ET8- Starting an HR Service Business from Scratch

How Great Service and Niche Focus Can Makes For Fast Growth

Matt Vaadi and I had a great discussion about building a services company the way it should be done. That is, you look at all the weak points in the way the existing businesses do it and then you design a company from the ground up that overcomes those problems.

What you get is a killer solution that beats the competition just by the nature of the way it was built- before you even get into marketing and branding and all the rest.

This is how he built his company ERG HR and how I built CapForge Bookkeeping. He ran through the startup story and he and I also agreed on another important concept- it is far easier to start a business in an industry in which you are already intimately familiar than it is to start off in something brand new.

It’s not that you can’t start something brand new, but it is much harder because you don’t know the pain points, you don’t know what has already been tried and not worked and you don’t know the customers well enough to know how to out deliver the existing competition. You may be a quick study, but it is much faster and much easier if you’ve already got a track record in the industry.

Starting a business in something you already know is a recurring theme in conversations I’ve had on the podcast and it’s one of the ways I believe give you the best chance of minimizing your risk and maximizing your chances for success.

Show Links:

Website: http://www.ergpayroll.com/
Email: matt@coverthr.com
Twitter: @MattVaadi
LinkedIn: https://www.linkedin.com/company/executive-resource-group-llc

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Transcript
Matt: Welcome to today’s episode. I have on the line with me Matt Vaadi from ERG Payroll and HR. He is an expert in small business HR and all the associate issues with it in addition to being an entrepreneur himself. Matt, you just kinda jump in. Tell us what’s your background was, how you got started and how you got to where you are right now.
Matt V.: Great! Thanks for having me, Matt. My name is Matt Vaadi. I’m the president and founder of ERG Payroll and HR. ERG Payroll and HR; we are a payroll and HR service provider as the name states for small businesses. We work with companies between 1 and 250 employees, helping them find ways to be a more efficient employer and a better place to work and do more with last with their existing staff through compliments of our technologies. We have everything from online payroll, online human resources platforms all the way to leveraging our people. We have a dedicated team of HR Business Partners that work directly with our clients to help them solve their HR needs and be a better employer. I started this company about a year and a half ago after a good long term planning period. I determined I wanted to make a leap to entrepreneurship. I think there was a point in my career, some of you out there may be familiar with the great Steve Jobs quote from [inaudible 0:12:09.0] “You can’t connect the dots looking forward. You can only connect them looking backward.” There was a moment in my career that I was looking for the comment of everything that I ever done up until that point and I am trying to find my true passion was and what I needed to be and I realize that the human capital and human resources was what I was most passionate about, feeds to my roles, and finding ways to get better as an employer and be a person that people want to be around and organization that people want to be a part of by leveraging those complimentary pieces of technology in human capital. It’s just truly about my passion. I love working with small business owners. It’s been a great ride. It’s been a year and a half, it’s probably 5 years since we open the doors in ERG and I’m just really excited for this next year, we’ve been doing a lot of planning obviously heading to 2016. I’m just excited about where we are going.

Matt: Awesome! How did you – you have some background presumably in HR and Payroll and these kind of fields before you got started with the current business or was it something you pivoted from a different kind of role?

Matt V.: I had direct experience working for one of the large national providers that would now be considered one of our competitors providing payroll and human resources solutions. Some underserved portion of the market that we are really able to serve a little bit more effectively based on our size and our support model. It’s a terrific idea, run with it and went out on my own. That’s one piece of advice that I would say if you were to speak to people out there that are considering going out and striking out their own business is that why do I command staying in a field that you have some level of expertise and looking for some level of creativity that you can bring to that market rather than trying to go out and prove a concept in a new market. But, it’s hard enough to go out and do this on your own from the ground up with when you are going in to a market that you know, that you plan is. I’ve been in human resources for over 12 years. Going into this in a variety of capacities and directly in the market that I’m serving today for 6 years. I have nothing but challenges going in and out of the market. Even without deep knowledge base, I couldn’t imagine going out and say “Hey! We’re gonna go manufacture widgets now. I know things has been great to me but tomorrow I’m gonna go manufacture widgets and stuff because I see this underserved market.” Definitely, learned that in entrepreneurial classes. Creativity exist and the new odds is you can provide other service or products differently in the same space [inaudible 0:15:05.4] against that technology and maybe trying to stay in the industry that’s rare in some capacity as possible.

