Report: How did you learn the temporary help business?

Chuang: We learned it just by doing, trial and error in the market. All we knew when we started was a good desktop publisher when we saw one - which is maybe the most critical element. At our company a big thing has always been how do you continuously improve. None of us who started MacTemps has ever worked at any other company before, we don't have this legacy from the past. When we started the company as college kids, we were very idealistic and we wanted the company to be a great place to work - lots of fun, learning, responsibility, autonomy, get paid well, and work with friends. Those are the same values we try to keep today.

The downside is that by being a really small group of people who are learning everything on our own, we reinvent the wheel a lot. That's why a lot of our people go back to school, and that's why we desperately seek information from the outside to continually learn.

For instance, we never had budgets before 1992, because we thought they constrained people's spending. But what we found was that they liberate people's spending. You're giving them resources that they then can use to do whatever they want. Now, everyone on our staff has a certain resource account that they can use. They can use this power of the purse to improve the company however they want. That's how we budget.

R: Does every branch manger have a resource allocation?

C: In our structure, we don't even have branch managers. We have market managers that oversee a group of branches. We have headquarters, market managers, and everyone else. There are very few layers in our company.

Everyone has company resource accounts, even our administrative assistants, to use for anything they want - to take courses, buy furniture, buy computer equipment and software, hold parties for temps, run advertising.

R: So it sounds like a key element of your management strategy is the resource allocation. What are the other elements?

C: A flat organizational structure is incredibly important in our company. Our headquarters staff went from eleven people two years ago to nine people this year - in spite of the fact that our sales in the last two years have more than doubled. We think a flat organizational structure benefits everyone. It benefits the employees because they get more responsibility, more autonomy, and more authority. We think our customers are happier because it enables us to make decisions quicker.

A flat structure also gives us the ability to pay our people more because we don't have this whole middle layer of management that soaks up lots of money. That helps our retention and keeps people happy.

R: What kind of control mechanism is in place so employees know what is expected?

C: We replace control with trust. We trust our people to make the right decisions to grow our company.

We make sure that employees understand the values of the company. We have four principles. One of the principles is holism. We want everyone in the company to act as one company. We don't want headquarters versus branch, perm versus temp, support staff versus managers, or branch office versus another branch office.

One way we do that is by networking our offices. That's how they get all kinds of financial information. I hate the organizations that are secretive with financial data and billing data. Field office people really need to know that data in order to manage their offices.

The second way to achieve this holism is by enabling people to meet frequently. I just came back from a weekend in Cancun with all of our employees who have worked a certain length of time - just to have a lot of fun. We fly everyone in the company to Boston once a year for "Back to School," to meet and talk about the company's goals, values, future direction, and priorities.

R: What are the other key principles?

C: The second thing is that people make the difference. In our industry there are no economies of scale. There are no patents, technologies, or breakthroughs that can give a company an edge. We're in an industry where everyone does things the exact same way and everyone has the exact same information. Despite this, some companies are really successful and grow and make lots of money, and other companies don't.

Everything that we do is about getting great people - making our company a great place to work, giving them the resources to contribute to the company, making sure that they know the goals. It sounds kind of hokey, but in a service business all we have is the ideas and efforts of our people. That's why all of our offices are networked and everyone's on e-mail. That's why we encourage lots of education, because it's all around this concept of people.

Our third important principle is to seek competitive advantage by giving value to the consumer. This really helps us set priorities. If you want to prioritize needs, ask what the customer would say you should do.

That's why so many things in our company are outsourced. That's part of our flat structure. We don't have an accounts payable system; we don't do our own payroll, benefits administration, or technical support. That's how we get away with having nine people at headquarters, because we outsource any function that is peripheral to our main business of recruiting and placing temps.

R: And the fourth guiding principle?

C: The last principle is continuing improvement. Our goal isn't to reach a certain point. Our goal is to always get better. Although we introduced a great benefits system, we're not resting on our laurels.

We constantly do surveys of our employees, of our temps, and of our customers. This whole feedback mechanism is really important to our company. It's frustrating at times, especially for our employees, because they feel that they never reach the end - until they understand that the end is the process of continually improving.

R: What's your turnover rate?

C: For our inside staff the turnover is very low. We don't really lose many coordinators a year, especially ones that we really want to keep. These are people that we give a lot of time and attention.

In addition, I think we're the only people in the industry who think about temp turnover. We hate temp turnover. When a temp turns it means you have to interview someone, which is a waste of money and time. You have to send that new person out on an assignment, which is a quality problem, because despite interviews and testing, the only way you know how good they are is by sending them out.

R: How do you reduce temp turnover?

