Staffing Industry Spotlight: Diane Prince, Founder of Recruiting Agency 360

Francis:

Diane, thank you so much for being on the Spotlight series. To start things off, in your own words, would love to hear who are you and what do you do?

Diane:

Hey, Francis. Well, I've been in the recruiting business for about 30 years, staffing specifically. I've done both temp staffing and permanent placement. I've built a couple of staffing agencies that have exited, a couple of VMS agencies, and now I help recruiting agency owners to get what they want out of their businesses. Often, it's teaching them how to add recurring revenue to their businesses.

Francis:

One of the things that attracted us to connecting in the first place was seeing the exits you've had in staffing.

Diane:

Yes, in staffing, and then both in a couple of VMS agencies and I had a job board as well.

Francis:

It would be cool if you could talk briefly about each of these.

Diane:

Yeah. I had one big exit and others were more minor, but [the big one] was my staffing agency. The reason why I got into temp staffing was because I had the vision of starting a business that I could sell. That's how I arrived with my partner at the business model and how we chose staffing. Neither of us had experience in recruiting or anything like that. It was that we wanted to see if we could build something that we could sell, and then went backwards from that. And as you know, staffing is the business model that you can do that.

Francis:

Was it like you and your partner were sitting around with a whiteboard and saying, "Okay, we can start an HVAC company, we could start a subway shop or staffing"?

Diane:

It was exactly like that. One of the ideas was a title recording agency in Puerto Rico. We had a lot of different ideas; a bar in the Virgin Island. But we wanted to build something. That's why when I work with people, it's so important to get clear on what the vision is that they want to get out of it, and so that's what we did. We had to scratch out anything that couldn’t lead us there. We wanted to exit in our 30s and retire. And I did, in fact, spend most of my 30s retired.

Francis:

You came upon staffing from a first principal's approach that this is going to be the best business to start and sell in a pretty short time period.

Diane:

Correct.

Francis:

You started this business, and what did you focus on?

Diane:

Well, we stole as much material as we could, like timesheets and things like that, which served as contracts. We specialized in title insurance. We were super niche. It's specific to the United States, title insurance, but most people in the US don't even know what it is. It was just a really specific technical role that we did. And my father had been in title insurance, so it was actually his idea. He said, "Hey, why don't you guys start a temp agency for title people?" And it sounded like a really good idea at the time. And it was, it was really good timing in the market. We had a really solid and really tight niche.

Francis:

I think you were in California at that time. Is that right?

Diane:

We started in California, then we were national, but we... We took it nationally, but we started in Southern California.

Francis:

You were going to title insurance companies and saying, "We're going to help you find these title insurance professionals."

Diane:

Correct.

Francis:

It is a almost random niche that you found. When I was in high school, we had this career day and this guy came to our class who owned a title company. He came up to me and said "My employees all make $300,000, $400,000 a year." It sounded like a very good business at that time.

Diane:

That's funny. Yeah, title reps make a lot of money, sales reps. We placed the more technical people that were actually writing the title policies. But yeah, title insurance is basically the original blockchain. It's a blockchain for real estate purchases.

Francis:

Okay, you got into this title insurance stuff. You're growing the company. What was it like to scale? You started with two of you. How did you scale? What kind of challenges came along the way? How did you end up growing so fast?

Diane:

Well, we were constantly executing. We were obsessed with it. Sometimes, I talk to founders who have the idea where they want to work on the business, not in it, or there's some kind of not working as much or stepping away. We had none of that. We knew we wanted to step away, but when we sold it. We just worked. It was a lot of just execution and at every turn just what is the next thing to do? What is the next step? What is the next action that we needed to take to grow this?

For example, when we started it, we started in LA County, then our next location was Orange County, then we went into Riverside County and San Diego. We had this cluster of geographic locations. Then we replicated that in Texas, and then we replicated that in Florida. We were really intentional about our growth.