Matt: and I would definitely second that advice. I think the restaurant industry is one that tends to pull in a lot of people without any background. Somebody who’s been on insurance for 20 years and decide they like to cook and so they want to open a restaurant and that kind of pivot is so massive and there’s so much of a learning curve that even an experienced restaurant operator with units open, there’s a lot of lock and a lot of chance that still plays into it but if you have no industry experience, you are really bucking that odds to pull that off and I definitely agree with you, Matt, that you if have a deep level of industry experience, you’re probably better off coming up with a unique approach and staying within your area of expertise at least for your first business launch rather than trying to find to do something that’s completely outside of any comfort zone you might have. That said, there are lots of big national providers, publicly traded companies in your space, how do you differentiate what you guys do from some of the offerings that a lot of small businesses or clients for example get pitched for a regular basis by somebody’s big national companies. How do you guys differentiate what you are offering from some of the other pitches that they’re getting on a regular basis?

Matt V.: Yeah. That’s a great question. It’s really hard to planning to do early on and until you find product market fit, that can be a big challenge. For us, we realize that – One of the things that I heard time and time again and I still see it all the time when we go, when we do compete against some of the large national providers, it’s really easy in our industry to say “Hey, we have the best online payroll system and we have the best online HR tools and best online time clock and all these good, great tools!” but at the end of the day, somebody at that company still asks to man that system. Right? I heard this time and time again, for the 15 man company, for the 10 man company, that means that you are a small business owner, or office man, your someone still have to deal with the mass that proceeds everything giving into this system. Whether that’s dealing the weekly or bi-weekly collection of people’s time data and try to deal all the chicken scratch, what’s going on the time cards and everything or “Hey! This is great. We are tracking all this information online but we got real people problems over here. We call our attorney every time we have a question. We created where you call your own dedicated HR department, personal businesses. We actually do that frontline work for our clients for whenever an employee has a question; they are reaching out to us directly. Whenever the employer has a question, they are reaching out to us directly. Imagine that they just bought their own corporate HR department and employees also have that line of communication open to us. If somebody missed the punch this morning, they are calling a member of my team to correct that punch. In a normal environment, they would still be leaning on the administrator from their department and often times that’s the small business owner to go and make corrections for them. So, were completely removing the work of it and we are also adding a lay of insulation on the human resources side. So, we do everything from creating the employee handbooks and job descriptions to assisting terminations and exiting our reviews and sort of everything that happens in between. So, that’s our unique niches. It’s very difficult for some of the large national providers to provide that service without letting their technology get in their way. So, we man the technology and give them just enough access to what they need to build the monitor and use the systems. But also provide them with a high touch support model that really uploads the huge burden of the administrative side for them.

Matt: That definitely sounds like a pretty key differentiator. I know some of the big national companies, what happens is, you’ll talk to, you being the small business owner, you’ll talk to the representative that comes in the door and you might sign up with them but then if you got a problem, you’re on a 800th number with somebody who’s far removed from your situation and at the mean time as soon as you sign up, you start getting calls from their other departments trying to pitch you on for 1k plans and health benefits and everything else. You feel like all of a sudden, you’re a telemarketer hotlist within this company getting these other pitches throwing at you but then when you actually need support for specific things that sometimes is hard to come by.

Matt V.: Well, it’s interesting because we did – Today’s training Tuesday. In ERG, we kinda got – we kinda stall a nice page from [inaudible 0:20:18.1]. We always got mostly theme days were coming off Motivation Monday and Training Tuesday and during training today, we were talking about it, we were doing customer support training. And the difference between our customer support and the normal customer support is that we don’t consider ourselves customer support. We consider ourselves business partners. We got HR business partners and our people that are experts in the field of HR. they’ve done the job for corporation. They’re not customer support since we talk how to learn, we talk how to use our payroll or HR piece of technology so they can answer our call in the call center. People [inaudible 0:20:57.0] and have a real tactical wide advice that they can give you and are consulting you rather than just being that person on the phone and who knows where, more and more getting outsource around the world. Our clients really enjoyed that and we loved to be an extension of the team and we’ve been fortunate to go on our client based all around the country and we use tools like Skype., Google Hangouts, get facetime with our clients. We can really feel that extension in our team.

Matt: One of the questions I get from a lot of our clients who are looking to either grown beyond what they can do or they have maybe 1 or 2 people but they are trying to add so they can grow their business is “How do I find somebody good? What questions do I ask? How do I word the ads so I get good people? I don’t have time to wait till 500 random resumes of people who aren’t qualified and who aren’t gonna be a good fit. How do I figure out how to hire somebody good and what do I do to ensure that once I do hire them, they’re gonna work out?” I think a lot of people shy away from adding to their team because they are not really sure how to go about it without instantly getting overwhelmed with a flood of resumes. It just seems like a huge process to them. That’s more overwhelming than just trying to keep and doing it all themselves. Is that something you coach on or help with so they can kinda get more comfortable with the process?

