Building a recruitment agency into a profitable, sustainable business is tough work that, typically, takes many years.
It almost always starts with a founder, (sometimes two or three co-founders) who, after a number of successful years with a leading agency, departs to hang out their own shingle.
Most of these agencies start small and grow organically for the simple reason that the founders are the majority (most commonly, only) shareholders and they have to stump up the cash to get the business off the ground.
Ambition, founded by Michael Page alumni Paul Lyons and Nick Waterworth in 1999, was an exception. They were a ‘big bang’ start-up; they started big and aimed to get even bigger, quickly.
The Ambition ‘big bang’ took the form of an IPO to raise sufficient capital to enable them to start life with a large team of consultants to support the founders. Unfortunately life for Ambition, in the nearly 19 years after they were listed on the ASX (23 November 1999), has been one disappointment after another.
Their (yet again) underwhelming half year financial results announced recently (sales down 25% compared to five years ago, $400k loss this half year) is evidence that a ‘big bang’ start doesn’t necessarily improve the likelihood of long-term success.
‘Big bang’ recruitment agency start-ups were back in the news 17 years later when FutureYou, was launched. On the morning of 5 April 2016, industry news service ShortList (subscriber access required for all ShortList references) led with the headline “Former Michael Page execs launching “ambitious” start-up”.
Around 40 employees were joining former Michael Page Australia MD, Simon Meyer and his co-founders; former Michael Page Regional Director Richard Wynn and former Hudson NSW GM (also Michael Page alumnus) Emily Wilson, for the agency’s start-up phase in Sydney. A Melbourne opening was flagged for later in the year, consistent with Meyer’s stated goal of FutureYou making it to 100 employees by the end of their “start-up year”.
A floor had been leased at one of the country’s most expensive corporate addresses, the MLC Centre in Martin Place, with Meyer and the other founding partners putting up a substantial amount of the capital. Additional capital was sourced from a number of other, unnamed, private investors who I now understand to be former Michael Page Asia Pacific Regional MD; Chris Adams, Allied Pinnacle CEO; James Ajaka, independent board advisor and investor; Ron Vela and from Pacific Equity Partners; Simon Pillar and Rickard Gardell.
Throughout the remainder of 2016 ShortList reported a further 19 new FutureYou hires, five of whom were joining as partners and 12 as Associate Partners.
Generous base salaries, plus guarantees, commonly in the range of $80,000 to $130,000 were offered by FutureYou, well above market rates, as the company looked to rapidly buy networks and market share in order to reach their lofty short-term goals. Uncommonly, commission was earned on all quarterly fee income, once the threshold was reached, rather than on the difference between fee income and the threshold amount, as is common industry practise.
The other significant carrot was the promise of an attractive equity structure that would enable those senior recruiters joining as partners to have the best chance of creating a long term capital-building position for themselves. This component of the offer was the one that many current employers of FutureYou-bound employees were in no position, or mood, to match.
FutureYou ramped up the PR machine throughout the first half of 2017 with two full length articles, based on interviews with CEO, Simon Meyer, appearing in ShortList.
The headline; Are ‘super boutiques’ the future of recruitment? appeared on 27 April. In the story Meyer revealed that FutureYou had employed “80 recruiters”, “…been profitable for several months now” and has monthly revenue “in the millions” and “…is aiming for headcount of 120–130, but potentially as many as 200 fee earners.”
Meyer went on to say that temp and contracting was a focus for the coming one to two years and that “…..FutureYou has five practice areas in “incubation mode”, including data, alongside the 10 it has already established, and some 15 new hires in the pipeline.”
Meyer was back in ShortList less than two months later with a substantial piece on 5 June headlined Values key to attracting recruiters that stay in which he was quoted at length when interviewed about the FutureYou values.
“We wanted to think about the value systems that we’d worked in previously and come up with new ones that were a little bit different and really reflected the mood and market in 2017,”
He went on;
“….these people joined FutureYou because they recognise the need for change. He considers a contemporary and relatable set of values advantageous when it comes to recruiting like-minded staff members and “avoiding repeating what we have previously done or achieved.”
In the article Meyer elaborated on how these values impacted the culture by way of moving right away from the “numbers game’ of having reports listing assignment numbers, CVs sent and client meetings completed, “It’s not a numbers game, it’s a quality game”, Meyer assured ShortList.
Three months later ShortList reported that FutureYou were moving to new premises in Melbourne that could accommodate 40 recruiters. In charge of Melbourne were co-founders and senior partners Joe Vize and Marc Richardson who had built their team to 20.
