When it comes to finding the right talent to maximize their investment in a new acquisition, far too many private equity firms end up leaving money on the table.
This isn’t to say the PE world is a stranger to gig employment. When you’re in the business of buying businesses, it’s useful to maintain a ready network of financial and investment professional contractors and consultants for any needs that arise when you acquire a new company for your portfolio. This is par for the course, though.
As comfortable as your firm might be with this flexible employment ecosystem, it’s likely that you have not yet fully embraced the gig economy. Instead of a sweeping change, your firm might still rely on its small — and increasingly dwindling — network of professionals.
But studies have shown that the workforce is changing. According to a Princeton University study, the freelance economy was responsible for generating 94 percent of all new jobs in the U.S. between 2005 and 2015. Moreover, Intuit CEO Brad Smith predicts that the freelance economy’s representation in our workforce will grow from 15 to 43 percent by 2020. That’s a massive shift in the relationship between employers and workers, and nobody is immune to the effects.
Skilled workers are entering the freelance marketplace at a rapid clip, making it easier than ever to find truly amazing talent who can help smooth out complex company acquisitions. As the freelance economy poaches young professionals from traditional work arrangements, PE firms must find a way to adapt.
Keeping Up With the Joneses
Because of the unique nature of the PE industry, your firm risks losing out if it doesn’t evolve to keep pace with the shifting nature of work at your portfolio companies. Here are a few steps to get you started:
- Experiment with the gig economy. The internet age is here to stay, and its mark on the way we work is indelible. In this increasingly complex and technology-driven world, companies must switch gears more quickly than ever before to outpace the competition. Bringing on the required skill set for a project exactly when the company needs it can give you that leg up.
Freelance workers have numerous reasons for choosing the freelance marketplace instead of traditional employment, but your firm can never tap into this wealth of talented workers if you don’t at least explore the gig economy. Work with freelancers, bring them into the PE fold, and encourage your portfolio companies to do likewise.
- Do the math. Any PE firm CFO worth her weight in gold ought to be able to perform a cost-benefit analysis in her sleep, so this should be a simple task. The real cost of employees compared to freelance workers isn’t difficult to calculate, with employees often costing as much as 1.6 times their salary. Taxes, benefits, recruiting, and training costs, to name a few non-salary expenses, add up to a hefty sum. None of these are a part of the package with a freelance worker, meaning you can stretch your budget further — and make similar recommendations to your portfolio companies.
- Mine the talent marketplaces. There are countless online platforms that enable you to find top talent directly, without all the extra time and cost involved with hunting the open marketplace in more traditional ways. Plenty of major companies are using these platforms for a variety of reasons, so they are increasingly well-tested. Like many outlets in the era of social media, these platforms make it easy to vet candidates for any project.
Samsung documented a 60 percent cost savings and a 64 percent reduction in administrative time by using talent sourced on freelance platforms. Before you venture into the marketplace, though, come up with an outsourcing strategy. Beyond an interim CFO, there are other roles you might consider — like someone who understands the ERP you are moving toward or someone who has strong modeling experience.
In private equity, your mission most likely involves building a portfolio that allows you to maximize profits. If catching up with the gig economy ensures that you can fulfill that mission, then what are you waiting for? You have all the tools you need — and any that you’re missing are only a few clicks away.
Michael Burdick is the CEO of Paro, empowering finance and accounting professionals to embrace the future of work.