PEO Insider - November 1999

Eye on Industry - The Man for the New Millennium:
Year 2000 NAPEO President Richard Rawson

As an industry veteran and NAPEO’s president for the year 2000, Richard Rawson is poised to use his knowledge and experience in the PEO industry – and in small business – to the association’s advantage.
Rawson started out as an entrepreneur; providing consulting services for small businesses. In 1984, Administaff’s Paul Sarvadi introduced him to the PEO concept. Having an inside track into what makes small businesses tick, he immediately saw the advantages.

Along with his entry into the PEO world in 1989 came his entry into NAPEO. Using those same skills that endeared him to his small business clients – his warm personality and ability to relate to people of all tastes and sizes – Rawson became involved in NAPEO’s inner workings, serving on NAPEO’s Accounting Practices Committee. He was instrumental in creating NAPEO’s Financial Ratio Survey, the financial reporting standard for PEOs and a tool PEOs can use to develop their business models and budgets and measure their strengths and weaknesses.

As we enter the new millennium, Rawson’s insight and experience will continue to lead the industry forward. Rawson predicts the Internet will be indispensable to PEOs' client service delivery. It will help facilitate PEOs' ability to grow regionally and nationally. It will also become a tool for NAPEO to better serve, communicate, and educate its increasingly diverse member base. On the eve of his election, PEO Insider sits down for a serious chat with Richard Rawson and finds he’s up to our version of the Y2K challenge.

PEO Insider: With more than 10 years at Administaff, you are an industry veteran. How did you become involved in the industry?

Richard Rawson: I’ve always been an entrepreneur, so when Paul Sarvadi explained the PEO concept to me in 1984, I immediately saw the tremendous value a PEO could deliver. As the owner of a company that provided consulting, computer, and accounting services for small businesses, I soon began recommending PEO services to my client base. Administaff hired me in early 1989 as a consultant, and later that year I was named CFO.

PI: As chair of NAPEO’s Accounting Practices Committee for four years, you were instrumental in developing NAPEO’s Financial Ratio Survey. What is the importance of this survey, and how do the ratios bring value to the industry?

RR: When I attended my first NAPEO meeting in 1989, I realized the industry, because it was in a formative stage, had not yet developed its financial reporting standards. During my tenure with the Accounting Practices Committee, we developed financial reporting standards and industry ratios for PEOs. These ratios serve as measurement tools for the industry, allowing management to compare their PEO with others so they can better understand the strengths and weaknesses of their individual company. Long before Administaff went public, I began teaching Wall Street about the industry by using the financial standards and ratios.

PI: Prior to joining Administaff, you owned a small business and consulted with small businesses. What advice would you give to someone at a start-up PEO who wants to grow his or her business?

RR: Probably the best advice I can give a start-up PEO is you need to begin by looking at the financial ratios. Use the ratios as a tool to help you develop your business model and your budget. Identify which segment of the market you feel capable of serving. Once you determine your basic strategy, stick with it. Tweak it, if necessary, but stick with it. Go to as many of the educational sessions conducted by NAPEO as possible. You’ll not only gain valuable information and insights; you’ll also meet other members who can tell you how they tackled some of the same challenges.

PI: What are your goals for NAPEO as president for 2000?

RR: Over the last five years, we’ve seen incredible growth within the association. My goals are in line with maintaining that momentum and bolstering the objectives of our association. NAPEO was started when a group of small companies joined together to fight for the right to do business. The result was an effective voice for all the industry in the state and federal regulatory arena. The association also serves as a clearinghouse for information the industry gained relating to growing and building our businesses. Additionally, NAPEO has developed an incredible educational program. NAPEO’s goals includ passing our federal legislation, advancing state recognition, building a comprehensive continuing education program to serve varying experience levels and PEO specialties, and strengthening relationships to ensure a unified "voice of the industry." I intend to support all these programs and initiatives during the coming year.

PI: Do small, medium, and large PEOs share common concerns?

RR: In our industry – whether you’re a large or small company – the areas of concern are absolutely the same. If we look at the development models of other industries – such as banking or securities – we see over time, they faced and fought the same kinds of issues, regardless of whether they were large or small. I think we have to look at ways we can help the smaller PEOs operate in a large PEO environment, and I will pursue ways to facilitate that goal over the coming year.

PI: What do you think is important about volunteerism in the trade association arena? As an active CFO, husband, and father, you still find time to volunteer for NAPEO. What makes it worth it?

RR: My experience has been, when you give your time and/or your talents on a volunteer basis without expecting anything in return, you are rewarded in ways you couldn’t have imagined.

