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CEO Spotlight: Louis Tetu, Recruitsoft
By Angel Mehta, Managing Director, Sterling-Hoffman Management Consultants
The letters 'IPO" have all but disappeared from the vocabularies of most software CEO's, but white hot Recruitsoft has quietly become one of only a handful of private companies with a serious chance at a successful public offering in the near future. The company has zoomed from 2 employees to nearly 400 staff, over 150 marquis customers, and GAAP profitability in under four years. Amazingly, by the time Bain Capital began evaluating Recruitsoft as an investment opportunity, there were already dozens of vendors vying for leadership in the hot new segment of 'human capital management'. Traditional venture capital wisdom dictates that cluttered categories are to be avoided at all costs; yet something compelled Bain Capital's partners to pull the trigger. Shortly thereafter, Recruitsoft began leaving competitors behind as Fortune 500 customers flocked to it's enterprise talent management platform in droves. Angel Mehta, Managing Director at Sterling-Hoffman, chats with Recruitsoft's execution-obsessed CEO Louis Tetu about how the 'McKinsey of Human Resources" became a market leader.
Angel Mehta: Let’s talk about the concept of supply chain management principles being applied to the human capital management world, which seems to be the vision that Recruitsoft is building. Where did it come from?
Louis Tetu: The existing idea prior to Recruitsoft’s founding in 1999, in any corporation, was that the CEO should always focus on better deploying their assets as a means to maximize the return on assets. The idea with Recruitsoft is that the same principles could be applied to deploying the workforce…that given the constant changes in demand for work within an organization, there is always a way for corporations to be more agile and more efficient with regards to how human capital is deployed. So the idea was to start a company around that theme - with staffing at the core of it because ultimately, staffing is where you actually run the process of assigning people to jobs.
Angel Mehta: You came out of the supply chain business – after selling your company to BAAN in 1995, as I recall - so when and how did you start to get passionate about the concept of ‘human capital management’ as an emerging sector?
Louis Tetu: Prior to Recruitsoft, I was an angel investor in a job board business. In looking at that business, we realized that the job board business was a media play. We were more familiar with business models related to enterprise applications. So we decided to exit the media play and build a business plan for an application instead. We started with about 4 people and zero revenues…so we’ve come a long way.
Angel Mehta: Moving from an early stage genesis scenario, growing exponentially to the level you’re at now with 400 employees and what not…it’s a pretty serious transition…especially over a 3 – 4 year period…did you find it difficult? How has your role changed?
Louis Tetu: Initially, when you start a company you are physically responsible for both setting and executing the strategy. So I spent a lot of time in the field…talking to large corporations, understanding their needs, forming strategic partnerships and evolving the software and services. I spent a lot of time in the field with various industry pundits, trying to carve out a marketing strategy…all that kind of stuff. And of course, like you said, the role has changed. Obviously due to the sheer size of the organization at this point… it's the textbook business problem, in a small, entrepreneurial company, you as an executive can watch and follow every single detail. Eventually, you need to make the transition to a company that relies more on processes…document those processes, and institutionalize business processes that let the company become more scaleable. Although, it’s important to never leave quality behind – which I think we've been able to do very effectively. So today my role is extremely focused on strategy…trying to understand how the industry will evolve…and make sure that we plan accordingly. I’m certainly stronger in that area, so I guess you could say it’s more fun.
Angel Mehta: Let's talk a little bit about market drivers. To what extent do hiring trends correlate to demand for Recruitsoft's solution?
Louis Tetu: To a certain extent it does, but there is not an exact, direct correlation only because companies realize that staffing, or more specifically the process of assigning people to jobs, doesn't only have to do with external hiring (in other words, hiring of new employees from outside the company). Companies realize that it has just as much to do with mobility. It's not only about how you select new people - it's about how you redeploy your own employees. It's about how you're able to optimally deploy your workforce – the people who work for you – as the means by which your organization delivers and responds to change. So in fact we had a number of companies buying from Recruitsoft who were actually shrinking – actually laying off employees. Yet, they’ve still implemented quality processes around how they fill positions and how they manage the overall staffing process. Even companies undergoing M&A have pushed forward with rolling out our platform.
