Through the journey, I have been driven by only one thing-my customers, both Internal and External
We studied the US market to understand businesses that were scalable in the HR space and analysed those ideas in India
While India ranks poorly on global indicators of doing business, there is no denying that it is today a fertile ground for budding entrepreneurs. The entrepreneurial space in HR, which has witnessed the success of early pioneers, is one such domain where a breed of smart entrepreneurs is beginning to unlock potential in business areas that were largely untapped. This story by People Matters uncovers unchartered territories within the HR domain, which are both profitable and scalable; and shares the exciting journey of successful entrepreneurs who have made it big.
Entrepreneurs create jobs; they drive and shape innovation, speeding up structural changes in the economy. By introducing new competition, they contribute directly to productivity and innovation. Entrepreneurship is thus a catalyst for economic growth and national competitiveness. While all these are true, a quick look at the Global Entrepreneurship and Development Index (GEDI) Rankings shows that the US, with a score of 0.72, ranks third while India, with a score of 0.23, ranks 53rd. The fact remains that as compared to other emerging markets, India is a less hospitable place for entrepreneurs to launch new businesses. According to the 2011 World Bank “Doing Business” report, out of 183 countries, India ranks a lowly 132nd in terms of ease of doing business and is 166th when it comes to starting a business.
Despite these very inadequacies of the Indian startup ecosystem, today India is a fertile ground for new entrepreneurs across business and is no longer clustered around the technology space. Markets are liquid, vibrant and the recent economic recession has demonstrated the relative stability of Indian markets. Access to technology, increase in foreign direct investments and other de-regulation policies are throwing up new opportunities every day. As a matter of fact, majority of the Indian startups in the recent past are the brainchild of first-generation entrepreneurs from India’s middle-class. This is further corroborated by, “Entrepreneurs speak out: a call for action to G20 governments – the Nice Cote d’Azur 2011 Entrepreneurship Barometer”, released by Ernst & Young, which states that India has the strongest entrepreneurial culture among G20 nations.
The global scenario
GEDI makes it amply clear that the US is the most enterprising big economy, with the EU region a close second while the rest of the world including China and India lag far behind. Seen in a positive perspective, endless opportunities await the entrepreneur of today, as long as calculated risks are taken and the right opportunities are seized. The domain of HR is one such example of entrepreneurial pursuit. The US market in the HR space boasts of players such as ManpowerGroup, Kelly Services, Aon Hewitt, Hexaware Technologies, Mercer, and ADP, amongst others.
A look at the revenue numbers of these global players demonstrate the potential in this space. For instance, for 12 months ending December 31, 2011, ManpowerGroup recorded revenue of $22 billion. Similarly, for Kelly Services, Inc., another major player in the domain, the revenues for the year ending December 31, 2011 were $5.6 billion; Aon Hewitt’s revenue for year ending December 31, 2010 was $8.51 billion, wherein HR Solutions (the new name for the consulting division) generated approximately 25 percent of consolidated total revenues in 2010. According to estimates of American National Association of Professional Employer Organization (NAPEO), the largest trade association for PEOs nationwide, the Professional Employer Organization industry in the US grew a robust $10 billion in 2010, to $81 billion in gross revenues. The Outsourcing Institute, in association with Source Right, cites a report by NelsonHall(1) which projects that the global standalone Recruitment Process Outsourcing (RPO) market would grow to $3.2 billion by 2013. According to Everest Group(2), in 2011, the global Benefits Administration Outsourcing (BAO) – one of the largest and the most mature markets in HRO witnessed a healthy growth of 12.5 percent to reach $5.4 billion in annualized revenue. Further, the latest Staffing Industry Analysts report(3) predicts that the staffing industry will grow to $126 billion by end of 2012.
A case for India
The global numbers are in a way reflective of the potential that prospective entrepreneurs can unlock if they venture to tap into the HR domain. Organizations in India will require HR service providers who bring expertise and scale, whether they are grappling with growth and its intrinsic challenges - ramping up talent, enhancing capabilities, building global HR process; or with negative externalities in a recessionary market - cost pressures, focus on efficiency and productivity. And this is an opportunity that entrepreneurs can look forward to.
