HR Tech2.0

BY SCOTT FELDMAN

Let’s start with a few numbers: 6,000,000, 33,000, 1,000 and 20.These numbers tell an intriguing story, and contain the secret to why the opportunity to build, operate or invest in human resource technology companies is so compelling.
6,000,000 – According to Cortera, there are 6,000,000 businesses on record in the United States that claim at least two or more employees. While most of the media’s focus over the last couple of years has been dominated by doom and gloom about rising taxes, layoffs and rising government spending, we think they are seeing the glass half empty. Look closer and you will see a very different picture: increasing revenues, 92%+ employment and the very likely prospect of increasing job creation. These 6,000,000 businesses are the jewels of our country and the lifeblood of our economy.
33,000 – The combined total number of corporate customers claimed by WorkDay, LinkedIn, Taleo (prior to their sale to Oracle), Kenexa (prior to their sale to IBM), Success Factors (prior to their sale to SAP)and Cornerstone OnDemand. These are the modern day stalwarts of the HR technology landscape and for the most part they cater to the largest customers in the country. These six companies in aggregate have created over $40 billion of shareholder value over the last 20 years. Not bad for penetrating less than 1% of the target customer base!
1,000 – The number of US technology vendors developing solutions to help businesses manage their talent. These include applicant tracking systems, performance management solutions, learning management platforms, expense management systems, payroll, benefits administration, and incentives, to name just a few. These are the companies that help keep employees employed, motivated, trained and productive. If we want to remain competitive in the global economy, we need to increase productivity levels of our workforce and these technology solutions enable our businesses to do just that.
20 –There are nearly 200 million people employed in our country today and on a global basis our unemployment rates are exceptionally low. Our largest employer is Walmart, and they employ roughly 1% of the country with over 1,400,000 employees in the US alone. Our smallest employer has 1 employee. The average is 20 employees. We are a country dominated by small business: millions of small businesses with the same needs, desires, ideas and goals as the largest global enterprises.
Our country’s most important resource is our people and our employers’ most important asset is their employees. Yet only recently have solutions become available that enable businesses to manage talent effectively. Filing cabinets led to spreadsheets, which led to applicant tracking systems, which have now led to sophisticated work flow solutions managing massive amounts of personnel data covering both prospective and existing employees. With good intentions, many of the more mature solutions inthe market were designed and developed for the largest of employers. These solutions were built on single-tenant architectures designed for on-premise use. Fast forward to today and we have multi-tenant software applications hosted remotely and served over the internet(software-as-a service or SaaS). The advantages are tremendous and provide for ease of access, implementation and use for even our smallest businesses. Talent management solutions in the cloud are now available to all, yet millions of customers still have not taken advantage of them.
In order to better understand the opportunity in HR technology we need to examine the talent management process in a bit more detail. Talent management begins with identifying a candidate, continues through the interviewing process, background screening, reference and assessment checking, hiring, onboarding, benefits administration, payroll, performance management, intra-company social connectivity, compensation management, succession planning, health and wellness management and so on. The lifecycle of an employee is riddled with multiple inflection points, any of which could positively or negatively impact the productivity of that employee or the profitability of the employer, or both. This is a complex process even for the largest employers. Imagine how inefficient smaller companies are without the right solutions in place to automate the different steps on the assembly line. Sure, some processes have advanced quite a bit even for small companies. Payroll is the best example, with the likes of ADP, Ceridian, Ultimate and Paychex delivering automated payment, direct deposit and other electronic compensation solutions to millions of employers. But candidate sourcing, performance management, wellness management and the like are all relatively new, formal parts of the talent management ecosystem, and accordingly they require adequate management information systems.
The first generation of talent management solutions arrived in the 1990s with the mission to automate existing HR processes for large, horizontally integrated enterprises. We think of this group as HR Tech 1.0, or affectionately as the Ghetto SaaSGang. A key driver of the shift in talent management technology is the maturation of the 1.0 leaders, which has caused a recent consolidation within the industry. This has left a tremendous opportunity for the next generation of talent management innovators, the 2.0 real SaaS solutions. Greeting these innovators is a core marketplace that is both large and habitually under-served.
Talent management is undergoing a meaningful transition that will be driven by a variety of factors. First, traditional HR software systems are aging, which is causing most companies to begin the search for newer, more advanced technologies. Second, and very importantly, the Cloud has become more much accessible as a delivery platform. According to Josh Bersin,, “Nearly every major HR software provider now offers their solution in the cloud…”, which has made it possible for HR departments to avoid upgrading software systems every year. Furthermore, since many companies employ cloud-based systems for their HR applications, it is now much easier to switch vendors. Put simply, the market for HR Technology is a buyer’s market, and the sellers have responded by broadening their product offering organically or through acquisitions to include all HR functionality in one package and creating better benchmarking and talent analytics systems. Finally, there has been a wide realization that talent is the most important factor of a business’ success.
If you run a small business and you are reading this article, you may be wondering “well how much does it take to get one of these applications running?”iCIMS, one of our portfolio companies, is a great example. iCIMSis a talent management solution provider primarily focused on talent acquisition, or the pre-hire phase of talent management for small, medium and large customers. Their small business offering is called iCIMS NOW and starts at a price point of $299 per month. iCIMS NOW has many functionalities, including candidate sourcing, allowing companies to aggregate potential candidates from multiple job boards. This platform offers CRM capabilities, allowing hiring managers to create records of candidates, communicate with them and carry them through the interviewing process. It also provides social connectivity to multiple social and professional networks allowing for job posting and enabling candidates to apply for jobs right from the network. A company can be up in running on iCIMS NOWin less than a day with little to no integration with existing human resource systems, all for less than $4,000 per year. With the average salary in the US running around $30,000, a company can easily justify the cost even if they only make a few hires per year. More than a luxury, these systems are a requirement to stay competitive and position your business to gain access to, attract and retain the best talent. iCIMShas many peers in other areas of talent management including performance, benefits, wellness and many others. The opportunities are really endless for strong, true SaaS, point solutions targeting the small and medium sized business market.
So now back to the title of this article – “HR Tech 2.0”. As discussed above, HR Tech 1.0 played out over the last 20 years. Ghetto SaaS solutions were developed with less technological scalability and flexibility for only those that could afford the high implementation, integration and customization costs. 2.0will play out over the next 20 years. It’s now all about having an affordable, scalable solution available to the masses, yet with all the same bells and whistles the incumbents have enjoyed over the last two decades. 2.0is about the leveling of the technological playing field in corporate America. 2.0is about small business and pure SaaS, cloud solutions, or whatever term you prefer that has come to define this dramatic shift in the market. And while the opportunity to take advantage of true SaaS as an operator or investor manifests itself in many ways across multiple industry verticals, we put talent management at the top of the list. Talent management is a complex series of discrete processes that involve a company’s most prized asset: its employees. Proper care and consistency is required across these processes and is essential for the attraction, retention and growth of a stable and successful workforce.
If six companies can create over $40 billion of value in less than 20 years, just think what this new breed of entrepreneurs can do with 6 million customers over the next 20 years. We have never been more excited to invest our time, resources and capital into a sector and look forward to meeting the stars of this next chapter over the coming years.

Scott Feldman is a Managing Director with Susquehanna Growth Equity, an investment firm that focuses on software, payments and information investments. Contact: scott.feldman@sgep.com

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