Most Payroll Funding Contracts ‘Suck’ — But There May Be a Better Way for Your Startup
Staffing software company TempWorks has been offering payroll funding since its inception in 2007. For the most part, TempWorks used to play by the same rules as other payroll funding services: Startups and other small companies in need of financial assistance would come to TempWorks, sign a contract, and let TempWorks handle payroll for however long the contract stipulated.
It’s fairly uncontroversial stuff, but after a while, TempWorks CEO David Dourgarian began to grow wary of the system he was participating in.
“I looked around at what I was doing and what our competitors were doing, and I realized that most payroll funding contracts suck,” Dourgarian says. “They have draconian terms, they have high prices, and you don’t have a lot of freedom to move on.”
Dourgarian says that TempWorks’s payroll funding services were conceived as a way to get new clients in the door. The goal was to build relationships with staffing companies so that, once the payroll funding contract was up, these staffing companies would go on to become customers of TempWorks’s staffing software.
But things rarely worked out that way. By the time the contracts were up, most of TempWorks’s customers were so burnt out on the whole arrangement that they couldn’t wait to move on. Very few wanted to maintain relationships with TempWorks.
Furthermore, Dourgarian felt like TempWorks was helping to prop up some businesses and entrepreneurs that would have been better off bowing out of the game.
“Your money [with payroll funding] gets made off of folks with shaky credit and financially shaky businesses,” Dourgarian said. “It was making money, but I looked at it, and it wasn’t good for the health of the company in general. It wasn’t good for clients, either. Frankly, by the time they got to our door, many of them just needed a lender to tell them ‘No.'”
Dourgarian saw that TempWorks was not the only payroll funding service following this script – and that’s what gave him the impetus to try something new.
“All my competitors operate this way, and we operated the same way, and I wanted to change that,” Dourgarian says. “I decided that the best way to do that was to loosen up our contract terms and make this a friendly place to come for your financial needs.”
Funding It Forward: A Payroll Funding Service That Aims to Cultivate Client Success
Early in 2015, TempWorks reorganized its payroll funding services and reintroduced it as the Funding It Forward initiative. Under this new arrangement, TempWorks seeks not to simply fund payrolls, but to help new staffing services grow into successful businesses.
“Away went the term ‘contract,’ away went a lot of the controlling measures that were present in our agreement, and we cranked up our credit standards,” Dourgarian explains. “We eliminated financially precarious clients from our portfolio. The idea here was that you get nicer people who are going to be better entrepreneurs, and you give them the tools they need to be good entrepreneurs. You don’t burden them with contract terms that will take their eyes off the ball — which is closing new business [for their companies].”
By “putting a brighter face on payroll funding,” TempWorks was aiming to build better relationships with potential customers and help new businesses grow.
When a company is accepted by the Funding It Forward Initiative, it receives more than just payroll funds. It also gains access to comprehensive business mentoring.
“I don’t just want to be in the business of lending someone money. If that’s all you need, I really want you to go somewhere else,” Dourgarian says. “By increasing the quality of entrepreneurs that we bring in the door, we put ourselves in a position where we’re actually able to mentor them about how to run their businesses.”
Examples of the sort of mentoring that TempWorks has provided through the Funding It Forward Initiative include:
– Helping clients buy out business partners and competitors.
– Technology consulting for small customers that need tech solutions to help them keep up with staffing demands from big companies.
– Aiding companies in supplier negotiations.
“Being small businesses, [our clients] are usually dealing with other companies that are, frankly, more sophisticated than them from a sales perspective,” Dourgarian says. “[We try to be] the ‘older brother’ in the wings who can go and help them tune up contracts or let them know if they’re looking at a potential mistake.”
From the Client’s Perspective
What can a company that applies to the Funding It Forward program expect on its end?
The company’s relationship with TempWorks is managed by an account manager, as it would be in a traditional payroll funding arrangement, but the company also gains access to a software/payroll specialist and a credit specialist. The software/payroll specialist is responsible for making sure that tech and payroll systems are running smoothly, and the credit specialist is responsible for making sure that the client’s customers are all paying their bills to the client. The credit specialist will also give the client guidance when it comes to customers that may not be totally trustworthy.
“We talk to these clients every single day for the most part,” Dourgarian says. “For me, the important part is, these folks, when they do business with us, all their little issues they have when starting their businesses, they get to ping their issues off of me, and I more or less went through the exact same things they went through a few years ago.”
Since launching the initiative earlier this year, TempWorks has funded 35 startups, and these startups have seen great returns, Dourgarian says.
“The average growth rate of our clients who came on between 2008 and 2014 was about 15 percent per year, year over year,” Dourgarian says. “Over the last year, the Funding It Forward clientele have grown by an average of about 40-50 percent per year, year over year.”
Interested in Applying? Here’s What You Need to Know
Dourgarian says that interested entrepreneurs need three things to get into the Funding It Forward Initiative: good personal credit, clean backgrounds, and impressive resumes.
“We’re a little on the tight side, as far as who we will look at working with, compared to an average payroll funding company. We have to do that because I want to have easy contracts and good prices,” Dourgarian says.
Everyone who applies has to pass a credit and background check, as mentioned above, but Dourgarian says the most important piece of the equation is the resume.
“You can’t walk in off the street and say, ‘Hey, I’m going to start a staffing company today,'” Dourgarian explains. “What we are looking for is people who have a proven track record as a salesperson or recruiter. We want them to have several years of experience under their belt and a credible background story about why they want to be an entrepreneur.”
Does the Funding It Forward initiative sound like the right fit for your staffing startup? TempWorks is accepting applications until March 31, 2016. Visit the TempWorks website for more information.