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STRATEGY

The People Problem

What will be the biggest challenge facing small businesses in the years ahead?
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Tomorrow's Entrepreneur

During the past couple of years pretty much everybody has agreed that the number one challenge facing small companies has been recruitment and retention -- in a word, people. "According to our focus groups, finding and retaining quality people in all positions -- management, technical, and entry level -- are the biggest challenges facing entrepreneurs," said a study by the National Commission on Entrepreneurship (NCOE) in July 2000.

Will the problem go away as the economy softens and unemployment rises? By rights, it should. What's more, the labor force is expected to continue growing at a fairly steady clip, increasing almost as quickly during the coming decade as it did during the last. But most prognosticators think that recruiting headaches will persist. Point one: someday soon the economy is going to rev up again, and there's no big new supply of workers like the baby boomers in sight. Point two: employers don't want just warm bodies; they want people who can do the job. But many prospective employees have the following strikes against them.

They're in the wrong place. Virtually all the growth in the labor force has been in southern and western regions of the United States, says a recent report by Richard W. Oliver, a professor at Vanderbilt University's Owen Graduate School of Management. That trend won't reverse itself anytime soon. If you're running a growing company in New England or the Middle Atlantic region, tough luck.

They're not fluent in english. Immigrants account for a significant percentage of labor-force entrants in most parts of the country; in the Pacific states, the figure is 70%. As recently as 50 years ago, vast numbers of non-English-speaking people could find manual jobs in U.S. factories. Today most new jobs are in service businesses, and many involve direct contact with customers. It's the rare employer that can afford (or is willing) to teach its workers English.

They don't have the right skills. To be sure, there's a shortage of computer programmers and technicians. But it isn't just high-level techies who are scarce; so are nurses, machinists, and long-haul truck drivers. And many entrepreneurs argue that there's a dearth of people who have a good basic education, good work habits, and all those other traits that employers seek in new hires. "I can teach our business to anyone," a company owner in Phoenix complained to one of the NCOE's focus groups. "But I can't teach the basic skills of being courteous with customers and bringing real commitment to the job."

They aren't the right age. No one argues explicitly that age should be a defining criterion for any individual hire. Still, a prospective employee's age is a rough proxy for many other traits, such as experience, leadership potential, interest in full-time work, willingness to move around, and eagerness to invest in the future by learning new skills. For good or ill, the labor force is growing inexorably older. Thanks to the aging baby boomers, the number of employees who are 55 and older will grow rapidly during the next several years, while the number of workers between 25 and 44 will plummet by about 3 million.

The labor shortage, whether qualitative or quantitative, will be "the biggest constraint on growth," declares Mark Schultz, president and CEO of the Research Institute for Small & Emerging Business Inc., a nonprofit small-business-research organization in Washington, D.C. Companies that can attract and keep the people they need should have a distinct competitive advantage in the years to come.


Knock, Knock

For small businesses there is a flip side to the labor shortage. That's because when large companies can't find people, they figure out ways around the problem, thereby creating opportunities for entrepreneurs. Here is a list of some of the strategies that businesses use and the opportunities they create for small companies.

Opportunity
Replacing labor with capital.
Companies that are short on people spend money on new machinery, computer systems, and software. They rely on Web marketing instead of a sales force and employ automatic stock-replenishment systems instead of an army of clerks.
"Our product will let you reduce your head count" remains a compelling sales proposition.
Outsourcing the work.
A large company doesn't need to hire janitors, cafeteria workers, E-commerce-fulfillment staff, lawyers, travel agents, delivery people, and dozens of other job categories if it can outsource those functions.
Business services will continue to be one of the fastest-growing sectors of the marketplace.
Outsourcing the problem of finding people.
It's no accident that Manpower Inc. topped General Motors as the nation's largest employer during the 1990s. Businesses now turn to temporary-staffing companies as hiring agencies as well as for peak-need staffing.
Staffing, recruitment, employee leasing -- those markets aren't going away anytime soon.
Expanding the labor pool.
Older people, younger people, people with disabilities, people who were once on public assistance, people with troubled employment records, people who aren't yet fluent in English -- suddenly all the once-shunned groups look like promising sources of new employees.
On-site training will be needed in computer skills, work skills, English, basic math, and everything else today's employee needs to succeed.

The 2001 State of Small Business issue


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