Matt V.: Yeah. We are doing a lot of capacities and I’ll offer some general advice here to [inaudible 0:22:41.6] for anybody listening. First of all, hire slow. Just always hire slow. I know it is painful if you have that opening. Its a critical member of your team or a critical role that you lack or just something that you need to fill but you’ve got to suck it up even if you need to use a temperate person to fill through an agency, and make sure that you’re getting the right person on your team because if you are a 5 man company, that’s 20% of your team, and how do you think about the impact that has on the other people lives tin you’re building but also I mean if that person turns over, I don’t need to go on the cost of turn overs. Everybody knows that. You know the time and energy you spent on the recruiting thrill to get that person in there, the time and energy it took you and money it took you to get them trained and then of course their salary and everything that comes with the burden of having them. But then they walk out that door. So, hire slow. Make sure you got the right person. It really boils down to a lot of same things. I like to think about it like a marketer and a business developer and you’ve got to create this sort of content marketing mentality where you’re letting people know constantly about the culture of your organization and letting them know what makes your place special to work and even when you don’t need this person, they are thinking of you when they know that person, you have that specialty that you made me looking for someday. You kind of constantly planning those seeds, those referral channels the same way you’re looking at business development to try and find new clients for your company, you need to be thinking about building your talent for the same way. It’s gonna be the same thing. You’re gonna be managing that pipe line of talent and they’ll be deals that command at the right time and they’ll match out perfectly and there’ll be deals that come out at the wrong time and your fully staff and you just don’t need another person. But from a big picture perspective, you really got to sign away from your culture and a lot of people know, everybody around you why it would be exciting to work there and as your stage gets bigger, letting people know all over the place why would it be exciting to work for you and with you. so definitely something that I like people to keep in mind and there’s a lot of new [inaudible 0:25:00.6] that goes into once we bring that person on. We takeover that process right from the beginning of expanding the offer, being an online employee on-boarding system and handling all the new hiring paper works to assisting with the organization writing, some clear orientation processes, etc. it’s something that we get deeply involved and it’s a huge challenge. I just feel although we had opened for months that it would’ve been very simple to put somebody to that role and we were busting on the scenes but I can’t be the guy who goes out and gives this advice to people and then doesn’t take it. [inaudible 0:25:40.8] they call me; they try to remember my team who’s not fantastic. “Thanks a lot for the great advice and your hiring enlightenment.” I can’t do that, right? We [inaudible 0:25:52.7] or somebody at the tech community in that said.

Matt: Right. I’m in complete agreement and I always say to the team here – I only want 8 people and even if I have 4 or 5 A employees here and I bring on one B or one C, it’s gonna bring the whole average down. And that bad hire, even if they’re not terrible, they are just not up to the same level, the commitment and effort and dedication and loyalty as the other people here, its gonna bring some of the other people down either because they have to take over some of the work load or just band attitude kind of rubs off or whatnot. So I really want to be very careful not to spoil the whole batch by including one bad apple. To me, that always is in the back of my mind when I’m doing interviews and I’m reviewing potential hirers. Is this person gonna be at the level that everyone else is, at the level that we sort of established as our base line for performance, for quality? Because if they’re not, no matter what other experience or other attributes they might have that they bring to the table, if they’re not gonna be at our baseline for quality, and I feel like we’ve set that really high then it’s not gonna be a good fit and I have to move on even if, like you said, works piling up and you got a lot of things you want to do and it’d be great to just throw somebody in for some immediate relief but you don’t want to make that decision but it turns around that you have to let them go after a few weeks or a few months, and you wasted way more time than if you just held off and waited a little longer to find that right fill for that position.

Matt V.: That’s exactly right. You made the point perfectly but I mean, think about it even more if you bring a C player into that environment, then how much additional time you spent trying to bring them up to speed vs. the amount of time you spent 1 on 1 with an A player. I think anybody who’s got an A player on their team and a B or C player on their team, they know how much more they’re getting out of their investment becomes infinitely clear. So, hire slow and make sure that you’re getting out this people deeply and thoroughly and you get a great fill for it. I already [inaudible 0:28:14.4] first and foremost. Are their goals lined with the goals of the company?

