This post is adapted from my talk at the REACH Staffing Executive Masterclass in Chicago in January 2024. The audience was primarily CEOs of staffing firms doing $10M to $100M in revenue.

My name is Francis Larson. I am the CEO and founder of a company called Ascen. We're a back office for staffing companies. We're funded by Y Combinator, which is one of the best investors in the world for technology companies. Y Combinator has funded companies like Dropbox, DoorDash, Airbnb, and many companies you probably work with all the time.

Today, I want to talk to you about a question I've had on my mind daily for almost a year. The question is: are traditional staffing firms going extinct?

The image above is of two people who you probably won’t recognize. The guy on the left is one of the founders of Traba, a light industrial staffing platform. Traba is like a traditional staffing firm: they find clients who need temporary workers and then recruit them. But unlike a traditional staffing firm, they are almost entirely automated and use software instead of primarily human recruiters. The guy on the right is Keith Rabois, one of the top startup investors in the world and a partner at Founders Fund. Keith Rabois recently gave Traba $22 million. You may not have a visceral reaction to this picture, but you should. You should feel a little afraid.

The Growth of Staffing Platforms

The reason for that is digital staffing platforms are growing very, very quickly. They're growing at over 50% a year, which is five times the rate of the overall temporary staffing market. The top line on the graph above is the projected revenue of the overall temporary staffing market until 2030. The bottom line Is the growth of staffing platforms projected out to 2030. So you can see it's growing very quickly. Although the platforms’ share is small right now, in just a few years, the staffing platforms will probably be at least a majority of the temporary staffing market.

The reason why these staffing platforms have grown so quickly is that they're very efficient. They have five times as much revenue per recruiter as traditional firms (SIA Research). For the same amount of revenue, they have one-fifth of the number of recruiters that a traditional firm has. They also have two times the amount of revenue per employee as a traditional firm. So these companies are extraordinarily efficient, and it's allowing them to use cash to grow very quickly.

So back to my question: are traditional staffing firms going extinct? Before we get to the answer, we need to learn a little bit about supply chains.

Supply Chains 101

The image above is a diagram of an automobile supply chain. You have a car buyer, you have a car dealer who sells the cars to the customer. You have a car manufacturer who makes the cars. Then you've got a supplier who makes parts for the manufacturer. Ultimately, there is a commodity producer that sells something like cobalt that comes out of the ground.

Vertical Integration

Every once in a while, there's a firm within the supply chain that wants to cut out one of the steps in the chain. By doing that, the firm is doing something called "Vertical Integration." One example of this is Tesla, who decided that instead of selling cars to car dealerships who then sell them to customers, Tesla was going to sell them directly to customers. So they cut out the step in front of them, and they moved forward, closer to the customer. The technical name for this kind of activity is “forward integration”. Whenever you hear someone say they are “cutting out of the middleman,” they are doing vertical integration, specifically forward integration.

Another example of vertical integration is in the movie business. In the movie supply chain, you have a consumer who's watching films, a content distributor, who is, say, a movie theater or cable network. And then you've got a content creator who makes films, like a movie studio.

Netflix decided famously that they were going to backward integrate into content creation, meaning that instead of licensing films from movie studios, Netflix was going to make the content themselves. It was a bet-the-company decision, but the rest is history. Now we have the Netflix series, a whole new type of show.

Let me bring this back to the staffing market. In the staffing market, here's an over-simplied supply chain.

You've got the end clients, who need temporary workers, and then you've got maybe a prime vendor. Then you've got a staffing supplier, which is a traditional firm, and then you've got some software to enable all of it.

Staffing Platforms are Vertical Integrators

Now that we know about how vertical integration works, we can see that what the staffing platforms, such as Traba and their ilk, are doing is vertically integrating. Specifically, they're backward integrating into staffing software. What that means is that ordinarily, a staffing supplier would have to go and buy software to find and manage contractors for end clients. However, these staffing platforms decided they don't want to or can’t buy the software they need to operate their automated staffing business. Instead, they're going to write the software themselves.

Just like the vertical integration Tesla and Netflix have done, this is a very risky strategy. It takes enormous amounts of capital to hire the number of software engineers they need, hence why these companies have generally raised a lot of money, and the successful ones have required the deep pockets of venture capital.

The point of telling you all of this is to highlight a great misunderstanding that staffing company executives have. Many staffing company CEOs think that they're in the service business and that the tech platforms are in the tech business. And I'm here to tell you that is wrong.

Great Staffing Firms are Not Low-Tech

Traditional staffing firms are still, the good ones at least, are still really good users of technology. They're high-tech, but that doesn't mean they write their own software. The staffing platforms have decided to write their own software, but it's still the same supply chain. Traditional staffing firms, the ones that are great, are still really good at sourcing technology to help their business. Think of the car manufacturers. Many are not vertically integrated firms, but they have excellent robotics and manufacturing processes to make their cars.

So what I'm trying to tell you is that just because the staffing platforms are growing very quickly, that doesn't mean that you're not a tech company and you're somehow different. It means that what separates you from the staffing platforms is that they are vertically integrated, and you are not. It does not mean that they are technology users and you are not.

The bigger lesson here is that great firms are great users of technology, even ones that are not writers of software. So let me convince you of this.

