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The multibillion-dollar national PEO industry that got its start in Bradenton 25 years ago by catering to companies' human resources needs has head-butted into the recession.
Dwindling payrolls have blunted the need.
But the situation hasn't prevented Richard Ratner, one of the local industry's godfathers, from being pulled back in to the picture after a decade on the outside.
Indeed, Ratner, who co-founded Modern Employers, Inc. in 1984, is back with his own self-funded and self-run professional employer organization.
Modern Employers was one of the nation's first PEOs. It grew fast and it ultimately covered more than 13,000 employees in four offices spread over three states. It had 120 internal employees at its peak. “We were going like crazy,” says Ratner, “growing all over the place.”
While not an accident, exactly, the beginnings of Modern Employees was a 'why not' moment for Ratner, who sold commercial insurance at the time. The PEO industry seemed like a natural way to follow a business school mantra: Sell your clients as much services as you can.
But entering the PEO industry now, with its myriad regulations, competition and economic malaise, is a different world, Ratner has discovered.
“It's tough to start a business like this from scratch,” says Ratner. “But everyone in our industry is big, so there is an opportunity for a small player.”
Ratner named his play the Employee Management Team. He officially launched the business Jan. 1, although he has spent the past year and about $20,000 to get it ready. The firm currently has one client, a Sarasota education service company.
Ratner's business model for the Employee Management Team revolves around being more of a consultant and using the freelance and outsource worlds to serve clients. For example, a PEO in Tampa will provide backroom support for his operation.
Ratner says that approach, at least in the beginning, will allow him to stay nimble.
In fact, nimble is an industry buzzword these days, now that PEOs in Tampa, Sarasota and Bradenton have all lost clients over the past 18 months.
A few companies, however, plan to add internal employees. One of those firms is the TriNet Group, a California company that bought Lakewood Ranch-based Gevity last year. TriNet recently announced that it could hire 50 local employees in 2010.
Gevity was called Staff Leasing the last time Ratner went to work everyday in the PEO industry. But that was in 1999, the year Ratner sold his majority stake in Modern Employers to Selective Insurance Group.
Ratner's done some consulting work in the industry since then, but he's spent most of his time on the other parts of his life: He got remarried and he and his new wife had two daughters, for starters. He also invested in the stock market and other business ventures.
But Ratner grew to dislike the lack of control he had over his future. He says he felt like “a piece of driftwood.” That, and he missed the excitement of running his own company.
One of Ratner's two big challenges in the early going with the Employee Management Team is something he has dealt with before: how to finance the daily activities of a PEO. Since PEOs deal in payroll transfers and other big-ticket cash transactions, the industry is a potential headache for bankers. “The bigger you get,” says Ratner, “the more cash you have to put up.”
But after several conversations and debates with bankers, Ratner has found a lending partner for the Employee Management Team in Bank of America in Tampa and Sarasota. He is also in talks with a Sarasota area community bank.
Ratner doesn't think the Employee Management Team will grow as fast as Modern Employers did, which is fine with him.
Says Ratner: “I'm not in a rush to build this thing to where it distracts me from doing it properly.”
Herrig is back
Richard Ratner isn't the only executive in the local professional employer organization industry to make a comeback recently.
Steve Herrig, founder of Sarasota-based Progressive Employer Services, has also returned to the day-to-day operations of a PEO. Herrig, the Review's Entrepreneur of the Year for the Sarasota-Manatee region in 2007, had been involved in a few other business ventures for several years. He had left the daily management of Progressive to his top executives.
But Herrig let go Progressive's president, Michael Corley, in a cost-cutting move last year. Corley, a well-known executive in Sarasota business circles, remains connected to the industry as a consultant; he is currently working with an investment group that is launching a PEO outside Florida.
Herrig, meanwhile, has taken on the role of president and chief executive with Progressive, which had $35.6 million in 2008 revenues.
“I'm trying to make us a sales-driven company again,” says Herrig. “We are trying to respond to the market.”
That market has less potential clients, courtesy of the recession, and those clients that are out there have fewer employees for PEOs to represent. In an effort to respond to both new and old clients, Herrig replaced some of his sales staff and set new benchmarks and goals.
Still, he's reserved about how the company will do in 2010.
“I'd love to say we are going to go like gangbusters,” Herrig says, “but we are going to run the company like we are going to have a modest year.”
— Mark Gordon
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