Angel Mehta: The biggest problem ISV’s have faced over the last 2 years is convincing buyers that their offering is a ‘need to have’, not just a ‘nice to have’…I was talking with Terry Garnett from Venrock a few months ago and he was describing how even now, you’ve got 400 public software companies with their sales organizations calling on the same customers – so it’s just way too hard to get the attention of any given company with an idea for an enterprise software project. That said, Recruitsoft has grown consistently over the last 2 years….so how are you getting attention from buyers?
Louis Tetu: Look, the companies we provide solutions to are very large corporations that hire at a minimum 1,000 people a year, all the way up to 50,000 people a year – our largest client does that. We have clients like Hewlett-Packard and Procter & Gamble who hire north of 10 000 people per year. So those companies realize that it's not only a "Nice to Have" - it's absolutely a "Must Have". They are now very educated on the costs and unfavorable implications of a low-quality staffing process as opposed to a high-quality process. So on one hand, you can argue that staffing drives more value to the organization in terms of better staffing processes, better productivity, better retention, etc. It’s easy to conceptualize, but it's hard to quantify. What is easy to quantify is the cost of non-quality associated with a large amount of variance in the staffing practices of a global company. Industry in general recognizes that process variance is a source of non-quality in everything, whether it's in manufacturing, distribution, service or whatever – it's also true in staffing. So the idea and the whole notion of being able to implement systematic and consistent staffing practices goes a long way in terms of eliminating non-quality in staffing. Lack of quality in staffing actually lowers earnings…it means lower return on assets, and substandard customer service, which can also unfavorably impact a company’s brand. When we quantify those measures for the types of clients we deal with, it's typically millions, if not tens of millions of dollars in costs. So it's a little bit like applying ISO 9000 or Six Sigma to staffing.
Angel Mehta: The market for talent management software was originally quite cluttered…in most cases like that, the incumbent…like the larger ERP players tend to enter a market that’s getting a lot of hype and the smaller players get squeezed out. In this case, Recruitsoft has really emerged as the dominant player….so how did you do it? In other words, why do you win?
Louis Tetu: As it relates to winning new deals, I think we are very good at picking the battles we want to engage in. We run our company with the fundamental principle that everything is thoroughly analyzed and strategic. And of course, we strive to execute flawlessly once we've decided to engage. Sometimes we win just because our competitors execute poorly. But the key is the analysis on the front end. What is the game we should be in? Why do we know we can win that battle? I think that’s been a big part of it – thinking through our options before charging in to the battle.
Angel Mehta: To some degree that contradicts the notion of ‘ready, fire, aim’ that so many entrepreneurs and even CEO’s seem to favour, doesn’t it? I mean, there is a philosophy in business that says you have to execute without all the analysis and data up front because things happen so fast. So when you talk about the importance of analysis at Recruitsoft…I guess I’m interested in whether you’ve recognized any major victories that came about purely by accident, rather than as a result of deep analysis on the front end?
Louis Tetu: Angel, long term, I don’t believe in things happening by accident. But I can point to a short-term win or two….as an example, when Recruitsoft started to become a more prominent solution in the industry a couple of years ago, many of our clients also wanted to leverage the power of Recruitsoft’s Structured Talent Definition Platform to manage internal mobility. In the beginning, many customers and the industry as a whole was a little more focused on using solutions for external recruiting We were positioning Recruitsoft primarily as a solution to manage external hiring…so that’s probably a good example right? Our platform, however, was designed to support both internal and external hiring from the beginning. Clients also saw the opportunity to leverage the platform in the form of kiosk….to make it available for internal use…a tool for their own employees within the organization. Either using kiosks or by simply applying online, its allows employees at these organizations to manage their ‘ideal job profile’. Our platform is used as a means to facilitate the process of an existing employee finding a new opportunity within the company by simply entering a skills-based profile. A huge problem for employees in many companies is that, without the right processes, it’s actually easier to find a job OUTSIDE of the company they work for, as opposed to an opportunity inside their own company. So that’s a great example of an application that was supported on our platform without any planning or analysis from our side.