Solving the Labor Shortage for Small Businesses

There is no shortage of articles talking about the labor crisis gripping the U.S.; “nobody wants to work anymore” is a common refrain. Many of these articles attempt to diagnose the problem, but most wind up just describing its effects. Few, if any, attempt to help find a solution. Even fewer can help the small-business owner. This is what we’re going to do here, with a focus on small businesses that have realized that their workers can function in a remote world.

At the highest level, many small businesses do work that lends itself to remote work. This is true for any kind of professional services, such as law firms, financial-services firms, call centers, technology development, support services and other types of office work. The staffing situation for such small businesses is very different from companies that require physical labor to be present at the work location, like restaurants, construction companies and healthcare centers.

If you’re a small-business owner and need staff in order to keep up with surging demand, very likely you are facing the same issue as thousands of business owners across the country. Nobody is applying to your job postings. You are having to postpone or turn away business, and this is definitely putting a squeeze on your profit. It’s especially painful because demand is surging, and it feels like watching the train you just missed slowly leave the station.

Well, rather than resenting government policies or sulking about the frivolity of the young, we must find a solution. It’s what entrepreneurs do. And perhaps this crisis presents an opportunity to rethink labor completely. After all, through the last year and a half, we were able to see our staff function perfectly well without being in the office. Perhaps this means we don’t have to operate with the same constraints as before. Given the current environment, I would like to propose four options for dealing with the current situation: part-time or temp workers, higher salaries, outsourcing and business-process management (BPM).

1. Part timers or temps

If you can’t find full-time employees, find people that are willing to work part-time. There may be many reasons for good candidates to opt for part-time work. One of the commonly cited contributors to the labor shortage is the need for parents to take on childcare. If offered the opportunity to do part-time, remote work, many such parents may be able to work that into their schedule. The same would apply to people who already have a job and are ready to take on more.

The same is true for temp help. Opening to that possibility can increase the target labor pool. For various reasons, candidates may prefer temporary work. There are agencies who specialize in placing temp workers and can facilitate this strategy. The drawback, however, is by definition, temp workers turn over more frequently, and this requires a lot more training and retraining of personnel. This is especially difficult to implement in knowledge-intensive industries.

2. Higher wages or overtime

The most obvious solution, perhaps, is to raise salaries when trying to recruit personnel. There is a lot of wage inflation already happening in the U.S. This can seem like the most appealing option, and certainly if paid more, workers will have more incentive to take your job. But this can also introduce many problems. Existing workers will likely also demand a higher wage. If you rely too much on overtime to get more out of the staff you have, that still constitutes a wage increase and can result in burn out. Across the board wage increases can cut significantly into profit. Raising prices might be an option, but either way, the business will be impacted, especially if you are in a competitive market.

3. Traditional outsourcing

Many small businesses haven’t tried outsourcing before. Usually this is a bastion of the large enterprise. Because of the current situation, more small-business owners are feeling compelled to try this. The most common term for this is business-process outsourcing, or BPO. Typically, this means you go to a service provider and explain the type of personnel you need. They put a resource manager on your account who finds the right personnel for you and puts them in your charge. This can be especially effective if you can hire workers that are completely remote because then you can broaden your recruiting pool or go offshore. Then you don’t just benefit from a hungrier and often more educated labor market, but you can get significant price breaks too. 

This can be a good option, especially in the short term to sidestep the current labor-market distortion. The trade off is that you have to manage the staff yourself; if someone leaves, you have to wait for a replacement and then train the newcomer. All of this happens remotely and likely in a different time zone.

4. Business-process management

BPM is a common concept in large enterprises, but not very well known among small businesses. BPM is like outsourcing, except that the service provider takes responsibility for delivering the full business process, as well as staff hiring, training and management. A BPM provider will assign a portfolio manager, who provides subject-matter expertise in your business process as well as additional management bandwidth you can deploy. With a good BPM provider, you’ll learn a thing or two about best practice in your industry, production planning and trend analysis, and you’ll get a level of standards and metrics you’ve probably never seen before. Most BPM providers have figured out the use of resources in low-cost locations, which don’t suffer labor shortages, so you get a significant cost benefit as well.

The downside of BPM is that you lose the direct control of managing the process yourself. You get a lot of insight and analytics, but you’re not in the weeds anymore. The BPM provider defines standard operating procedures (SOP) in conjunction with you, and then they take it away. You also may have to change your routine processes to fit an industry-standard model.

Between the pressure on minimum wage and the pandemic-stimulus-triggered wage inflation, if you want to run the business you’re in with U.S. resources, you have to be ready to increase pay. The use of sourcing alternatives takes you out of domestic labor shortages and can create a permanent low-cost solution for your business.

Additionally, you can outsource your computing to a colocation provider or just put your systems on the cloud. Just like cloud computing, using a BPM provider gives you a robust and elastic capability to industrialize and scale your business processes.

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