The Indian HR space has witnessed the emergence of companies like Info Edge (India) - Naukri.com, TeamLease Services, Ma Foi Randstad, Ikya Human Capital Solutions and PeopleStrong (though only five years old in the RPO vertical), amongst others, which have had the first mover advantage and are hugely successful in their respective domains. These players have helped in transforming the recruitment and staffing industry. In the same vein, there are a number of other functional verticals, such as PEO/ASO/RPO, which have had great success in developed countries like the US, but are yet to be fully tapped by entrepreneurs in India.
Be it benefits consulting, RPOs, PEOs, or screening and workplace security, among others, the opportunities are huge as Indian organizations, for lack of choice of corporatized homegrown players in the domain, opt for the services of MNC players. PEOs enable clients to focus on their core competencies to maintain and grow their bottom line, while they take up the management of human resources, employee benefits, and payroll administration. The integrated service of effective management of critical human resource responsibilities can be outsourced in a cost-effective manner and it is here that the entrepreneurial opportunities for PEO exists. With more companies looking to streamline their internal HR functions, offering end-to-end recruitment services is an alternative that the RPO service providers can tap into. Further, with increasing complexities in HR-related functions, changing laws and regulations and an inherent pressure to cut costs, among the many choices for human resources department, is the benefit of an HRO (Human Resources Outsourcing). HRO is a comprehensive solution for any business, which is aimed at relieving the client organization of its responsibility of administering and handling the human resource function. In a similar vein, entrepreneurs can also tap into the emerging domains of benefits consulting and screening, which are scalable, and at the same time, fundable.
All these are manifestations of the business potential lying ahead for entrepreneurs. For instance, there are no players in the PEO space in India while in the RPO space, there is a mere handful. Interestingly, the value of potential companies in these spaces can be unlocked once they go public. The only Indian company to have gone public in this space is Naukri.com (Info Edge India) with recruitment services as its major driver; its market capitalization is Rs. 35.21 billion ($717 million, as on February 2, 2012), comparable to Monster Worldwide Inc.’s market capitalization of $890 million.
HR Entrepreneurship in India
Success stories such as Noble House (that later merged with Hewitt, today Aon Hewitt), Naukri.com, TeamLease Services and Ma Foi Randstad, which have scaled up their operations, can serve as guiding examples. Among others which are in the process to scale up and have found the business idea and the organizational capability to do so, are Ikya Human Capital Solutions and PeopleStrong. A dipstick survey reveals that Indian HR entrepreneurs who have ventured into the HR territory have primarily operated in three areas - HR consulting, coaching, and staffing. The key reason for this could be comfort with the idea as they have dealt directly or indirectly with these functions. In the process, they bypass business opportunities which can be more scalable, competitive, and all the more enterprising in the long run.
In the Indian context, a number of scalable HR business ideas like RPO, screening, HRO, benefits consulting, health benefits, PEO, and relocation, are still in the introduction stage. These can provide the entrepreneur an early mover advantage and a source of intellectual property. The challenge however will be the ability to meet the high service standards of existing global players.
Other verticals such as HR software, training and staffing, which are in the growth stage, also present an enormous opportunity for current players to scale up. For owner-operated businesses, the need of the hour will be to move towards corporatization - where management team, board of directors and shareholders, are three separate pillars of the company.
Regardless of the stage in the lifecycle of the business, a scalable business idea is just the nucleus. It is equally important to have in place an ecosystem that nurtures the idea and takes it to its zenith.
The pillars of success
The business ecosystem is composed of investors, clients and employees (ICE), and entrepreneurs have to manage these three key nurturing stakeholders who individually pull them in different directions. The investors want to invest less money and get more value, and therefore expect the entrepreneur to charge the customers high, and pay employees low. Clients on the other hand, would want to pay less, yet have the service providers work more. Similarly, employees seek to maximize their value from the transaction by wanting to get paid more for less work.
In this labyrinth, the ability of the entrepreneur to manage these inherent conflicts is significant. Apart from these, there are two other important components that the entrepreneur needs to focus upon viz. strategic partners – companies that help as distributors and vendors; and promoters – people on the board of director and advisors. Put alternatively, an entrepreneur needs to take care of the components – strategic partners, promoters, investor, client and employees (SPICE).
