Breaking the $100M Value Barrier - Part 1 || Season 1 Episode 4

What are critical steps necessary to scale a staffing business to the elusive $100 million revenue mark? 

In part one, the team dives into the topic and highlights the importance of focusing on a niche market, automating processes, and more.

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Transcript

Scott Montminy: 0:13

Welcome to Now Hiring! A podcast about staffing, recruiting and talent. I'm Scott Montminy, and I'm with our host today, Sameer Penakalapati, the CEO of Ceipal, as well as Andy Weiss, who is the Chief Marketing Officer at that same company. But as you know by now, if you've tuned into some of our other episodes, this is not a podcast about our work days and about our company. This is about your work day and what you need to build your business or to thrive in your career, in these industries and through these verticals. And what we've talked about in a couple of other episodes, which hopefully you've seen, if not go back and check them out. One is called a CT, which is an acronym for getting your business in order. And going back a little further, we started the conversation on this journey, as Andy calls it, of building a high value staffing company, and we want to get it to that point of scale where you cross that 100 million dollar barrier. And, you know, and I guess maybe we could start with one question that I have. Sameer, why is it? I mean, it's a nice round number, but why is that the big number is that the dream we all want to be a unicorn is $100 million when we know we really made it as a as a staffing company and or other business?

Sameer Penakalapati: 1:30

Yeah, no, I think that's a that's a very fair question. You know, for example, sia tracks largest staffing businesses, privately owned staffing business in the US, the company's over 100 million. So that's one of the things that you know. I think it's a good measure to to see that someone can able to scale the business over 100 million in revenue. And of course, 100 million valuation may requires even further along the way

Scott Montminy: 2:02

and Sameer, I want to point out that you've actually done this, you've built an organization, a staffing organization, that has done this. So, yeah, so just for

Andy Weiss: 2:10

those, what was that moment like when you, when you saw your, your organization, your company, on on that list? Yeah,

Sameer Penakalapati: 2:18

no, I think, I think, you know, look, I mean, there wasn't a strategy, but there's a, you know, there's a whole team behind build that business. And then I mean being a very strategically advising the team to get far for that. But the one of the things that I've been constantly, you know, preaching, was that stay focused on the niche space, right? That business, the one I built, was focused on aerospace defense sector. You know, that business has, you know, nine out of the 10 largest defense, aerospace defense clients as their customers, and starting from one six years ago. So having that focus on that then, you know, and that business, you know, the team has built their expertise in knowing the type of roles that hires, the type of industry that goes into, the type of expansion the business beyond the United States, you know. So it's, it's really a global business, aerospace, defense, global customer presence and, and that was a pure, pure little moment for me. Okay, let's focus on that the business has the facility clearance and all of that. So it's a, you know, you that's, that's a key, right? I The one thing that you said is focus on that one sector.

Andy Weiss: 3:41

So it takes team. Yeah, you have a great team. You got to focus. You're focused in on a niche or a category of staffing. But what else? And, you know, another episode you shared with the ACT framework. But what clear that?

Sameer Penakalapati: 3:57

Yeah, the second thing was that to really create the values a CT, that's why I come up. I came up with this acronym that I've been talking internally, that automation, compliance taxes. Take each one of that letter, automation, right? How deeply the system get automated? How do you stay in compliance and set all the systems in place so that things get caught. You know, you have seven to 10 different compliance things that needs to automate and and then, obviously, taxes, the businesses always be third party audited financials. So, so that's kind of things, sorry, so I said the base in place, like you have the niches area, you have the AC, T's in place, and then go after and measuring the metrics intently, right? For like, okay, then three things, I always wants to focus on the customer needs and the business impact. Like you constantly understand how, for instance. Case, like how the airspace defines business operates. Is there any cyclicality with it? You know, is there any influence from external markets, influencing on this sector?

Andy Weiss: 5:10

Were you creating, like, feedback loops with with your customers and clients to make sure that you had that input?