And then we added to our executive team step-by-step. The first really big hire we made was when I was pregnant with my first kid. And I had three kids during this time too. When I was pregnant with my first one, I was working so much that I didn't even realize I was in preterm labor really, really early on; and I was on bed rest. That was the first step where we realized, okay, we need to bring in another person on the executive team. We had an investment banker who was an advisor, so we met with him every quarter because he knew what our goals were, and he also ultimately knew he was going to make a lot of money by helping us sell the company. We go to him and ask, "Okay, here's where we are now. What are the next steps?"

Francis:

Yeah. When you replicated this model in different locations, does that mean just hiring a salesperson and a couple of recruiters, or was it something more involved?

Diane:

Yeah, we usually started with one or two people. We had really pretty gritty offices. But we would start with one or two people, and then in some locations one person would be the branch manager. And then as they grew, we'd add more people to their offices.

Francis:

And then hiring executives, like you mentioned, at some point you're like, "Okay, I'm in labor. I probably should bring in executives. This is getting a little out of hand." Did you think, okay, we're going to promote those people from within? Did you have to go outside the firm? Was that something that you thought about, who to hire as executives?

Diane:

Well, yeah, because... What I found to work really well, because we had that really specific goal in our vision and how we wanted to build it and exit and retire, and so we brought in people who had their own compelling reasons to be part of the company. And that was a really key strategy. Our first executive that we hired became our president. And he actually purchased equity as well, so we had people buy in so they had skin in the game. His goal was to be... Well, one is he wanted to be in YPO. And we didn't even know what that was at the time, so we're like, "We'll call you president and you can be our YPO person." And then he also wanted... His goal was to be the CEO of a publicly traded staffing agency.

We found people who, our goals were not the same, but they all would be met if we exited. And then certain qualities that he had, yeah, he had an MBA, we didn't, and he was good at talking to talking to Wall Street type people and investors. And then another key hire that we made, he was our head of ops COO, and he managed the recruiting team. Also, everybody had a lot of grit, and he was also just incredibly detailed and really good with numbers and also really good with people. Those were two really key hires.

Francis:

Wow. You have a president, you have a COO at this point. How many years in was this when you hired those two folks?

Diane:

Two years in.

Francis:

You're two years in, you had these two people. Were you able to take a step back at that point, or was it really still grinding and you had a couple more folks to make sure things are tight?

Diane:

Yeah, we were still grinding. My role evolved because then I started a job board in our niche. That was after my second baby, so my role was a little bit mellower starting up this other business. That was my baby that I mostly worked on then. Yeah, and then as we went through the deal, my role evolved too and I was managing all that and the deal flow and things like that.

Francis:

At any point were you like, "You know what? I could just collect a lot of cash from this and just ride it out." Did you ever think of that? Or was it really like, "Nope, I want a big liquidity event. I want a big sale. I want to be done and move on to the next thing." Did you ever have that debate like, "Hey, let's just turn this into a cash machine"? We talked to a ton of founders like that, and they just want to make $500,000 a year in distributions or $1 million a year in distributions forever, and they never want to get rid of it. Do you ever think about something like that?

Diane:

We were really young, and so I think I would've maybe had a different thought about it now, but we didn't think that way. And I've observed obviously people who started around the same time we did, and now they're doing hundreds of millions of dollars in their agencies, but I think that just wasn't who we were, our personalities. It's definitely a path you can take. And that's why I do like to help people get clear on what their vision is. I think that's so important because then you make different decisions based on what you want to do.

Francis:

That totally makes sense. A thing that a lot of entrepreneurs don't appreciate is if you're not going to sell early…if you get above $50 million in enterprise value, the number of buyers starts dwindling, and now you can't get out for a long time. If you go above $100 million, there are very few buyers.

Diane:

Oh, interesting. Yeah.

Francis:

Okay, you sold this company. I would love to dive into that. You had the banker you'd been meeting with for a while. Was the ultimate buyer an inbound or did you tell your banker at some point, "Hey, let's run a process"?

Diane:

Yeah, yeah. And the other exits I've had were different. In this case, yeah. It depends on what the sale is going to be, the value of the sale and what decision you make, because investment bankers are really expensive. What they do is they write what's called a book, which is a whole description of your business with financials. And it's basically like a really detailed deck of your business. And then they shop it out. They go to their network, but also... They originally brought us... Our first deal that we had in place was with TMP; and they were the holding company of monster.com. At that time, they were buying up a whole bunch of staffing agencies. I think Korn Ferry's doing that right now.