Different approaches have worked well for different entrepreneurs in the HR space. Sumer Datta attributes the success of his entrepreneurial journey to the great partnership Noble House had with Hewitt and for being the one to have brought the first of the big fours in HR Consulting to India. He says, “To create a successful business, it is critical that one is honest about what one is good at and what one lacks, and so the right strategic partnerships are important.”
On a similar note, Sanjeev Bikhchandani’s Naukri.com saw its fame because of its early mover advantage in the online jobsite space, which revolutionized the industry. Sanjeev approached the business with the need to ‘solve an unsolved problem which automatically drew his customer to the product’. He adds, “If you are solving a solved problem, you have to sell very hard because you are a ‘me too’. So being a ‘first mover’ or at least ‘very early mover’ or ‘hugely differentiated mover’ is critical.”
For Anil Sachdev, Founder of Grow Talent Company, having moved from creating one successful business to the other, it is the employees who make the initial team that matter and he opines, “As an entrepreneur, you must hire people who are smarter than you.”
The critical need for a successful entrepreneurial venture does not end at the unique business idea. Other elements including adequate investment, the right people and customers are also necessary to create a sustainable business proposition.
Who is the best bet?
The larger question at this juncture is as to who is best suited to make the most of the opportunities in the HR entrepreneurial domain that are yet to be tapped. The understanding of the client and investor perspective provide an edge to professionals from sales & marketing and finance. The success stories of Manish Sabharwal, Ashok Reddy and Mohit Gupta (all finance professionals) of TeamLease Services, Sumer Datta, yet another finance professional, Sanjeev Bikhchandani of Naukri.com, who prior to donning the hat of an entrepreneur was a sales and marketing professional; further lend support to such a hypothesis.
However, the HR professionals, given their HR knowledge and better understanding of the operational details, with an innovative and entrepreneurial mindset can potentially identify the gaps and cash-in on the business potential of the untapped HR domains. Anil Sachdev, Founder of Grow Talent Company and SOIL, K. Pandia Rajan, Founder & Non-Executive Chairman of Ma Foi Randstad, Ajit Isaac, MD & CEO, IKYA Human Capital Solutions, Pankaj Bansal and Shelly Singh, Co-founders, PeopleStrong, have all been successful HR professionals who have now emerged as successful entrepreneurs too. While professionals from sales and finance, given their tendency to better understand the client and investor perspective, have been traditionally better bets, HR professionals with their keen understanding of the employee aspect (the need and the gap) need to don the cap of a marketer and a finance professional to tap into clients and investors.
Entrepreneurs who are good integrators of ICE (investor, client and employees) are in fact the best bets. In a nutshell, it is the complementary characteristics of an opportunistic mindset combined with a unique attitude to evaluating risk that defines a successful entrepreneur.
What entrepreneurs need to be successful are the competencies based on industry intelligence, multidisciplinary teams, market orientation, technical resources and tacit knowledge. Interestingly, given that talent has become one of the most important differentiators in affording companies its competitive advantage, this can be leveraged by HR professionals to start a successful entrepreneurial journey.
The road ahead
Each market is different from the other and hence decisions cannot be merely taken on the basis of the market dynamics of developed economies. At best, they should be used for the purpose of reference. A clear market research and need based analysis is a must before zeroing in on a business decision. Today’s knowledge based economy is fertile ground for entrepreneurs in India who serve as the bridge between innovation and the market place. It is evident that there are inherent constraints for entrepreneurs, but regardless of these inadequacies, there have been many who have succeeded in scaling their ventures. The opportunity in the HR space is wide open and there is every reason for budding entrepreneurs venturing into this largely untapped domain with the right focus on strategic partners, promoters, investors, clients and employees, to succeed. While, this is an opportunity open to all, HR professionals are in the best place to find solutions to unsolved needs that can become scalable business ideas; they certainly have the unfair advantage.
Varun Talwar is CEO, The HR Fund, (firstname.lastname@example.org), Gyanendra Kumar Kashyap is Research Editor and
Rajlakshmi Saikia is Deputy Editor, at People Matters.
1. Is Today the Right Time to Consider an RPO Engagement for the Next Hiring Wave? Bob Violino, The Outsourcing Institute
2. Benefits Administration Outsourcing Market: Mature yet Dynamic, Everest Group, September 2011
3. Staffing Industry Analysts - Staffing Industry Forecast: April update – April 12, 2011