SMB Labor Arbitrage Strategy

SMB Labor Arbitrage Strategy, and no, I’m not talking about overseas VAs.

Let’s talk about it.

One of the most important things to get right if you’re executing a “Buy Then Build” strategy on a business, or scaling your existing business, is having a talent pipeline to keep having the people necessary to deliver the promised result as you increase marketing.

But getting good people to join your small business has been extremely difficult in most sectors in recent years, with low unemployment and competition for talent at an all-time high.

One of my favorite strategies is to take an indirect approach. Most of your competitors will be direct. That means if they need plumbers or bookkeepers, they post ads to get them to leave their current employer and join them. This can work, but you generally need to give them a compelling reason, usually increased pay/benefits vs their current, similar job. But it also gets you people who will do the same thing when your next competitor offers more. (Less loyalty and retention)

Most people think “offshoring” when they think “SMB Labor arbitrage”, but you can be creative even for positions that can’t be done remotely. My favorite way is to recruit from adjacent industries.

Here’s how:

  • Identify the core attributes you are looking for in an ideal employee
  • Think of a different industry (whose people have those core attributes already) that’s either declining or you could potentially pay more
  • Create an irresistible offer

Example. I’m helping a friend buy a business right now that installs niche, customized home mobility solutions for ageing and disabled customers to be able to more easily get around their homes (being vague for confidentiality). It’s a big ticket sale.

Demand is strong and expected to grow as boomers age in place and try to remain in their homes longer. The big limit to growth seems like it will be keeping up with the need to hire consultative salespeople and installation technicians in the coming years.

There are few competitors in this niche, and poaching their people is difficult and expensive, so this is a perfect scenario for recruiting from an adjacent industry. We set to work developing our strategy

For salespeople, we determined Realtors would be a perfect fit:

  • There are tons of them
  • They present well and are used to consultative in-home sales
  • They are comfortable going to people’s homes and earning a commission
  • The housing market is slowing down

= Many are open to a change

The irresistible offer will be to the effect of: 

  • We’ll supply you leads and set all your appointments in the hours you tell us you’re available for them (flex schedule great for people that want more control over when they work)
  • You’re helping people stay in their homes (meaning)
  • Like reality, no cap on earnings. You can control how much you make as an agent based on how hard you work and how effective you are at closing deals (familiar incentives)
  • We do the fun part (sales consults), and we do all the not-fun parts (admin/fulfilment)
  • Wouldn’t it be nice to make 12+, $2,000 commission sales per month consistently with little competition and people that need your solution instead of hoping you close two $12,000 sales in this unpredictable interest rate and housing environment? (security)

We chose electricians because: 

  • Most of the assembly and installation work needs electrical skills and these folks will be perfectly suited for the technical work required
  • New housing starts are declining precipitously, perhaps creating a multi-year runway for recruiting

Followed the same structure and crafted their irresistible offer. (more pay, less competition, job security, predictable schedule, and free training on a new valuable niche skill).

With these strategies in place for the two key repeat hires needed to grow, he’s excited to purchase and grow this SMB. The Seller already has a great brand, website, and marketing that can easily create more leads than his team can handle, so this was the clear path to scale.

In summary, think outside the box with talent acquisition. Look for an adjacent industry, preferably one suffering right now, and create a tailored opportunity for them.

These last few years of supply/demand crazy disruptions have hit every industry differently. Some are surging, and some are suffering. Everything is off balance and wacky in the labor markets. So be agile. Be creative.

What’s been your secret sauce here?

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