide.

Kate Morgan:
Yes, well, and that was legitimizing them continuing to work with us, because I’m like, “I just can’t find the caliber person you need,” not in their environment. So they’re there with us, working as a fractional client, and they brought in, actually a COO, which they’re going to get more bang for the buck doing it that way.

Jay Goltz:
I mean, in my case, I probably just got lucky. I found what I believe to be the perfect guy, but I didn’t have three other candidates that were even close. I wish I would have known you a year ago, or six months ago, before I hired my accounting firm to do it, because that was just a complete waste of money.

Kate Morgan:
Yeah. Well, I’m happy to work with you. It’s gonna be $175 an hour. [Laughter]

Jay Goltz:
Less my special 21 Hats discount. Thanks, Paul!

Paul Downs:
No problem.

Loren Feldman:
Kate, what’s been your most effective form of marketing?

Kate Morgan:
Myself, actually. So, honestly, it’s just being out in the community. Everybody else is doing the phone jockey thing, and I’m just out there pressing the flesh. I really do love the startup community, the high growth. We’ve been very fortunate that we’re currently on six preferred VC vendor lists, so we get a lot of traction from them.

But you know, I’m out there. I go to the events. And again, if you’re a Robert Half, they’re going after a different market. They sit behind their phones, and that’s kind of how they focus. Where I’m just going to go and I’m going to offer free advice, I’m going to be in everybody’s face, just offering what I can, and that’s how we end up getting a lot of business.

Loren Feldman:
All right, Kate, I’m going to give you a break. Paul, it’s your turn. The last time you were here, you told us that March was shaping up to be your worst month ever. You’d had to lay off a third of your workforce. Give us an update. How are things going?

Paul Downs:
Well, big surprise. April actually turned out to be a reasonably good month, and May got off to a decent start. I don’t understand it, but I’ll take it. And I brought back about half the people I’ve laid off, and we are operating profitably, although I’m not paying myself anything. Everybody took a 10-percent pay cut, which is also helping.

But my next goal is to see what May sales look like. And if it continues strong, then I’m going to restore everybody’s pay at the end of the month. And then next, I’m going to try to start paying myself. But I still feel like this could go any direction at this point.

Loren Feldman:
You have no idea? You didn’t do anything differently?

Paul Downs:
No, no, there’s really nothing different.

Jay Goltz:
I said back two months ago. You said your year usually is reflected by how January—and I did say back then, “I think this is a fluky year.” And I’m not surprised things are getting better, because I think we’re in an unusual time that we’ve never been in before. People are freaked out, but they’re going to get over it, and they’re going to get back to doing business. And I do still believe that’s the case, so I won’t be surprised if next month, you say, “It’s getting better and better.”

I think there were a whole lot of people shocked in January and what’s going on. And I think they’re numb to it. At some point they’ve got to get back to doing what they were doing. If they needed a desk, they still need a desk. If they need framing, they still need framing. So I think that, luckily, we’re not in the restaurant business. If you lose the meal, you lose the meal. Here there’s pent-up demand. The people that didn’t order their conference tables still need it, and people who didn’t come shopping by me still need it. So I won’t be surprised if things start to get better. Do I think it’s gonna be a great year? Absolutely not. I just think it’s not gonna be a disastrous year, I think.

Paul Downs:
Yeah, we’re on track for about $4 million a year in sales, which is a big drop from where we were last year, but it’s survivable. And so I’m just waiting around to see what happens.

Loren Feldman:
Paul, how did it go when you asked people to take the 10-percent pay cut?

Paul Downs:
Well, nobody’s real happy about that.

Loren Feldman:
I’m sure.

Paul Down
It’s more that at the point where I announced the layoffs, I said: The problem is, make sure you’ve got cash so that you can be around in the summer when the phone starts ringing again. And we’ve done a lot to preserve our cash, and we’ve gone from a weekly spend of about $115,000 down to $70,000, which is a pretty big cut. And that’s allowed us to sort of be in a position to—I mean, I now have money through the end of June at least. And it’s just about making sure that we’re not running the engine faster than the gas is going in the tank.

And so I’m satisfied with the moves I’ve made. People don’t complain about pay cuts like that, because it’s actually the third time I’ve ever done it in my career. And it’s remarkable to me how little pushback there is. And mostly because, if you make the case for why you’re doing it, and you make sure that they understand that I cut my pay 100-percent first, then they see it. It’s serious, this is what we have to do.

Jay Goltz:
Listen, I haven’t done it. There’s no question, if I did it across the board, a 10-percent pay cut, that would make a huge difference. I’m just hesitating to do that.

Paul Downs:
Well, it’s a thing you do when the house is on fire, right? You don’t just do it for chuckles. I mean, I wouldn’t, anyway.

Jay Goltz:
No, no, the difference is you were down 50 percent. I’m down 12 percent, so I’m not there, and I’m hoping it comes back, but we’ll see.