ShortList reported 12 new arrivals at FutureYou across calendar year 2017, including two partners and seven associate partners.
The following month, on 18 October 2017 Simon Meyer reappeared in ShortList; quoted for the story Lessons from the field: Recruitment start-up founders share survival tips.
“We (FutureYou) wouldn’t still be here unless we also had a very strong focus on the financials and the commercial viability of what we’re doing – building business in a sustainable way and getting beyond the break-even point given our ambition around headcount has been a key focus in the last 12 months and I am very pleased to be past that point.”
It seemed that, 16 months after launching, things were going swimmingly at FutureYou.
It’s now the end of August 2018 and FutureYou have been operating for 28 months. The money, and courage, invested by many has had ample time to bear fruit. How are they going in their ambitious attempt to defy history and build a ‘big bang’ start-up into a sustainable long term one?
From all the evidence I have uncovered it would seem FutureYou is a long way short of their very ambitious goals.
Of the 31 appointments announced in ShortList since FutureYou opened their doors in April 2016, only 14 remain employed there.
Tellingly a large majority of the departures are from the most senior ranks of FutureYou, with a large majority of that turnover coming in the past six months (all employment details as per LinkedIn profiles).
Partner departures during 2018 include:
|Tenure at FY
|July 2016 – August 2018
|Sharp & Carter
|January 2016 – May 2018
|Six Degrees Executive
|November 2016 – March 2018
|Logomalie Tai Ifopo
|February 2017 – May 2018
|February 2017 – June 2018
|Sharp & Carter
Associate partner departures (updated on 17 September 2018) during 2018 include:
|Tenure at FY
|April 2016 – July 2018
|Sharp & Carter
|May 2016 – April 2018
|June 2016 – February 2018
|July 2016 – August 2018
|Sharp & Carter
|Oct 2016 – April 2018
|July 2016 – Sept 2018
|Sharp & Carter
|August 2016 – August 2018
|Six Degrees Executive
I understand another Associate Partner in Sydney is currently on gardening leave and he will be joining his former colleagues at one of the above agencies in the near future.
This flood of talent heading for the exits, and joining rival agencies, has undoubtedly been a devastating blow to Meyer, his senior partners and the other investors.
Tellingly the parade of publicly-announced arrivals that was a common feature of 2016 and 2017 has dried up with only three such announcements so far this year.
What’s happened at FutureYou?
The seeds of the company’s current state were sown within the first weeks of opening their doors when the various partners, prior to joining FutureYou, were promised that the documented specifics of how they would acquire and build equity would be provided to them soon after the commencement of their employment. The first month went past; no document. By the end of the second month no document was forthcoming. And so it went on, for over twelve months.
Although understanding that Meyer had plenty on this plate in the first year of the company, the continued broken promises were a major frustration and disappointment to many partners. A major breach of trust had occurred.
By the time the relevant paperwork was delivered, well into 2017, a majority of the partners could see the cracks appearing and were already harbouring doubts that the prospective-partner pitch of “build and sell within 8 to 10 years” was neither achievable nor likely.
The concept of the ‘super boutique” was predicated on having a large number of well-established leaders from other agencies, predominantly Michael Page, join a business with strong cash reserves; capital that would enable each leader to rapidly build headcount in their specialisation. This rapid growth would be the foundation of how each leader could build a significant equity stake in the company and then cash-in within a decade.
By mid-2017 FutureYou had established 17 specialist areas but without critical mass in any of them. The revenue that was projected to flow from the buying-in of networks and relationships had not materialised at the required level and partners were now finding their growth plans curtailed or put on hold as the finances tightened. Many of the partners had previously led large teams, divisions or regions in their position prior to joining FutureYou but now found themselves relegated to the role of a glorified team leader with little prospect of that changing in the near term.
It appears that the financial results for the 2016/17 financial year became the catalyst for a number of decisions that, ultimately, led to the mass exodus of senior staff in the first eight months of 2018.
Unhappy with the financial results they were seeing, the external investors parachuted their hand-picked CFO, Billy Shi, into the Sydney office in July 2017. Clearly the investors wanted a direct line to the consulting floor and an unfiltered picture of what Meyer and his executive team were up to.
Shi’s arrival saw the monthly partner meetings removed from the agenda and cost-reduction measures introduced. Complete and transparent financial information proved to be hard for the partners to come by. The ongoing frustration of cost allocation, which they had little or no control over, was not helping the morale of the partners.