Technology at Walmart

One example of a great firm that everyone knows is Walmart. Walmart is known as a very efficient company, and because of that, they can offer very low prices. It's not just their business model that allows them to do this. They rely upon a huge amount of technology. The story behind their use of technology is very interesting.

Sam Walton founded the company at 44. He had done general stores before with his family, but he had no experience with technology or computers. He takes his first technology course at 48. The course was something about how to use the IBM computer system. So, at this point, he's a middle-aged guy, and realizes that IBM computers are going to give him this massive edge in his stores. So Sam implements the IBM system in Walmart. From that moment forward, he became very interested in using technology to improve operations.

Sam Walton is also credited with creating the CIO position, the Chief Information Officer. Unlike a Chief Technology Officer that you might find at a software company, Chief Information Officers don’t lead product development or product technology strategy; instead, they lead the technology that the company uses to implement its product or service. In other words, the CIO is really good at buying software.

So the important thing to note here is Walmart didn't really write their own software until about 1992 when they implemented their satellite network, and by that time, they were already a very large company. The point of this is that great companies are really great users of software to make efficiencies without necessarily needing to hire software engineers and become vertically integrated.

How Community Banks Use Technology to Compete

Another really good example of this is community banks. The United States is very interesting compared to other countries because we have an absurd number of banks. There are 5000 banking charters in the US. That's not branches, that's individual banking charters. These companies do surprisingly well in their regional niches, successfully competing against very big companies such as JP Morgan, Wells Fargo, and Bank of America.

So how do they do that? What these community banks do – ones like Bank of Cape Cod – they will go out and buy a full banking platform that gives them a white-label mobile app, a banking core, and a customer web portal. They'll basically rent this infrastructure that’s more or less on par with the technology that Wells Fargo has. Because they know their local customers really well, they do really well in their regional markets. So this is just an example of companies that are able to compete in a lopsided market against major players. The ones that win are really good at identifying technology.

This comes back to my big question: Are traditional staffing firms going extinct? No, but the ones that don’t adopt technology are. The staffing platforms have burned the boats and have sold out to vertical integration, writing their own code. You, as a traditional firm, don't need to do that to be a really great company, but you do need to be great at identifying and using technology.

How to Become a Great User of Technology

Okay, so with that in mind, how do you go about becoming a firm that is a really great user of technology? Here are four things you can do.

Always Be Exploring

You should always be exploring. This is the reverse of what most staffing companies do. What many staffing firms do is they'll use a system for five years and then it'll break. Then they'll go on the market, talk to three firms, and some smooth salesperson will get them to buy a new thing, and then that's their thing for five years. This is probably the wrong way to do it. You're likely not going to find any innovative edge like that. The better way is to search constantly, looking for new software that might give you an edge. What I’m talking about is a creative process. You can go to conferences. You can get consultants. You can read research produced by ASA, SIA, and others. Whatever you do, the point is to increase your luck surface area so that someday you happen to come upon a technology that will give you an edge. Remember Sam Walton, who, by virtue of attending this random IBM class, realized how it could help him.

Focus on Automation

The next thing to make you a better user of technology is that you should focus on automation. This is more of a mental stance that you should shift toward. The way to do this is to constantly look in your organization for activities people are doing manually. It might be something with timesheets, it might be with scheduling, it might be something with onboarding, it might be something with data entry. It doesn't matter. A good giveaway of activities that can be automated are things where people send a lot over email. Emailing data back and forth, for example. When you find manual work, you should root it out; don't accept it.

Find a Tech Lead

The next thing is to find a tech lead. Remember Sam Walton, he made up this position of chief information officer. So, find a person to lead your tech enablement for you. It could be an outside consultant. It could be you, but it really should be somebody else you designate and then have that person report back to you. You'll still have to drive it, but you should find somebody in your organization to be responsible.

Hold a Regular Tech Meeting

The last thing, and I think the most important thing, is to meet regularly about your technology. That's it. Just regularly meet and go over where you need improvement, where you are making progress, and what you're learning. You could report on a KPI or two. What you actually discuss will sort itself out as you meet regularly. Once a quarter or once a month is probably sufficient. You could do it in connection with a board meeting. The tighter your cycles are, you'll probably see more improvement. But it starts with doing a regular meeting, and you're not going to improve on technology systematically if you don't have a regular meeting on it.

Parting Words: Infinite Games vs. Finite Games

Okay, here are my parting words. There's this concept that's come out recently called an infinite game. There's a guy called Simon Sinek, the author of “Start with Why”, who has popularized the concept. The concept of a finite game is something we all know about. Think of a baseball game or a basketball game. It has defined rules. There's an end, there's a winner and a loser. Everyone goes home, and we know who won and why.

In business, as we all know, it’s not like this. There are no rules, and it’s not clear who wins and who loses. Business is more like this concept of an infinite game. An infinite game is a game where the point of the game is just to keep playing. And if you're playing, you're winning. That's it.  Becoming a tech-driven company never ends. You're never going to buy that perfect technology and then be done. The process of integrating, upgrading, and improving is never going to end. So, becoming a tech-driven company is much more like an infinite game. By playing the game, by continuing to improve a little bit each month, each quarter, you are winning. So keep playing, and keep winning. Thank you.

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