C: Temps obviously care about benefits. Temps care about training. Of course the major thing to do - and it sounds too obvious - is you want to hire temps that want to be temps. Too many temps don't want to be temps - they want a "real job." So if you hire these people you guarantee turnover and you guarantee hiring somebody who is grumpy and dissatisfied and bad-mouths temp agencies. You're their last resort.

R: You create a sense of affiliation?

C: Right. We don't want our temps working for other firms. We want the very best temps to work for MacTemps. That's what gives us pricing power - when we have temps that are really good that customers can't get from other agencies. If you compel people to work only through your company by giving them something better, you also have loyalty. You're sending out people who are tried and true, and you don't waste money on recruiting.

R: How would you rate your benefits?

C: It's the best in the industry because it's attainable and it's quality. I get the same benefits package that our temps get. Also, we pay for the benefits. I think a lot temporary help companies offer benefits but they don't pay for them.

If you work 300 hours in a two-week period, we pay about 60% of your health insurance. We give you a 401(K) plan, which matches 24 cents on the employee's dollar. At 1,200 hours you get holiday pay and at 1,500 hours, vacation pay. At 1,700 hours we pay 100% of medical benefits.

R: Are you able to find career temps and offer benefits because you're a specialty service working with highly skilled, fairly highly paid temps?

C: I think that there's room for good, creative thinking for companies that are in other markets. Retention of temps is important for all types of temp help companies. Temporary help companies have to worry about sales so much because they're churning clients, temps, and staff. If you don't get new business and clients you're doomed, because all your old ones are mad because everyone is leaving and as a result, they're getting poor service. It's a cycle of doom. You can turn that into a virtuous cycle by retaining temps and staff, boosting your profits, and paying more.

In our company, we don't have sales people. We have no commissions. If we worry about retention and we give great service, we'll get the sales.

I have nothing against sales. I think sales done properly is really good. In fact, I think we should do more and better customer contact. But in the past we haven't.

R: Now that Apple is a bit shaky, will it impact MacTemps?

C: It's certainly good at stopping people from entering our market. Everyone thinks we're linked with Apple's fortunes, and to some extent we are. But remember, we don't care necessarily about how much money Apple makes. Their stock is going down and their margins are going down and they're starting to lose money. But the point is they're selling more computers than ever. Thy have an installed base of 20 million Macintosh users - and that's going up.

Customers use us for software, not hardware, anyway. So as customers switch, we would switch.

R: How are your new brands?

C: Portfolio by the end of this year is going to be the second largest graphics agency in the nation - behind MacTemps. Portfolio does more creative work, more design-oriented rather than the production-oriented work that MacTemps handles.

The second use is 1-800-NETWORK, which was called Enterprise. Enterprise was a little bit of a marketing and focus mistake. All of our brands are fairly focused because, in order to deliver value, we can't try to do everything. We tried to make Enterprise deal with the client/server issues. That's just too broad. So we re-focused that brand on networking. And now the big question is whether or not we can name ourselves after a phone number. Not that many people work for a phone number.

The reason why we opened this division is we have a very fast growth rate. All of our growth is internally generated. We don't make acquisitions. We believe the way we're going to keep our top line moving up, which gets harder and harder every year, is by opening up new services and new businesses. So that's part of our strategy of continuing to leverage our operations.

R: Why don't you make acquisitions?

C: The reason why we don't do acquisitions is that we are not a public company. Public companies tend to do acquisitions because it's a way to arbitrage the difference between the pricing of a public company and a private company. They can issue paper that's at a higher PE ratio than what they're buying, and it's immediately anti-dilutive. It increases their earnings per share, which gives them the consistent quarterly earnings growth they need to maintain stock price.

We don't view this as a long-term strategy. As a company gets bigger, acquisitions significant to the bottom line get harder to find. Whereas, if you introduce new products and new services, you can spread that over your network to your customer base - and that is definitely continual. Ultimately, that's how you add value - by introducing new services that are of value to customers at an increasingly rapid pace.

Making acquisitions is not running a staffing business. There's no core competency in making acquisitions per se. If you can't integrate it and fundamentally provide value to your customer such that you grow internally, what good is the acquisition going to do you? You make the acquisition and you have this company with all these sales. If you can't get it to grow internally at a fast rate, if you can't get high margins, if you can't have it stop the cycle of doom, you're just wasting your money.

Operating as a private company gives us the flexibility to be more proactive in opening operating businesses. It decreases our ability to do acquisitions because we don't have paper to give. But that's not what we're trying to do.

R: It doesn't sound like MacTemps is a likely candidate for acquisition either.

C: No. We're out there to make a difference in the world, to really add value, and to make at least one little company that's indeed a great place to work for our staff and for our temps, and to deliver exceptional service to our customers. I feel we can do it much better on our own than as part of another company. We're going to be a separate entity for a long time.