Kicking off the 2018 calendar year was the 18 January announcement in ShortList of FutureYou launching “……a new division focused on temporary, contract and interim roles, a move the firm says highlights its confidence in a “buoyant” Australian market.
The announcement continued “Partner Kian Myers will head up the new Sydney-based team, which will focus on technology and digital, business support, accounting and finance, HR, property, procurement, supply chain and logistics, and engineering and manufacturing. Meyer expects it will expand to additional industries, and launch in Melbourne, in the next 12 months.”
After a promising first three months the division was quietly shut down and contracting returned to each individual team. Kian Myers left FutureYou shortly afterwards. The long term patience that building a substantial contracting division requires was clearly in short supply from the investors as the focus returned to the more cash-flow friendly permanent placements.
The ShortList story of 17 April 2018 FutureYou appoints executive chair was the formal recognition that Meyer had lost the confidence of the external investors. Chris Adams moved from his background role as investor and advisor firmly into the chief executive’s role as Executive Chairman, responsible for the company’s operations. Meyer was shunted to the side, along with co-founder Richard Wynn, both now responsible for planning the launch of FutureYou Advisory, set up, as ShortList reported on 9 May 2018, “….to assist clients with developing and retaining their executive talent.” How this was going to be achieved, within what timeframe and why it needed the company’s two most senior executives to do it, were questions left unanswered.
It was a face-saving exercise for Meyer and Wynn. Meyer was now CEO in name only. Adams and the other external investors had taken complete control of their investment; an investment that was now seriously underperforming in a boom market in which many agencies were reporting surging sales and profit.
Adams’s arrival completed the change from “super boutique” with no KPIs, minimal accountability and a family-friendly focus to what Meyer had promised they wouldn’t become – a mini-Michael Page with clear KPIs, high accountability and pressure to work hard and long to deliver the fees necessary to stop, or at least slow, the cash drain.
Adams was in a quandary. As an original investor he was, no doubt, fully aligned with the FutureYou values and the “super boutique” vision that Meyer had articulated for FutureYou. Having backed Meyer on this basis, and having known him since their Michael Page days together, it must have been tough for Adams to watch Meyer struggle to deliver results consistent with the vision, and even tougher for him to tap Meyer on the shoulder and tell him that investor confidence in his leadership had reached the point of no return.
However, after two years in charge, Meyer was unable to deliver the budgeted financial results. With no positive shift in the trend line as the company’s staff turnover was starting to mount, Adams, on behalf of the investors, was left with no choice but to take over the day-to-day running of the business and implement what had worked for him across a 20 year career at Michael Page.
Unfortunately it was too late to stop the rot. Kevin Richardson, the first partner to depart, left in November 2017 to return to Gough Recruitment. He was joined in the in the ‘FutureYou ex-partners club’ by five others across the first eight months of 2018. Rachel Shermer and Chris Martin are now the only remaining partners (at the time of writing), outside of the six co-founders, from the original ‘start-up’ partnership team.
It wasn’t just the departures themselves that were damaging. The way highly respected colleagues Kian Myers, Simon Marks and Niall O’Rourke were spoken about by some senior leaders in the company, during and after their departure, was unhelpful to employee morale in the Sydney office.
As the new financial year kicked in employee numbers in Sydney dropped below 50, Melbourne’s headcount stalled at 20 and the 17 niches that FutureYou had established teams in throughout 2017 had now been slashed to around eight.
The staff turnover, the headcount reduction and the investor intervention all point to a company that has conspicuously underperformed against the benchmarks that it had, very publicly, set for itself.
However, most damning of all, has been the continued bull run of the most critical external factor impacting the company’s performance; the Australian labour market.
Meyer et al. could not have had better timing even if they’d been in sole possession of a special labour market crystal ball.
Launching a new agency, of any size, is best done in a market that’s on the verge of a boom and that’s not something that can be predicted with any degree of confidence.
Yet a boom market, perfectly timed with FutureYou’s life as an operating company, is exactly what landed in their lap.
Using Australian labour force data is an imperfect measure of a boom market but combined with the results of the market leader, Hays, a clear picture emerges.
|24 month period
|Growth in total employed persons
|May 2016 – April 2018
|May 2014 – April 2016
|May 2012 – April 2014
|May 2010 – April 2012
Hays Aus/NZ results (Hays financial year is July – June)
The incredible labour market growth, across the first 24 months of FutureYou’s existence, fed into demand for the services of agency recruiters, leading to a surge in sales and profit across the industry. Unfortunately for the fledging FutureYou, they were unable to take advantage of their good fortune.
Where does that leave FutureYou now?