Matt: Definitely. So, switching gears a little bit and kind of going back to your business, your role as an entrepreneur, what are you doing? What do you find effective in terms of sourcing new clients and new customers and generating leads for your business? Because in my experience, it’s the target I’ve been going after for most of my entrepreneurial career, small business owners are tough to pick off. They don’t all hang out in one place. They don’t all read the same magazine. They don’t all respond to the same kind of pitches. What have you found effective in terms of marketing and generating leads and clients for your business?

Matt V.: Yeah. Unfortunately, you can’t just [inaudible 0:29:03.2] and keep pulling in over and over again. You’ve got to have a pretty diverse support to business development and into marketing. We tried a lot of things since we started. Everything from PBC to Pay for Click to some advertising and digital advertising to content development and pretty consistent production of content. If I look at our client based today I’d say 70-75% come from the [0:29:38.4]. We have shifted our focus to being a partner of value to our partners. For us, we traditionally partner with CPAs and health insurance brokers and just try to find ways to educate them in our client base and provide free content. One of the [0:29:59.9] is that we want our clients to get more than they pay for and we definitely want our partners who pay us nothing to get more than that. We want to be able to provide them with a lot of value. Its missing today whether that’s education around the affordable care act or classes about how to engage their team and improve their workplace culture or just tools and things that they can provide to their client base. [inaudible 0:30:27.9] the biggest source of our business. Content marketing is really the foundational element of how we go to market and just providing those educational opportunities and blog post and webinars, etc. not as consistent that I would like being in a mean shop. I wish we could be a content production machine to keep up with some of our rivals. It’s not in the cards at the moment. I hope to be able to continue to expand on that. That’s big for us. Taking step back, the number one thing anybody out there can do if you’re looking to start a business or if you started a small business and if you’re wondering about business development is make sure you created a buyer persona and you know who exactly who your target buyer is because if you’re selling to everyone, you’re selling to anyone. Try to make blog vague messages at marketing and sales really don’t resonate with anyone but when you call a particular [inaudible 0:31:32.2] and you know their exact challenges and you know the person on the other end of that phone, you know exactly what is going on in their daily life and you can speak to their needs because you know them and you serve for other people, that’s when people start to take notice. I say it to my team all the time. If somebody work in that door right now and said that they provide marketing services, I would open the door and say “come on in. sit down and tell me all about it.” Because they told me that they provide it only to the type of company that I am. That’s meaningful to me. I know that that’s meaningful to other small businesses as well. That’s how we kinda built our business, just focusing on specific niches.

Matt: Yeah. I think that’s a good point. Small business world, although it tends to take along together it’s really made up of a lot of different diverse segments and you’re not gonna reach the general contractor the same way that you’re gonna reach a dental office. They’re just 2 entirely different things. They’re both small businesses but they got entirely different challenges. They’re run by different people. They’re reading different magazines and different content appeals to them. You can’t approach the entire segment with one message and hope to have a whole lot of success.

Matt V.: That’s really scary because like you mentioned, you want to think that if you’re serving small businesses, the world is yours. Then, why would you cut off any potential business line from yourself by only catering your marketing or your message to one specific industry. I just believe in that theory of abundance that there is so much opportunity out there. Once you have gained a lot of traction on one industry, for us, it was the dental. We continue to gain a lot of market share for the dentist and dental practices. However, we serve everything from non-profits to manufacturing companies and everything else. But, we cater a lot of our marketing and messaging to [inaudible 0:33:36.8] because about 50 to 60% of our business is made up of that. We understand the unique challenges that they face day and day off and they appreciate that. We continue to grow. That was really scary early on to say “Hey! We’re gonna focus the messaging, uh-oh! What if somebody reads this blog post about the challenges of the dental office and you’re not a dentist?” it’s not gonna speak to them. Well, you’re not gonna speak to everybody. Your blogpost probably gonna get 20 thousand views so you just need to speak to the market and get it in front of the market that you can serve and you can start to create some share.

Matt: We sort of taken the same approach on a different horizontal level, I guess. In terms – our target market are small business owners but the ones that are using QuickBooks online. So, if they’re using Quick In or they’re doing it themselves on Excel or they’re using Sage or they’re using Zero or something else, then they are not our potential customers. But if it’s a small business owner and they are using QuickBooks online not even the desktop, but were particularly targeting QuickBooks online then, we understand the struggles they’re having, the things they’re doing on a daily basis, we can directly help them. We narrowed. But you’re right. You’d like to think that anybody could be a billion dollar company if you spread your potential market wide enough but not really realistically the case.

