Psychological testing over the Internet: does it allay employers' misgivings or merely make them worse?
60-Second Business Plan
The pitch: For all those managers out there who are sick of picking through rÉsumÉs, well, Gabriel Goncalves feels your pain. As onetime owner of a Texas IT company, he suffered non-stop headaches finding and hanging on to good employees.
Now he's come up with a way to ease some of the stress: PeopleAnswers , new do-it-yourself psychological-testing software that lets employers screen job applicants on-line.
Goncalves got sold on psychological screening while he was running Erapmus, a Dallas-based networking-services company he founded. "It made a huge impact," Goncalves says. "It reduced turnover, but more important, we were able to bring the type of folks into the organization that made a huge difference in terms of taking it to the next level."
But the conventional screening tests -- which required hiring industrial psychologists to administer them -- were time-consuming and expensive. And understanding the results practically required a Ph.D. in psychology. Goncalves figured that a Web-based testing system could solve those problems. So after selling Erapmus in 2000, he began talking to industrial psychologists about developing his own psychological-screening software. In early 2001, he launched Dallas-based PeopleAnswers.
The company's do-it-yourself approach leaves the actual administering of the test to customers. To snare superstar employees (and weed out slackers), the on-line assessment draws on four personality tests that PeopleAnswers has licensed, including the Guilford-Zimmerman Temperament Survey and the Thurstone Test of Mental Alertness. Goncalves's test features both SAT-style math and verbal problems as well as behavioral questions in which the test taker must agree or disagree with statements like "I enjoy getting acquainted with people" or "I always wanted to own a sports car."
The results include ratings in such areas as intellect, drive, motivation, and interpersonal style. Plus, companies can develop an ideal profile for each job by testing their highest performers and using those scores as a benchmark for all potential hires."If I am your typical Fortune 500 company, with people all over the world, how do I create a set of [screening] standards and quickly disseminate it throughout the enterprise?" Goncalves asks.
PSYCHO TESTER: PeopleAnswers founder Gabriel Goncalves says his software can spot shirkers -- before they're hired.
The target market for PeopleAnswers is companies with 500 employees or more across a range of industries. Goncalves is charging a fixed annual $100-per-employee licensing fee for the software, with volume discounts for big companies. To sell the system, he is relying on a marketing-referral program, in which he pays a commission to outside service providers, such as other software companies, in return for an introduction to their customers. In March and April, the first two months of sales, the 10-employee PeopleAnswers signed up approximately 20 customers, including Dallas-based Interstate Batteries.
For now, anyway, the recession isn't scaring Goncalves. He claims that rising unemployment has actually helped his pitch. "We're working with a major Fortune 500 company with basically 300 applicants for every open position," he says. "They need a way to get to the qualified candidates. That's exactly what our software does."
The Quick Once-Over
The Numbers *: Projected $314,000 in revenues, $1 million negative cash flow in 2002; projected $4 million in revenues, $350,000 positive cash flow in 2003; projected $23 million in revenues, $13 million positive cash flow in 2004
Capital Raised: $400,000 from strategic angel investors, mostly advisers or potential customers
Biggest First-Year Expense: $800,000 for software development
*The PeopleAnswers business plan does not provide net profit-and-loss projections.
The Weigh-in: Our Panel Rates the Plan
Flying Colors or Flunk Out?
Who: Steve Ciesinski, a partner in the Palo Alto, Calif., office of Earlybird, an early- stage venture-capital firm
Rating: 5 (on a scale of 1 to 10, with 10 being the highest)
"The good news here is this is a potentially large market that's basically quite fractured today. Many little companies are offering psychological testing, but for companies that have a big idea, like these folks have, there's room to grow.
"On the other hand, other than some loosey-goosey language about 'You'll get better hires,' I didn't see any hard numbers about the product's benefits. That's been the biggest nut to crack with selling psychological profiling. How do you go back to the customer and say, 'This is how much more revenue you're producing because you selected a better workforce'?
"Initially, I'd try to focus marketing on a specific part of the company, such as sales. Let's say that the average salesperson books $800,000 annually, and by hiring more qualified people, you can increase that to $1 million a year. Now you're really starting to see some very interesting statistics that support using these tests."
Who: Susan P. Ascher, president and CEO of the Ascher Group, a human-resources staffing agency based in Roseland, N.J.
"I see no Fortune 500 backgrounds on the management team. For the type of product they want to introduce to very sophisticated companies, somebody somewhere along the line, I think, should have some serious big-company experience.
"I also have real trouble with their financial projections. It's not believable that they'll actually go from $314,000 in year one to $23 million in year three. It just doesn't compute to me at all. As someone with clients in the HR field, I see companies spending far more money in the immediate future on security checks and background checks than on psychological tests."
Who: Leonard Greenhalgh, professor of management at Tuck School of Business, at Dartmouth College
"This business could provide a real service for industry. Managers typically tend to hire in their own image. This type of test could help get beyond all the similarity biases and give you some objective data that an interviewer can't necessarily get.
"Still, I wonder how willing employers are going to be to use an automated on-line test. And if there is hesitancy in adopting this technology, then they're not going to get the growth rates that they're projecting. Employers that use psychological tests are used to working through the medium of established companies that do this, where there's a person in the loop. That gives you some confidence, even though they're delivering written reports that may actually be no different from what this company is offering."
Who: Leon Rubis, executive editor of HR Magazine, based in Alexandria, Va.
"It looks as if they're going to offer a one-size-fits-all test, which really isn't right when it comes to psychological profiling. If they're giving the same test to all candidates, regardless of the occupation or the job level, the utility of the test would be questionable. You could use one test to come up with broad profiles, but if you really wanted to put a fine point on it, that doesn't work. You'd have to use different tests.
"I also think that they are underestimating the competition by other test providers. A lot of their competitors have pretty sound science behind them -- they're run by Ph.D.'s and professors. And there are tests for everything from overall sales aptitude to the ability to handle people over the phone if you're looking for call-center people. So the market is going to be a lot tougher to break into than they seem to think."
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