Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
At a recent meeting with a client, Eric Blais, president and co-owner of Toronto-based Headspace Marketing Inc., faced a question he has heard in one form or another many times before: "So, you rely heavily on freelancers, don't you?"
"It's a loaded question," says Mr. Blais, whose company helps its clients – major consumer brands such as Weston Bakeries, Molson Coors, Royal Bank of Canada and Johnson & Johnson – build their brands in French-speaking Quebec. "I think it's a subtle way of asking, 'Are you virtual or are you solid?'"
Mr. Blais understands the concern behind the question. Clients want to know they're dealing with a stable company, one whose employees aren't constantly changing and needing to be brought up to speed on a project.
Headspace, which has eight full-time employees in project management and business development roles, provides consulting or full-on marketing communication services for the Quebec market, helping clients such as Virgin Mobile adapt existing campaigns to a Québécois audience, or creating new campaigns from scratch, as it did for Quebec bread manufacturer Gadoua Moelleux.
The company has been using freelance designers, art directors and translators since it opened for business in 2004. Mr. Blais says quality and continuity have never been a problem because Headspace draws from a pool of seasoned people, many of whom have a longstanding relationship with the company.
"Some of these freelancers are so involved in our business, and many of them work with us 35 to 40 hours a week and have been doing so for almost eight years," says Mr. Blais, who co-owns Headspace with business partner Suzanne Shannon.
"We have three independent contractors on a retainer and more than 10 independent contractors who work with us on a regularly weekly basis," he says. "It's not a unique model – many, many agencies rely on freelancers."
Still, with Headspace growing year after year, Mr. Blais and his partner are considering bringing creative talent in-house. Mr. Blais declined to disclose the firm's revenue, stating only that Headspace hit the $2-million mark after five years of operation.
"When does it make financial sense to have more employees instead of contractors?" Mr. Blais asks. "Where is that tipping point where, independent of the optics, it now makes business sense to move from a more virtual model to a more traditional, employee-based business structure?"
THE CHALLENGE: Should Headspace Marketing start building a full-time creative team and reduce its use of freelancers?
Nancy Stabback, small business consultant and owner of Padgett Business Services, Orillia, Ont.
Headspace has freelancers so involved that they appear to be permanently contracted. It may have gone past the point where they want to become employees without some financial cost to the company.
All in all, there will most likely be a financial cost, but this comes with benefits as well. The control over the provision of services should be weighed against this cost. In most cases this control factor is a key tipping point that allows for other changes in the business model to occur. Hence, in a growing company, it is inevitable that this change will occur when the growth is hindered by this lack of control. If that is where Headspace is in its evolution, then it is time to take control based on the profitability and viability of its operations.
Carolin Rekar Munro, associate professor of leadership and human resources, Faculty of Management, Royal Roads University, Victoria
The decision to go with full-time staff versus freelance should depend on performance indicators of the business. Is Headspace's use of freelancers reflecting negatively on the bottom line, or on client retention?
If this is so, do a bit of digging to see the root of the problem. Then maybe do a bit of test driving – add one employee and see how that changes the performance indicators.
If, on the other hand, what he's dealing with is primarily people's misconceptions, then I suggest he take this opportunity to market the fact that he has an awesome team of freelancers, and that this is his strength – with freelancers he can bring in people with exactly the right experience as the clients need them. Turn this perceived disadvantage to a competitive advantage.
Barbara Bowes, human resources consultant and president, Legacy Bowes Group, Winnipeg
As a business that also uses contractors, I have had this happen more than enough times myself. From a financial sense, it would probably be better to bring that contractor in-house as an employee, or hire an employee to do that work. It's still typically cheaper than paying a contractor, who typically charges higher hourly rates.
From a contractor's point of view, they might be willing to trade in their higher rate in exchange for stability. But Headspace needs to keep in mind that if its contractors have close contact with its clients, and has developed a relationship with them, then Headspace is at risk as the contractor can walk off with the client.
Headspace should assess where most of its workload is and what specific talent is required. Then if they want to hire an employee, look for one that has the skills that are most frequently used. I would then use a contractor for specialized work.
THREE THINGS THE COMPANY COULD DO NOW
Conduct a performance check
Headspace should look at its business performance indicators – revenue, profit and client retention – to see whether they're slipping. If they are, figure out what's behind the negative figures.
Compare benefits versus costs
Weigh the advantages of hiring full-time employees – such as greater control over the work – against the cost of taking this step.
Press your advantage
Who says having a mostly freelance crew is a disadvantage? List all the benefits to clients of working with a virtual business and make them part of your competitive edge.
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Interviews have been edited and condensed.