What they'll do is then they'll narrow it down. They'll bring a few potential buyers to the table and then present them to us. And then we decide. And then you narrow it down and narrow it down so that you're talking to about three of them. Finally, you go into a letter of intent. Then, you move forward with one person.

But that [TMP] deal fell through, actually. At that point, we decided to hunker down and start buying smaller agencies. The deal that we ended up doing came about in that process.

Francis:

Do you mean the ultimate buyer was someone through that original process with TMP or was it somebody completely new?

Diane:

No, because it was during 9/11. TMP, their team was doing diligence in LA. They were from New York, and their team was in LA when 9/11 happened, so everything fell apart at that time. I don't even know if the opportunity was there to go back to the other two. And so that's when we decided, okay, well, everything is crazy. This is an opportunity maybe for us to start making acquisitions. We hired someone to help us to find agencies to acquire, and the first call that he made, said, "Well, we have someone who might want to buy you," then that's how that happened.

Francis:

Wow. You ran this process; it didn't quite work out. Do you think you could have skipped the banker process  and still sold? Or do you think that running that initial banker process was helpful?

Diane:

It was definitely helpful. We ended up paying them a significant percentage. But they also, at the same time, really helped us because we had no experience in M&A. When you first start a company, you're pinching every penny, but then when you're ready to exit, you're ready to leave millions on the table because you just want it to be done. Our banker was helpful because he really pushed back on us because there were a lot of things that we were just ready to give in. In subsequent situations, I was able to call people that I knew to shop a deal, but we wouldn't have had those deals come to the table without his help.

Francis:

Did you have some kind of metrics in mind that if you hit you knew it was time to sell? "Okay, once we hit 10 million EBITDA we're going to sell"? Or was it something more intangible?

Diane:

Well, it was funny because... I don't know if I said it earlier, this was me and my husband. And the first year, he said something like... Because we started getting calls from companies about acquiring us first year or two. And at one point, he was like, "If someone offered us," I think he said like $200,000, "I'd totally sell it." And I was like, "Are you kidding me?" But yeah, to your question, it was pretty intangible. I don't know if we had a set number at that time, because the deal with TMP, a lot of it was stock so we would've ended up... not been in a great place, honestly. It was just like we would've ended up with I think like $3 million or something in cash. And then a lot of it was stock. And we were excited about it because Monster was doing a lot then. But then, you never know what's going to happen in the world. The other deal, we did end up getting all of our earn out on that deal, but there was a lot of cash. There was a lot more cash in that deal as well, so it turned out to be a better deal.

Francis:

Right. You have other exits; I'd love to go into those. How were the other ones different?

Diane:

No, those were different. A big lesson that I have learned and I've also heard other founders say is if you have a big home run, it doesn't mean that you're going to have another one. It's like going back to the poker table again once you've won.

We had a subsequent staffing agency. Basically, we sold to Hall Kinion. They were a public company. Then they sold to Kforce. Kforce operated under a division under our name. It was called Kforce On Staff for a few years. Once our non-competes expired in two years, we decided to do it again and hired back the same people.

But then at the same time, we started up a few other businesses as well, so we got pretty distracted. We felt like, okay, well now it's so easy, so we're going to start all these other businesses. One was called Workway. It's still in business. I ended up selling that to the former chairman of Adecco. Some other things happened too like we got divorced. I took over the business. I was running the business, but then I sold it to that family. The way that I did that is I actually hired his son. They're English, and they wanted to have a US-based business. There's always a different reason why somebody bought the business.

And then I had also sold a division of that business that just did VMS, like MSP, high-volume, low-margin staffing. Before I sold the whole of Workway, I sold a division off to a private equity firm. That was literally from networking, writing down everybody I know. I went to the SIA conference, and I was like, "I'm going to sell." This was my partner at the time, James Bomer, because we were having some cash issues. He said, "We can't afford three to go to the SIA." I go, "I'm going to go sell the MSP division at the SIA conference." And I did.