FutureYou’s short term prospects are uncertain. The partner and associate partner ranks have both taken a huge hit across the past 12 months. Due to the cash crunch it seems unlikely that FutureYou are in a position to pay what would be required to attract additional high performing recruiters from other agencies. Looking at a number of new hires in the past few months it seems that recruitment consultant roles at FutureYou are now being filled with people who have no prior recruitment experience.
The two most senior executives in the business are focused on a business unit which appears to offer little leverage for their respective talents and consequently has little likelihood of becoming profitable anytime soon.
Only a small number of FutureYou’s existing niches have anything close to a critical mass and, most concerning of all, current staff morale leaves the remaining high performers at FutureYou vulnerable to the approaches of rec-to-recs and other agencies.
It’s hard to see how the FutureYou cost base can be substantially further reduced outside of cutting staff, which impacts revenue. The Sydney and Melbourne offices are both a long way from capacity and both occupy premium CBD office real estate.
There’s a breaking point in there somewhere and all the available evidence would suggest it’s not far away unless Chris Adams can conjure up a miracle.
As history suggests, the “big bang” approach to launching and building a recruitment agency (in this country at least) is a high-risk one. The likelihood of succeeding is small and to do so requires much to go right and little to go wrong.
Unfortunately for FutureYou too little went right and much went wrong.
Those critical things that went wrong being:
1) Continued broken promises (especially with respect to issues impacting people’s earning and potential ownership): Existing goodwill only goes so far. If promises are not delivered on then trust is fatally undermined. It’s a long way back from there.
2) Behaviour inconsistent with stated values: When you make a big deal of your values you have to walk your talk. When you don’t, a culture of cynicism, politics and, ultimately, disengagement inevitably sets in.
3) Lack of accountability: Nothing wrong with paying big dollars to attract the right talent but with the big dollars needs to come high accountability to perform. Too many people were employed for too long, earnin too much and delivering too little.
4) No reality check: The right action to improve results only comes from being fully cognisant of the coal face reality, where the cash is generated. It appears rose-coloured glasses were being worn by too many (too senior) for too long.
5) Going wide, not deep: Attempting to build capability in 17 different niches rather than initially building three or four niches to a critical and profitable mass each, looked risky on paper and simply reckless in hindsight. It seems unfathomable that more than one or two of the original FutureYou team of co-founders and investors would have regarded that this was a risk worth taking; yet collectively they clearly did.
6) Critical competencies missing in the executive team: The six people that make up the FutureYou executive team have all come from big multi-national agencies. Although all would have grown new markets only Marc Richardson has started, as a co-founder of iKas, a recruitment agency from scratch. Only Richardson, of the six, has the experience of worrying about cash-flow or making tough decisions that could be end up being company-saving or company-killing ones. In the respective careers of the other five co-founders, regardless of whatever strengths they each have (and they clearly have many), there has always been a direct up-line report who was looking out for them, ready to step in and redirect if things were starting to go off the rails. Lacking these critical start-up leadership competencies is, I suspect, as much the source of FutureYou’s current woes as any of the other five factors listed above. That Richardson, one of the two senior partners in the Melbourne office, is (jointly) responsible for an office that has clearly outperformed its northern counterpart, is a pointer to what was critically lacking in the Sydney leadership team.
None of the FutureYou ex-employees I spoke to were bitter or angry or held a grudge against Meyer for what had happened. Nor did they express any regret that they had accepted Myer’s invitation to join FutureYou. They were each more disappointed, sad even, that what they had signed up for had not worked out. Each clearly retained respect and affection for Simon Meyer. They all hoped FutureYou would eventually become a success but only a minority thought this was likely.
On 20 November 2015, ASIC records show that thirteen parties invested over $7 million to fund the ‘big bang’ start-up of FutureYou. Five of those investors tipped in just over, or under, $1 million each. It was an impressive show of optimism and confidence by the investors that, nearly three years later, has yet to be vindicated by way of a satisfactory profit stream.
Craig Watson has been an employed recruiter, a self-employed recruiter, a recruitment agency owner, an RCSA Vic/Tas Counciller and is now the co-founder of rec-tech start-up. Craig’s been around the industry over 20 years and watched many companies come and go in that time. When I spoke to him about where it all went wrong at FutureYou he summed it up perfectly:
“They tried to set up Utopia: A recruitment agency with the best base salaries, the best commission, a family-friendly focus, no KPIs and no accountability. But it doesn’t work like that. When you give people all that then they have to perform at a high level, quickly. It was a big risk and, unfortunately, it didn’t pay off”