Sameer Penakalapati: 5:17

Yeah, and then you understand, over time you operate with these clients, and you understand what's the cyclicality of it and what's opportunities out there. You know how the other you know the countries operating it. And you know these businesses do expand globally, then you know you follow them in being, being a good job, because that's customer focus takes you to, okay, you know what we have needs in in European, European countries, you have in South America, you know, in India, you know, in other places. So I think you follow them, because you they have, you know, you provide an ultimate customer experience to these, these, your clients. And again, like, if you are building a product or service, and then you be obsessed with it, right? Like you talk about it, you know. And a lot of people don't. They think you know, sharing the information is, you know, losing the you know, not have. You know, sharing your secrets, I see it completely different way. You know, share your knowledge with industry. You become a thought leader. You gain a more, more traction with it. So, and I'm just being obsessed with the industry, like there's something that I always liked it, and then, you know, really, you know, you, you know you have that, you know, genuine, empathetic approach towards your you know, your employees, your back office teams, your customers, your clients, and your consultants, and those are kind of things. So it's really, it's a lot more science than people thought about building 100 million business. It's a very methodical approach, right? If you follow these things, you could build it. And it's not easy. And as I said, like, I'm just reiterating my statement, saying that this is as difficult as building a tech startup, pushing the business over 100 million or even pushing higher to get to 100 million dollars.

Andy Weiss: 7:07

Did you feel like the business fundamentally changed once you crossed that threshold? Or was it, you know, just a larger version of what you started?

Sameer Penakalapati: 7:16

No, no, it does change. Definitely. It does change. But then what happens is, when you get to cross that bridge, then you you are focused on AC, t becomes much more intense, right? Because you can perpetually keep adding people to grow the business. Then now, now you focus on automation, you focus on compliance, because just becomes much more complicated. People focus on managing your taxes. You know, that's that becomes the number one of it because you, you, you build a customer base, you, you, you name a market for yourself in that stuff, you know, in that industry segment. So now that that becomes, you know, manageable. What becomes unmanageable is your automation, compliance, taxes. So that's a key that becomes a number one. This becomes number two. But then all the other things you have to maintain, like, you know, like, for example, like having this AC T, right? You pay Focus, focus on, you have a strong ground. Okay, yeah.

Andy Weiss: 8:18

So it's kind of like, you know, in the early days, you've got your your your growing your your rolling up your sleeves, you're getting the work done. But at a certain point, if you don't have the systems and processes in place, you're you can only scale so much. So putting so taking a step back, putting in some framework, like a CT now, helps you kind of break through that threshold. And then as you get closer to the to that 100 million mark, and making essays list, it kind of shifts where the process and the systems are kind of driving and helping guide you. And it's to the through that that barrier on on further and scaling and that takes on more the lion's share of your efforts and system approach, and

Sameer Penakalapati: 9:07

I've seen it in the industry too. Just the one point I want to say, having this in place, it's also you creating a high value for the business, like, for an example, smaller businesses generally trades around, you know, two to 444, and a half times of EBITDA adjusted EBITDA. But if you have a large business like, you know, let's say 100 plus million, it would be, you know, anywhere from six to 12, 14% 14 times of just EBITA, the higher the EBITDA you you would demand, or the business values if you have the AC T in place, that's a key. Though, diving that higher multiple requires automation as this, I cannot emphasize that automate your business, stay in compliance, and you would clean with the taxes in. If you have this in place, you would be valued much higher multiples than people ever realize. You know, if you don't have a CT, could be a lower spectrum of six to 767, times of EBITDA multiple. But if you have you'd almost be out, you know, over 1010, times of EBITDA. Because having that so ACD, when you grow the business that's a number one priority. And then you maintain this, and also just being a niche player, you maintain a stronger gross margins, right? You know, if you don't have a gross margins, typically 14% at the minimum, you know, it's tough, because you said, you know, you're not a business that you could scale up. But generally, people also look into it, you know, like, if you have a 10 million adjusted EBITDA, it's like a gold, you know,

Scott Montminy: 10:52

to another episode I'm wondering, because I want to say 10 minutes here. Okay, so well with that, you can find the continuation of this conversation. And I should have known that with a topic that we thought we could get done in a few episodes, so so rich as building a high value staffing company, no pun intended with the word rich, but I should have known that we'd have to go a few more episodes. Something tells me we'll never be done talking about this topic, but we will get to others as well. For right now, I'm going to invite you to find the continuation of this conversation in another episode, and be sure to share, like, subscribe and do all those things. For now, we are Now Hiring!