Francis:

That is a pretty interesting story, just selling the division of your company. Did you just go to a party and talk to many people, "Hey, I'm selling my MSP business. Anybody?"

Diane:

Yes. We actually decided we were going to sell it. We did shop it out. We made calls. But yes, absolutely. I got on a plane, went to Florida. I was speaking at the conference as well. And I was at a lawn party or pool party and chatting with someone who reminded me that I had met him at one of the career builder Boondoggles in Chicago. He said, "What are you up to?" I told him, and he was like, "Oh, that's crazy because we're trying to figure out a solution to VMS staffing." And that was it. Then, did go through a process. We were talking to a couple of other companies as well.

Francis:

After going through these sales, especially the big one, what do you think other staffing firms need to do to get to a point to sell? Do they have to get to a certain scale? What do they have to do to make a sellable business in staffing?

Diane:

Well, they have to have recurring revenue, which comes from staffing, not direct hire, not permanent placement. And they have to have a diversified client base. Not any one client should be more than 20% of your business.

Sometimes, in different acquisitions, there are different reasons why they will want your business. Some will care about your systems and operations, others won't. Some will care about your executive team, others won't. But they will generally care about your core team. We tied everybody to our earn-outs, so we had a really solid team, and that was attractive to them. And then also having really clean accounting and know your accounting, know your financials, and have them all in order. You don't want to be messy at all. It's going to make the sale a lot more difficult.

Francis:

Is there a minimum EBITDA a staffing agency needs to get to in order to sell?

Diane:

Well, it totally depends on what kind of deal you're going to do because when we decided that we were going to buy smaller companies, we were going to buy smaller agencies. We were looking at businesses that were $5 million and under in revenue. It just totally depends. I think a good standard is probably $1 million in revenue before you go to sell. But every deal that I've done, there's been a different reason why the company has acquired us, so it really just depends on finding the right buyer.

Francis:

What do you think other people can do who are not necessarily as networked as you were to find buyers? And is it a banker or is it something else?

Diane:

The interesting thing was I wasn't that networked at that point because I had spent most of my 30s retired. And we had those other VMS businesses, but I wasn't totally plugged in day-to-day. I was co-founding these other businesses, but I wasn't really in the whole circle. That's why I started speaking. I spoke at Manpower about social media. I realized if I'm going to really do this, I need to meet the people. I need to be in the rooms with people that have... I was in the rooms with them like with C-suite, executives of the multinationals. Because I was like, this is what will be my next step. That's one thing I think a lot of people overlook is the importance of building relationships. If exiting is your goal, build relationships with other agencies and bigger agencies. Building those connections was really helpful.

Francis:

Would you do anything differently if you started those businesses today?

Diane:

Yes, I would do a lot of things differently. Well, one is, funny I'm talking to you, but we did all of our back office ourselves, and that was total insanity. And so I would do things a lot simpler. I would use an employer of record from the beginning. We never did. We used a payroll company and we had operations in almost every state. I would keep things more simple. It's like we had this big exit, but also it could have been so much bigger. At one point, we started a school because we thought, well, what if we train people to do the roles when there is more demand than supply? Things like that. We got pretty unfocused sometimes. For founders that part where you're growing and doing well can be boring because it gets monotonous, but I would tell myself to keep it simple and not get distracted.

Francis:

The agencies that you deal with now in your consulting business, what do you think are some of the things they need to do a lot better than they're doing?

Diane:

Yeah, there are two main things. One is tolerating and not having systems in place for underperformers.

Francis:

What do you mean?

Diane:

Well, we're a service business, and we are our people. That's just what the business is. And sometimes people... It's like they don't necessarily realize it, and they'll have people who are underperforming or don't have the right people in the right roles. You just cannot hit your numbers if you're not having the performance. You have to have a solid unit of economics from every recruiter or sales salesperson to get to where you want to be.

