A Model Worth Studying for Vendors Interested in Microbusiness HR

Microbusinesses, which the Association of Enterprise Opportunity defines as companies with fewer than five employees, employed 35 million people in 2014, or 22 percent of the overall American workforce. In 2011, the AEO says, they represented 92 percent of all U.S. businesses and impacted the economy to the tune of $5 trillion when you include “direct sales and receipts and indirect and induced economic output” in your calculations.

Microbusiness HCM TechnologyAdmittedly, different organizations have adopted different definitions and thus arrive at different conclusions about the size of microbusinesses as a market segment. By and large, that market’s potential hasn’t been high enough to excite most HCM technology providers. Although vendors and analysts say that more HR tech services are shifting their attention to smaller companies, few are giving much thought to serving organizations with such a low number of employees.

Among the HCM technology companies that take microbusinesses seriously is TriNet, a San Leandro, Calif-based PEO that targets organizations with between 10 and 500 employees. James Franzone, vice president of corporate development, told HCM Technology Report that it focuses on microbusinesses in selected industries because it wants to grow with them over time.

Those 12 industries range from hospitality and real estate to skilled trades and healthcare. Each of these sectors needs “the same basic value proposition” from its HR solution, Franzone explained, but TriNet fine tunes its approach to each one. A look at the company’s investor presentation of August 2017 provides insight into how it makes things work. Eighty percent of its platform’s functionality is common across the entire user base, meaning just 20 percent needs to be customized for verticals.

TriNet’s offerings rest on the combination of technology, human expertise and the professional employer organization model. While clients can use the company’s platform to handle chores such as syncing up their QuickBooks registers with their payroll accounts, they can also access live HR professionals when they need to and offer benefits they might not otherwise be able to afford. As important, Franzone said, is that microbusiness owners are relieved of the increasing burden of compliance, which becomes especially tricky as a company grows enough to add both workers and facilities in multiple states.

The combination of technology tools and human expertise allows TriNet to be flexible in how it addresses each customer’s needs. Larger companies often shoulder more complex HR challenges, but startups may need more hand-holding. However, both often face the same questions and issues, Franzone said. For large companies, problems can be tackled by “a partnership” between the customer’s HR staff (which is undoubtedly small) and TriNet’s professionals. Microbusinesses have no in-house expertise, but TriNet has developed a good sense of what challenges they’ll confront and questions they’ll ask. “We give them a road map and phone number and knowledge base to get ahead of the questions,” he said. “We try to answer through people on a very simple-to-use system.”

In Microbusiness, Time is Money

If you talk to almost any microbusiness owner, they’ll tell you their biggest headache involves time. They don’t have enough of it, and what they do have they want to spend on their core business. More often than not, employment issues are seen as a time-suck.

One of TriNet’s customers, of Hilliard, Ohio, is a case in point. A developer of products for “regenerative medicine, veterinary and 3D cell culture applications,” according to its web site, it’s a company of scientists, engineers and other biomedical specialists who are focused on the complex scientific and regulatory processes of developing such products for the market.

Co-Founder and Chief Technology Officer Jed Johnson said he handles most of the company’s HR matters, many of which are nuts and bolts related to payroll, taxes and the like. “That always take more time than I’d like, because I want to focus on development,” he told us. Working with TriNet allows him to limit that to about four or five hours a week, or about 10 percent of his time.

Johnson seems a satisfied customer, but take note: What attracted him to TriNet was its PEO approach. Of the technology systems he looked at, “no one was better than the other,” he said. His purchase decision was “driven by cost and customer service. If I have a need, I can call. I don’t have to file an online request.” Microbusinesses like his, Johnson observed, always have to balance two things: time and money. “TriNet saves us time, and that’s value,” he said.

TriNet’s fee per month depends “on the customer’s industry and needs,” Franzone said. A five-person company could pay $1,500 per month depending on the details of its package. (Fees scale as the customer grows, Franzone noted. “As the company grows, the price per head lowers.”)

Starting Early and Betting on Growth

TriNet intrigues us because the company’s designed its service in a way that doesn’t pawn off the smallest customers to some automated, technology-only solution. Its direct sales force has some “meaty discussions” with prospects because of the intricacies and expense of benefits options, but the process allows it to get to know its customers’ needs in detail. That’s important when a “core part of your value proposition is answering questions,” Franzone believes.

This leads us to think TriNet could be labeled an HR outsourcer as easily as an HR technology company. Franzone won’t go that far, but he allows that, “we do believe we’ve replaced [some outsourcers] with our expertise and the platform. We don’t target them as competitors, but there’s an impact there.” Often, he added, “software-only plays aren’t sufficient.”

So what’s this mean? We think it’s worth considering these points:

  • No matter what size the business, the array of laws and regulations it must follow continues to grow in complexity, especially in areas that are now in flux, such as health insurance and taxes. Even the most well-intentioned microemployer is bound to drop a ball now and again, but those intentions may not save them much when the state labor department auditor comes through the door unannounced. Approaches like TriNet’s offer a level of support that, when it’s needed, a purely automated solution can’t provide.
  • As more work is done remotely, the likelihood of even a small company employing people in multiple jurisdictions increases. The notion of a six-person California company opening a New York sales office that hires a remote full-time associate in Rhode Island isn’t at all far-fetched. Managing the details of the Rhode Islander’s employee agreement are bound to be a nightmare. A PEO with a readily accessible technology, a national presence and higher-level HR expertise may turn an otherwise impossible situation into a manageable scenario.
  • TriNet’s long-term success depends on the growth of each of its customers. As Franzone noted, that’s why it markets to companies below its supposed minimum size of 10 employees. In our experience, most public companies (TriNet’s listed on the New York Stock Exchange under the symbol TNET) approach microbusinesses with solutions that streamline nuts-and-bolts, but don’t offer much help when something out of the ordinary occurs. QuickBooks, for example, won’t replace your CPA or answer your sales-tax question. Having that personal touch available, even if it’s rarely used, means the world to business owners. (As Johnson put it, “I’m not going to leave because of a cleaner website.”) At the end of the day, microbusiness owners like simplicity, and TriNet simplifies HR issues for them to a notable degree. The question, of course, is how well it builds its relationships as each customer grows.

But our point here isn’t to explore TriNet’s financials. Rather, it’s to share our conclusion that the companies who’ll take the greatest share of the SMB HR technology market may well be the ones who sign up companies when they’re too small to be defined as “small.”

Image Copyright: jirsak / 123RF Stock Photo

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