He confesses the company experienced other operational snags earlier this year. Each case leaves a complex paper trail, so Jones had to improve his "intake" system. He did that by redesigning the forms new customers fill out, starting a logbook to track checks to and from the state, and hiring a full-time intake manager, who answers all customer calls and does the paperwork to ensure cases get worked on ASAP.
Early results have been encouraging. Of his first 100 cases, Jones receives regular payments from about 35% of the deadbeats. Each pays about $200 monthly for current support and $100 toward arrears. In addition, 20% of them made an initial down payment, averaging $1,500. Jones believes he can maintain that model as he increases his marketing and caseload in 1993. "We think we can ramp up quickly now."
* * *
Risks and Hurdles
Can Jones ramp up quickly enough to surmount the formidable hurdles ahead? Some are classic company-building problems; others are wrinkles particular to this nascent industry.
* Satisfying customer demands. Jones isn't accustomed to dealing with Jane Q. Public. "The 60% we don't collect for scream the loudest," he laments. The obvious solution goes against his nature. "Before I take the $35, we need to ask everybody, 'What steps have you taken yourself? Do you think I'll ever collect this?' " But then he adds, "That's a posture I'm not sure I want to take, because I've collected from some I didn't expect to." Another problem is that qualified potential customers are embarrassed about using the service or will make appointments and then back out. Jones must continue to improve his relationship with customers -- which is tenuous at best -- or risk losing them.
* Low barriers to entry. Almost anyone can enter this industry. A collection background isn't mandatory. More ominously, the new industry has already given rise to a number of scams. Competition can be considered anyone from the mothers, to lawyers, to the states, which recently have achieved success with Most Wanted lists. Jones also faces potential competition for new cases from any area start-ups with enough money to blitz the market.
* Government interference. While the private agencies appear to have Uncle Sam and stricter laws on their side, in reality, some states refuse to cooperate. Jones will have to continue to forge better links within Virginia. He acknowledges, "There's still a lot of animosity from the state. We get no cooperation from some district offices." Potential PR hurdles. As Ron Harris of the Virginia Beach state office notes, "Child support is an emotional issue, and some people have problems with the application fee and taking 25%." Jones is painfully aware of the public's perception of collectors and anticipates the day when the press will examine new ventures like his more closely. How he handles any negative PR could determine whether Child Support Services thrives or dies.
* Operational issues. Running two companies is apt to take its toll on the management team. "Credit Service has definitely suffered somewhat this year," Jones says. What's more, the CEO will be hard-pressed to meet the expense figures he's projecting for Child Support Services. If he goes ahead with a new advertising campaign, he'll need to hire more collectors. That means a heavier training burden. Also, Summerhill and McElroy need to be compensated.
* The consulting business. Is Jones selling out his opportunity to eventually take his company regional or national by sharing the tricks of the trade with other start-ups? He thinks not. "I can keep the child-support-collection side coming along on a local basis. I'd like to see 500 companies around the country just like mine."
EXECUTIVE SUMMARY
Company: Child Support Services, Norfolk, Va.
Concept: To collect overdue child-support payments, largely from "deadbeat dads." Act as consultant to and contract collector for similar start-ups
Projections: Pretax profit of about $100,000 on
revenues of $300,000 in 1992. By 1995 revenues should climb to about $700,000 with a profit just over $200,000
Hurdles: Making money in what's essentially thankless, nonprofit work. Determining the marketing mix that will bring in enough cases but not overwhelm the small staff. Establishing industry ground rules in a new field with few regulations or barriers to entry. Gaining the cooperation of state agencies, which are also competitors. Thriving in a business in which there will always be unhappy customers. Investing in ongoing training and sophisticated computer equipment
THE FOUNDER
James Jones
Age: 40
Family: Single
Personal funds invested: $25,000
Equity held: 80%
Education: Three years of college; numerous accounting courses
Other companies started: Management Services and Collections, a bill-collection agency
Last job held: Currently CEO of Credit Service collection agency
FINANCIALS
Child Support Services Income Projections
($ in thousands) 1993 1994 1995
CUMULATIVE CASES* 1,950 3,150 4,350
REVENUES
Collection fees** $360 $500 $625
Application fees $21 $42 $53
Consulting fees $50 $100 $50
TOTAL $431 $642 $728
EXPENSES
Overhead $22 $29 $35
