SHRM 2005 Annual Conference

SHRM 2005 Annual Conference

At the conference there were about 45 different pre-employment screening companies exhibiting. Compared to last year, eight new background-checking companies exhibited and9 others chose not to repeat.

Attendance was off a little, but 12,000 is still a lot of people and more importantly, the exhibiters I spoke with seemed very pleased with the quality of the leads. Of course, these are only “leads” and the real work in landing these accounts comes when you get back to the office.

Some News Items

First Advantage unveiled their new branding program, moving all their acquisitions under the First Advantage name with a new logo (a stylized eye from the First American logo eagle). The word was this re-branding was at a cost of about $2,000,000.

While parts of their new exhibit booth did not show up, thereby decreasing the impact thereof, the consensus was that the impact was less than anticipated. Regardless, the lesson to be learned is that First Advantage is committed to doing the things necessary to build a strong company with a strong brand image. Their $2,000,000 investment demonstrates that this company is very serious. How much are you spending (even proportionately to your sales) to help your growth?

Note: As of First Advantages 7/26/05 SEC filings, they reported that the re-branding was “only” $290,000.

Attendance at these conferences also gives the owners of these companies a chance to exchange ideas. We saw lots of CEOs talking to CEOs at their exhibit booths and in private.

We also held a NAPBS micro meeting in the aisle about a new member package and the value of a monthly educational webcast to HR/Security managers.

There was a buzz also about a large CRA offering a 7-year crim off social (along with the address info), including AKAs for $26.00. One person couldn’t believe that they could make money at this price. I advised him that it was not only possible, but the gross margins could exceed 50%. I don’t think he believed me.

I later spoke to someone who was bemoaning the fact that this same company was selling this same deal for only $19.00, again not believing that they could be making a profit. Figure it out. For a male applicant there are seldom AKAs and a 7 years address history may average 2.5 counties. For a female, if about 50% will have an AKA this equates to 3.75 counties to search. Assuming 50% of applicants are male, this averages 3.125 counties per applicant. At a cost of $.20 for the address data and a cost of $2.75 per county searched, the cost for this service is $8.80. Throw in another county for good measure and the cost is under $11.70. Even at $11.70 the gross margin is 40%. The key is automation;

I would bet this provider does not touch the customer order or the request out to the field researcher or the court results or the communication of the information back to the client. While there is no reason why you have to sell at such a low price, if your costs are higher than this, you need a consultant (read: me).

At least twice CEO’s of major companies stopped me to ask when NAPBS was going to engage a professional lobbyist. I told them that this was being worked on diligently. They wanted to be sure that NAPBS knew they would be willing to kick in extra money to help fund this need. This is a most important function of NAPBS.

A couple of TALX competitors popped up. They are part of background screening companies, but are offering this service to their clients.

The second most sought after item was background-checking companies for sale. From my M&A work, it seems there are more buyers than sellers. This should make for a good market if you are ready to sell. On the other hand, it seems that most companies are doing very well this year, growth wise, and see the future as bright so they are not interested in selling today because they think their valuation will be higher next year. This is, of course, always a gamble. Those that were riding high in 1999-2000 found their value drastically reduced when their customers stopped hiring in 2001 or went bankrupt in the recession (as in dot-coms). When is the right time to sell? Only when you are personally ready.

The first most sought after item was salespeople and sales management. If you have good ones, keep them happy. They have lots of options.

During these “good times” look to invest your management efforts in two areas, sales and marketing and in driving your costs down. If business gets better this will result in better profits; if business gets worse, you are prepared for the downturn.