Thread by @jainmayank_943

1/ Thread on key gaps and opportunities I see in the blue and grey collar recruitment and staffing industry in India. I believe there is an opportunity to build a ‘vertical focussed’ tech-enabled ‘full stack’ staffing business.
@Stellaris_VP #BlueCollar #staffing #recruitment

2/ Lets start by unpacking India’s workforce. It’s est. that ~40% of India’s population is working i.e. ~500M ppl. Of this, ~230M (46%) are employed in agriculture, either self employed or working in other people’s farms.

3/ ~60M ppl (12%) are employed in the construction and infra sector - primarily as labourers. Then comes the retail sector with ~45M ppl (9%) - primarily mom and pop store owners and the ppl employed in such stores.

4/ Then comes logistics with ~23M ppl (5%) - primarily drivers, loaders, delivery boys. Then comes other mfg industries i.e. textiles, auto, furniture, construction material, food, pharma etc with a total of ~85M ppl (17%) - primarily factory workers.

5/ Then comes key service industries like education (15M ppl), travel and tourism (10M ppl), security (9M ppl), domestic help (8M ppl), salon and spa (7M ppl), healthcare (5M ppl), IT /ITeS (4M ppl), BFSI (3M ppl) and Telecom (3M ppl).

6/ It’s est. that >250M ppl are either blue collar or grey collar. This does not include self employed farmers or SME owners. It is also est. that India’s white collar workforce is no more than 20-25M ppl.

7/ My definitions are as follows: 1) Blue collar = non-desk repetitive job - like a construction labourer, factory worker, truck driver, delivery boy etc. 2) Grey collar = desk repetitive job - like data entry exec, call centre agent, back office, finance etc.

8/ I est. that avg recruiter fee for a blue collar worker is ~Rs 1K, while that of a grey collar worker is ~Rs 5K. This would vary by industry and job roles - but my rough general estimate for the universe.

9/ Assuming: 1) 250M blue and grey collar workers; 2) yearly openings to be ~40% of the workforce; 3) external recruiter share to be ~5%; 4) Avg recruiting fee to be ~Rs 1.4K (or $200) - translates to a recruiting fee pool of $1B (conservative est.).

10/ The blue and grey collar recruiting market is extremely fragmented with >1L mom and pop recruiting agencies - and no player having even a 1% market share.

11/ Recruitment agency model is hard to scale and suffers from negative economies of scale i.e. the productivity of each recruiter reduces as the team size increases.

12/ Plus blue collar recruiting is often a local business (think South Bangalore or JP Nagar). The urban blue collar (not incl migrant worker) is not willing to take up a job outside the 3-5 km vicinity - and is extremely sensitive to daily travel cost.

13/ Two largest recruitment agencies include ABC Consultants and CareerNet Group - both specialising on white collar - and doing an est. ~$15M in topline.

14/ On the other hand, staffing as a business model sees some large players like Teamlease and Quess - both publicly listed cos. Teamlease India did ~$600M in gross revenues in FY19 and claimed a ~5% market share.

15/ This pegs the organised staffing market at ~$12B. Quess is at a similar scale in India with ~$600M in gross revenues. The organised staffing market is growing fast and doubling every ~5yrs.

16/ Organised staffing is used across industries. Manufacturing contributes ~30% (of $12B). Within service industries, Retail /FMCG leads the pack with ~25% share, followed by BFSI, Logistics and IT /ITeS at ~13%, ~11% and ~10% resp.

17/ Staffing is primarily used for sales and ops jobs roles like: 1) retail counter sales; 2) entry level field sales; 3) delivery boys; 4) factory workers; 5) back office staff; 6) call centre staff; 7) inside sales staff etc.

18/ Staffing firms see a net revenue of ~5%. And an EBITDA margin of ~50% on net revenues i.e. ~2.5% on gross. For eg. Teamlease does ~$30M in net revenues, and ~$15M in EBITDA.

19/ Staffing firms are valued as multiple of EBITDA. Teamlease and Quess have grown EBITDA at ~40% CAGR, and see equity markets rewarding them with a ~40x multiple on EBITDA . Eg. Teamlease is valued at ~$600M.

20/ Staffing market employs ~4M ppl (called associates), and average gross revenue or billing per associate per month is ~Rs 17K (or $250).

21/ Value of a staffing firm to an employer includes: 1) managing payroll and compliance; 2) sourcing candidate and managing the recruitment process; 3) providing part time staff; 4) getting replacement if unhappy.

22/ Employers prefer to staff primarily for non-core blue and grey collar jobs where they don’t want the hassle of managing the employee, and would prefer a quick replacement instead if unhappy (eg. retail sales, call centre etc).

23/ They also use third party payrolling in cities having strong labour unions (like Delhi to avoid dealing with the unions), or for hiring part time workforce (for ease of firing later), or in cities where they’re not able to hire easily.