Paul Downs:
Well, down 50 percent, backlog disappearing, money going out the door. What’s going to happen next? Nobody’s calling, nobody’s buying. The house was burning pretty, pretty good. And so I did sort of the most drastic plan with the thought that I’d rather just do it once and recover than chip away at it week by week. You know, one person disappears every week. I don’t think that’s good for morale, whereas if you can present it as, like, “Hey, we’re getting screwed by forces beyond our control, but this is what we have to do to survive,” at least everybody understands they’re in it together.

Loren Feldman:
Paul, when you went back to some of the people you’d laid off and invited them to come back, did everybody say yes?

Paul Downs:
So far. They were very happy to get called back. So, I mean, some of them took a pay cut to come back. And I was like, “Hey, I gave everybody a pay cut. Same with you.” But I think that we have a pretty good place to work, and people recognize—nobody wanted to get laid off. And so I’m very pleased that they wanted to come back and that they seem to be happy to be back.

Loren Feldman:
They took it the way you hoped they would take it, it sounds—

Paul Downs:
Yeah.

Jay Goltz:
I think part of it is they wanted to come back because there’s not a whole lot of jobs out there doing what you’re doing, because everybody’s in the same situation you are. So I mean, it’s not like it’s a booming market, and they’ve got job offers coming out all over the place, I assume.

Paul Downs:
Well, yes and no, Jay. In a lot of fields, having someone who is technically adept is a huge plus. So one of my guys who I laid off, he ended up working for some company that went around and did maintenance and what have you at grocery stores. And they were paying him 30 bucks an hour, and I had been paying him $24 an hour. And he said, “You know what, it was just awful. I spent half my time in the car, and I had this clunky process where I would go out to a store, and it would be all they need is like one nut and bolt, and I had to send a paper requisition back to the office and wait two weeks and then go back and do it again. And it was just super frustrating.” But I think that people who actually have skills with their hands and understand how to do a day’s work are going to be valuable in any number of situations—just whether the company that you end up at is a nice place to work or not.

Jay Goltz:
I laid off someone a few years ago, and he had done several different jobs, and we ended up needing him back, and he was happy to come back. So I one hundred percent understand what you’re saying. The fact is, I believe you and I run nice places to work, and there’s a whole lot of places out there that aren’t so nice, and this guy had worked at them and was thrilled to be able to come back. And so yeah, it doesn’t surprise me that everybody came back.

Loren Feldman:
Kate, have you been spending more time helping people lay off employees or hire up employees?

Kate Morgan:
Fortunately, we’re more on the growth side than helping to off-board people, but we get the candidates calling us afterwards. But you know, it really is a testament to both of you to be able to say, “Hey, would you like to come back?” And they’re eagerly coming back. Because, yeah, if you’re in the skilled trades, you can find opportunities. So yeah, I think it speaks volumes to how you treat your people.

Paul Downs:
Well, that’s one of the reasons why you should change your prices ,so you could treat your people a little better. [Laughter]

Kate Morgan:
Well, the problem now is, I mean, I have people that have worked for me—one gentleman has worked for me for 13 years, so I have long-standing employees. And I run open books with my team so they know exactly where everything is. Basically, I’m showing them the numbers. And I said, “Here’s the problem: You guys are really good to me, and you stay here. It actually is what kills our profitability, because I need to pay you as well.” So the whole point is that, as we can move forward and hire very junior people who don’t really have a career compass, we can give them that. So that’s the conundrum I’m in.

Jay Goltz:
I mean, do you think you’re paying yourself what you’re worth?

Kate Morgan:
Myself? Well, it’s sort of like the basis of, I think what we’re paid in this industry is kind of ridiculous. Somebody was just telling me they paid a contract recruiter during the heyday $185 an hour. And I’m like: That’s just nuts. It’s just nuts. I don’t want my team to be viewed as simply overhead, and that’s the problem. Like, if they have to throw the brakes on hard.

Jay Goltz:
Well, interesting enough, though, you say that’s nuts, which certainly sounds to me too, but it obviously worked for the company. It shows you how much money they were making, that this person, they must have figured out how to bring in a ton of business and get those big fees out of people. So, it sounds nuts to us. It’s not nuts to them. It works, apparently, or they wouldn’t be paying it.

Kate Morgan:
Well, they kind of had a fire sale when they went to private equity. Again, I like to play armchair economics with everything. And if I can take a client and be there—because we don’t do one-offs. And I think what you’re kind of gauging on is you have one position, and then you’re looking for that one hire. We go in and we’ll be there.

We have one of our clients right now where we have two people working almost full-time there, so 80 hours a week. And as we’ve been talking, we’re like, “Well, maybe when we do have those one-offs, that’s where we jack up the price,” which is exactly how we came to the to $225/hour for executive search and a minimum spend on that. So I really appreciate the food for thought on this.

Loren Feldman:
Kate, I hope we haven’t scared you away.

Kate Morgan:
No, not at all.

Jay Goltz:
We just doubled her income! What are you talking about? [Laughter]

Kate Morgan:
No, it’s greatly appreciated.

Loren Feldman:
All right. My thanks to Paul Downs, Jay Goltz, and Kate Morgan, who will be coming back. Thanks for sharing, everybody.