And that also goes to the business model. A lot of people will say they want to exit, but their business model is not aligned to do that. It might not even be aligned; they might have certain sales goals, but the way that they're structured, they just can't get there with their business model. Not having financial projections done from the beginning is a common mistake that I see, and then tolerating under performers and is another one. There's a lot, but then I'll just say the third major one that I see is not prioritizing sales. Especially early when it's maybe the founder and a couple of recruiters or something like that, sales tend to be an afterthought when, really, they're the lifeline of your business. Everybody needs to understand that every day, sales needs to keep on going even when your pipeline's busy. You can't stop building your pipeline.

Francis:

That really hits home for us as we see so many agencies with this problem. It'll be like a three-person agency, and they have a couple of small clients. Then they get a big client that gives a big portion of their business. Then they stop selling and go into fulfillment mode. Their sales skills atrophies. One day, that client leaves, and then suddenly the agency is on the brink of bankruptcy because they hadn’t been selling.

Diane:

The way that you said that is really good, that it atrophies, because it does if you're not practicing it. At Workway, our biggest client in 2008 was Countrywide Home Loans. Their CEO was... Literally if you Google him, he was the face of the financial crisis. And they went bankrupt, and B of A, Bank of America, took them over. We lost their business. However, because we were temp staffing we had many people on assignment there, so we had time to transition because the people were still on our payroll. We still had that business even though we didn't have their new business. But we also had continuously worked on diversifying and selling so even though they were our biggest client, we were still in business because we had other clients.

Francis:

What a good example of the power of diversification to go through something like that--a major nationwide crisis--still be able to walk away from it.

Diane:

And there's still business there. So many people are talking about the downturn in the market, but it's also, yeah, it's a downturn compared to '21 and '22, which was really hot. The downturns are also part of what makes this business work. You need to have that natural fluctuation. It's the people that can stick with it and stick around; then the upturns are so good.

Francis:

I'm really curious, diving a little bit into the details of something you said earlier. How do you keep track of poor performers? What's the secret to keeping track of that?

Diane:

Yeah. Well, for one thing, you have to know what's going on or have a manager who's managing them who knows what's going on. Somebody who actually knows the numbers, understands where people are at, that's really important because a lot of times people, they need coaching, especially in early stage companies. I've coached startup employees, and the most common complaint they have is that there aren't set expectations. They just don't really know what they're measured on. You need to let everybody know what your clear expectations are of them and what they're measured on and what their mission is in the business and the big part of the business.

And you can use whatever software. A lot of my clients use EOS. I've used EOS, which is “entrepreneurial operating system.

You also have to be prepared to have consequences. You want to have metrics, but you need to have meaningful metrics, and then you have to be prepared to impose consequences if they're not being met.

Francis:

What gets measured gets managed. We see that as well: if you don't tell people what they need to hit or what's expected of them, they don't know if they should be doing nothing all day long. It's such an important point to have metrics involved.

Diane:

With everybody being remote now, that's especially important. I believe in giving people too much. I'd rather them be overwhelmed and tell me that because it's just it's healthier. Because if people don't have enough to do, it's just they're start dying on the vine.

Francis:

Wrapping up a bit, are you tempted to start another staffing company, or have you shifted more to advisory state?

Diane:

I love what I'm doing now. Sometimes I get tempted. Sometimes I'm like, "Why don't I just do that again?" But I also really love what I'm doing now. I had a clothing business as well after my last staffing exit. And I'm into building scalable businesses, so that's what I'm looking at now. I do one-on-one executive coaching with recruiting agency owners, and I also have a group program. And I'm also looking at ways that I can scale this. This has been really interesting for me. It's a different challenge. It's more of an educational kind of training, consulting kind of business. And it's really fun for me now. I don't know. I'm not going to say never, but I'm pretty good where I'm at right now.

Francis:

One of the nice things about being more of an advisor investor is you get a variety of different business models, and you're exposed to so many different approaches that people have, which is intellectually stimulating. Whereas if you're running a company, you focus on the same thing all the time, doing more and more of the same stuff at a bigger and bigger scale, so it can get monotonous sometimes, but the rewards can be very big.

Diane:

Yeah, totally.

Francis:

Well, Diane, thank you so much for being on the show. This was super informative. Congrats on all the success on the old ventures and now the new one.

Diane:

Thanks, Francis.

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