24/ The economics of 1 associate for the staffing firm is as follows. Life of an avg associate is 9mo. Net revenue per associate is ~5% of Rs 17K i.e. Rs 850 per mo. That’s a total net revenue of ~Rs 7500 per associate.

25/ There are 2 direct costs. One time cost of ~Rs 500 to bulk source the candidate. Staffing firms often follow a hybrid approach. For some locations, they source in house. While for others, they hire recruitment agencies.

26/ They rarely spend on upskilling, assessing or doing the background verification of the candidate. And often, if the employer asks - they end up passing the expense to the employer. Hence, the cost here is ~0.

27/ This is different from managed service providers like an SIS, who take complete ownership i.e. from training to assessing to background verification of security or facility staff. And the end employer really values that.

28/ The other direct cost is the cost of managing the associate. Often, 1 associate manager, with a monthly salary of ~Rs 24K (est.), manages ~300 associates. Thus cost per associate is ~Rs 80 /mo or ~Rs 700 for the life of the associate.

29/ Thus, the direct contribution from 1 associate is ~Rs 6300 i.e. ~80% of his net revenue. After reducing fixed expenses etc. the EBITDA is often in the ~50-60% range.

30/ Building payroll, compliance, ongoing client management, training and associated enabling technology centrally - leads to positive economies of scale - which has led to a staffing players scaling.

31/ Key gaps in this market include: Gap #1: Inability of staffing and recruitment firms alike to source blue and grey collars at scale and source them fast. Often, use multiple blue collar DB (like Quikr Jobs, Indeed etc) to source i.e. top of funnel.

32/ Funnel processing is done by a human recruiter. This is a non scalable and slow process. Often the recruiter needs >250 candidates in DB to close 1 - and there is a massive drop at each step of the funnel. Also, results in high TAT.

33/ Gap #2: Poor skills of associate, esp for grey collar or semi-skilled jobs like field sales, call centre, back office, inside sales, retail counter sales etc. Staffing firms find skill training or assessment a strain on the margins and don’t invest in it.

34/ Gap #3: Staffing and recruitment agencies alike see poor employee /associate loyalty. As a result, for repeat interaction, they’ve to incur the same CAC again. They don’t engage with the employee and the relationship is very transactional.

35/ Gap #4: Most staffing firms have a manual process with the employer to share attendance and do recon. Often, for a few associates there is a recon issue - which becomes a major headache for all the 3 parties involved.

36/ A directional opportunity is to build a vertical-focussed full stack tech-led staffing firm. By full stack, I mean managing the entire candidate lifecycle i.e. from sourcing, to skill assessment, to upskilling if need be, to placing, to engaging, …

37/ …to help with career progression, to help with higher earning opportunities through part time jobs on weekends etc, to providing essential benefits etc. May not do everything but as much as the P&L allows.

38/ By vertical focus, I mean solving for a few job roles but solving it full stack. For eg. SIS (while in managed services) has built a company of equal scale to Teamlease etc. by only solving for 2 large verticals i.e. security and facility.

39/ I think call centre, back office, retail counter sales, finance, entry level field sales, delivery boy are examples of big verticals which employ semi skilled staff, and value addition in assessment or upskilling is likely to be valued by employers.

40/ And I think time is now to build a tech led business where aspects of candidate lifecycle like training, assessment etc. can happen digitally - on a low cost android smartphone, and happen at scale while at a negligible cost.

41/ Some blue collar classifieds have already proved in recent times - that blue and grey collar workers as well as SMEs - can be acquired digitally at scale and at a low cost - leveraging channels like FB, Tik Tok, Youtube, UC browser etc.

42/ That doesn’t come as a surprise, given we are living in the post Jio world. I do think they can also be onboarded digitally at scale - leveraging video, voice recognition, WhatsApp like familiar interface, vernacular etc.

43/ What’s not proven is if the skill assessment and upskilling can happen digitally. Though I do believe with AI advancements, english speaking fluency for example can be measured objectively with voice recording as input.

44/ Or the physical interview process can be part automated leveraging a video bot which asks impromptu questions which needs to be answered by the candidate there and then, and the human + AI combination rates the candidate.

45/ Digital can also be used as a medium to drive engagement with the candidate. An example could be recommending part time opportunities nearby for extra income generation. Or seeking feedback or complaints. Or attendence.

46/ Or provides reliable employer information which is commonly seeked - like working conditions, meal quality, on-time salary disbursal adherence, commuting options to office etc.

47/ Would love to talk to startups solving for India’s blue or grey collar workforce. Please DM.

48/ Sources of data:

1) NSDC report (National Skill development report)
2) Teamlease, Quess and SIS investor presentations and annual reports
3) 2 Investors in this space
4) Many ex and present entrepreneurs in this space
5) Few HR heads