Matt V.: Yeah. I reported time and time again and it took me a long time to follow the advice. It’s an inch wide and a mile deep or niche down, niche down, niche down again until it hurts. That is some of the best advice that I have received up to this point. That is the most effective. Once I got and going back to our service model, we are not very fit for everybody. We can zero host of different services but the people that we served best, they want to fully outsource their payroll and HR department. And that’s not a great fit for everybody but it’s a great fit for the companies that we worked with and we’re the provider when they want to do that. That’s what we want to be. We don’t want to be all things to all people.

Matt: No. because that inevitably means you’re gonna fall short on a lot of those. You can’t be all things to all people. So, you’re gonna be mediocre and best and people are gonna move on to the niche providers who are the better ones for whatever they’re getting niche is.

Matt V.: that’s right.

Matt: in terms of your business, where do you go from here? What’s your growth plan? Where do you see things are going in the next few months, few years?

Matt V.: Yeah. It’s a really exciting time. Our team is growing. We just got a couple new players to our team. We are really excited about that and the opportunities I created something on the 2016. I expect it will double our monthly recurring revenue on early 2016 and hopefully triple it by the end of the year. We’ve also got a very unique opportunity. We developed some of our own properiaty software. That’s co-board HR. that is our employee on-boarding software that is made up – we’ve got it a component of game of locations to it to make a new hot process fun and exciting for the new highers and also [inaudible 0:36:54.9] to maintain for the employers. So, doing fun things like a new high of scavenger hunt and allow your employees to get up to speed a lot faster by forcing them to do tasks that they might not have done for months otherwise what they not have been placed into this game and forced into some of this uncomfortable and different situations. For the business, it means really we’re gonna spend that off at some point. There will be 2 different companies and were gonna seek Fleming to turn that idea to what it’s really should be and that’s something much larger component of the online HR platform. We see a couple of different opportunities. There are a couple of underserved markets but the growth plan; I’m fortunate that I get to keep my feet on both sides of the line. I [inaudible 0:37:49.6] ERG and tend to keep it that way. We haven’t accepted any outside funding. We don’t need to. However, with Co-board HR, were pursuing outside funding and we are looking at catalyzing the growth over the next 12 to 18 months. Having a team of 10 to 15 people within 6 to 12 month time frame. A lot of exciting things. Human resources has a great market. People see more and more companies in the small and medium size market. I’m seeing the value and starting to understand the things that the big companies had never understood for many years. People are the most important asset. You can’t grow, you can’t do what you want to do without putting them into a position to success and removing those barriers to allow them to be successful and be a great leader and giving them the tools that they need to do their job well. We are focused on doing that and helping people to create their own stories and create their own team of A players and hopefully in the process, we could be the same.

Matt: That sounds really pretty cool not only having the self-funded startup that kinda grows on the traditional business path but also having a funded startup where you get to potentially experience that high growth, high excitement, high scariness, having a funded startup with a potential kind of a rocket trajectory into the stratosphere of growth and clients and all that. That sounds awesome. For people who are interesting, who are listening, who would like to get in touch with you, kinda get some more information or potentially take advantage of some of your services, what’s the best way for them to get hold of you?

Matt V.: Well, you can email me at matt@ergpayroll.com. The website is the same, ergpayroll.com. You can follow me on Twitter, @mattvaadi. You can contact me in LinkedIn. I’m happy to provide. We just have a ton of great HR resources. I’m so happy to provide people things that we have them readily available to you, pamphlets, etc., advice. Please don’t hesitate to reach out. It’s my great joy to help other small business owners and pay forward my respect and yeah, that’s where you can’t find me. I appreciate your time today, Matt!

Matt: Oh, not a problem. I’m glad to have you on and all these links will be on the show notes. It’s always great to have somebody who’s from this particular aspect of business because I think it’s one that I guess that’s short shift a lot of times. People like to talk about marketing. They like to talk about sales. They like to talk about Tech but without the people element, not only having people but treating them right and treating them in compliance with the laws and making sure everybody gets taken care and making sure your admin side of your business is as frictionless as possible, that’s the driver behind all those other more exciting maybe more sexier aspects of business that people like to talk about and share but the people without the HR, without having that element of your business, you’re gonna find yourself really handicapped on those aspects. So it’s great to have somebody share their knowledge, share their experience and be a resource for people listening to take advantage of to make sure that that part of their business is taken care off. Thank you very much for your time. Very much appreciated.

Matt: Thanks, Matt!