PI: Your presidency in 2000 will mark the first time in NAPEO’s history that a second president has been elected from one PEO. (Administaff president and chief executive officer Paul Sarvadi is a NAPEO past president.) Numerous Administaff employees are active players in NAPEO. How does Administaff cultivate talent and earmark time for professional service?

RR: Our philosophy is to hire people for their input. That is, we look for people who have knowledge and skill, but more importantly, we look for people who have a good attitude, a high level of commitment, strong character, and a vision for their job. We also believe in giving back to both our community and our industry. We are honored that the Administaff Caring Employees (ACE) program – which provides corporate employees with up to four hours per month of paid volunteer time – has been recognized with a Points of Light Foundation Citation for Excellence in Corporate Community Service.

PI: What do you think of the PEO industry as an investment opportunity?

RR: The PEO industry has produced consistent, predictable growth over the last 15 years, and the demand for our services remains strong. The industry’s profitability continues to grow, and our market penetration is still very low – at about 3 percent – so the growth potential is huge. Overall, I think that presents a tremendous opportunity for investors, not only for those interested in public companies, but also for venture capital firms looking to invest in private companies.

PI: What are the three biggest challenges a PEO must overcome to succeed?

RR: The three most important areas related to a PEO’s success are its people, its technology, and its regulatory compliance. Like any business, a PEO’s first priority is to make sure it has the right people. Next, it needs to have adequate technology, because the PEO business is an information business. Last, but certainly not least, is making sure the PEO’s business is run in compliance with all the different federal and state regulations related to employment.

PI: What do you see in the future for the industry? For the association?

RR: I believe the future of our industry is bright and offers many potential growth opportunities. The Internet is dramatically impacting the way PEOs do business. Because we’re in the information age, and because the Internet is such a great platform to deliver certain types of services, PEOs are going to have to redesign their business model to accommodate increased use of the Internet and related technologies. The challenge in the future is to segment out services that can be delivered over the Internet versus those that will continue to require personal dialogue and interaction between the PEO and its client companies. Successful PEOs will be those that can achieve and maintain the right balance of high-tech and high-touch.

The Internet’s growth will also cause a PEO’s client base to expand more quickly from local to regional to national. This means PEOs will need their operational infrastructure in place a lot sooner to handle worksite employees in multiple states. As an association, we need to be better positioned to service members consistently all across the country. I am working to research how we can offer expanded educational and member support services online.

PI: When Administaff began operations in 1986, the PEO industry was just getting started. From your perspective, how can PEOs capitalize on the 15 years of experience gained by the industry?

RR: Because of the industry’s development up to this point, PEOs can now finance their growth much easier than in the past. We now have a solid record of established public and private companies. Venture capital firms invest in PEOs, and banks are now lending to our industry. To further leverage the industry’s progress going forward, it’s vitally important we continue building consistency and uniformity in PEO-related licensing and regulation in all 50 states. The more we can standardize how we operate, the easier it will be for us to conduct business in multiple states.

PI: How has your role at the company changed since Administaff went public?

RR: The biggest change is the amount of time I spend communicating with external audiences has increased dramatically. Wall Street, of course, is a very knowledgeable, sophisticated, and demanding audience, so I commit a great deal of time and effort to making sure they understand our business, our strategies, and our economics.

PI: Healthcare is a hot topic for today’s PEO, and NAPEO’s State Group Health Sub-Committee is soon to release a white paper on health plan issues. What implications does the recent market in health care hold for PEOs? How can NAPEO help?

RR: When health insurance benefits rose dramatically, our business grew even faster – not because our benefit costs were less, but because business owners were even more aware of the need to look at long-term alternatives. Because our benefits represent one of the major components of our total service, health care was a likely area for business owners to look at and say, "Not only can I solve the management of my benefits for the longer term, but I can get all these other goods and services as well for not much more." NAPEO can further help this situation by offering constructive suggestions by publishing the white paper, coupled with educational meetings for insurance companies to encourage them to do more business with PEOs.

PI: With so many new companies entering the PEO market, do you ever get concerned about helping potential competitors learn from your past experiences?

RR: Our view at Administaff is the more we can help educate other PEOs about the various issues within the industry, the greater their likelihood of success, which will benefit the entire industry. Besides, our industry has barely scratched the surface of our potential market, so there’s still plenty of room for everyone. This business is bigger than life, and that’s why we have to continually move the industry forward through education and awareness. Ultimately, our competitors will help us improve, and our clients will benefit greatly.

PI: What is your personal or professional motto?

RR: It’s the same for both: Do unto others as you would have them do unto you.

For more information about Administaff, call 800-465-3800.

From the PEO Insider ©NAPEO 1999. Posted with permission. Further commercial publication or distribution is not permitted without the express written authorization of the author and NAPEO.