Fifty calls per day. Six appointments per week. Nine proposals per month. That’s the formula to acquire just one customer at the professional employer organization Group Management Services. But it’s more than an algorithm. It’s an organizational credo, a stone and sling for a team of Davids.
Twenty-three years ago, the company’s flawed founder woke up and realized he was a man with few options. He turned end-of-his-rope desperation into an organization shaped in his image — one that’s poised to generate $100 million in annual sales and grow beyond its 10 Midwest and East Coast offices.
Having just cut the ribbon on a 47,000-square-foot headquarters in Richfield, GMS founder and President Mike Kahoe is proving his detractors wrong as he chases his very real goal of becoming not just the largest PEO in Ohio, but one of the largest in the country.
An early-’90s graduate of Kent State University, Kahoe limped out of college with a 2.2 GPA and into universal rejection from a handful of law schools. He took a few arms-length jobs before falling in at Tradesman International, a company that supplied skilled tradespeople to the construction industry, where he got exposure to workers’ compensation.
That led him to the notion that he could do much the same thing on his own with little capital. So he decided to start his own payroll and workers’ compensation company, but not out of any grand entrepreneurial plan.
“I love it when people accuse me of being an entrepreneur,” Kahoe says from his yet-to-feel-lived-in office building shining like a polished trophy over I-77’s perpetual commuters. “But quite honestly, for me, I really just didn’t have a lot of options. I had a crappy resume. I was a job hopper. I was a horrible student with a political science degree. Nobody else wanted me.”
Kahoe established the shell of the business in the late ’90s, and had a lawyer create the entity, federal ID number and workers’ compensation policy. But before he could land his first customer, he was arrested for DUI on Ohio’s party island, Put-in-Bay.
“I remember coming home from Put-in-Bay, still hung over, realizing that I didn’t have any money. I didn’t have a driver’s license. I didn’t have a job, so I had no income. And it dawned on me that I actually made all of the people who predicted I would be a loser — that I had actually proved them right.”
Rather than give in to his detractors, Kahoe opened up a phone book and got to work.
“I woke up in the morning and I started calling,” he says. “I started calling tree trimmers first, for some reason, and I was just calling, begging for an appointment. I’m sure it was a horrible cold call because I was just stumbling my way through it. I’d never cold called anybody before, but I had to do something to get customers and that’s the only way I could figure out to do it.”
After a couple hundred calls, he landed a four-employee tree service run out of the owner’s house as his first customer.
Now with enough money to pay rent, Kahoe had the confidence to stick with it and started landing a customer each month. As business picked up, he reached out for help.
“I hired a lady from the bank,” he says. “She was a teller. She was always nice to me, so I hired her.”
That spring, with business picking up, Kahoe went on a cold call to a 50-employee roofing contractor.
“The guy really liked me, and he told me he wanted to come and check out our operation,” he says.
Except Kahoe didn’t have an operation. He was dialing for dollars from a duplex. Rather than let a sizable sale slip away, Kahoe took another tact.
“I signed a lease on 2,000 square feet for two years, and then I went to OfficeMax and I bought all the furniture,” Kahoe says. “I stayed up for, like, four days straight putting together office furniture. Then I realized that I didn’t have anybody working there, so I called my friends and told them to get dressed up and show up at my new office and pretend like they were all salespeople and service reps.
“So the guy came in and I introduced him to all my buddies, and as we walked him to his car he was like, ‘You guys have a pretty impressive operation here, Mike.’”
Though he won the business, Kahoe had suddenly strapped himself to significant overhead expenses. His lease payment was $1,500 a month, or about seven times his rent. It was, however, great for Kahoe, who operates best with his feet to the fire and no way out but to run through the flames.
The sales and retention treadmill
Timing has seemingly been on Group Management Services’ side. Outsourcing became the trend as companies looked to mitigate risks, which made the legal arrangement between employers and PEOs, which splits the legal responsibilities of “shared employees,” convenient and popular.
By 2000, about four years after Kahoe won his first customer, GMS reached its first $1 million in sales. The hire of Tim Austin, a friend from college, a few years later, accelerated that growth.
Austin, who from Kahoe’s description is a sort of the superego to Kahoe’s id, established a meticulous, structured and scripted cold-calling sales process for GMS. It became the spiel sales reps would give 50 times a day, a spiel that on average leads to six new business appointments each week, of which five will actually happen. Two of those will advance to the proposal stage, working out to about nine proposals each month. And from those nine proposals, GMS can expect to close one customer.
With its new approach and opportunities abound, sales revenue was growing exponentially, into the tens of millions of dollars. Though the company was killing it in the sales acquisition phase, in the client retention phase, it was not … killing it — or really even paying it much attention.
The exit of the company’s vice president of client services shone a spotlight on a retention issue.
“When she left, we realized that we had a problem — that we’re losing 20 percent of our customers every year,” Kahoe says. “Then you have to sell 30 or 40 percent more just to show some growth.”
Kahoe patched the hole with Stacey Larotonda, now the vice president of client services. He says she started tracking retention and publicizing it within the company, and grading account managers based off of the retention of their customers.
Also helping on the retention end was a shift from selling savings to selling services, and implementing a structured training program so account managers were better at servicing the accounts.
Something to prove
Sales, though, continues to be the foot on the accelerator for GMS. However, sales is tough; it takes thick-skinned and relentless salespeople to be consistently successful. That’s why Kahoe hires fighters.
“I like people who have a chip on their shoulder because I have a huge chip on my shoulder,” he says. “Actually, I have two chips on my shoulder. Each one. But we like that, those are the people that are competitive. I like the kid who lost the state championship in wrestling at 189 pounds because of a bad call. I like the kid who was kicked off the football team a year because he stole a bottle of vodka. They’ve got stuff to prove.”
And it’s working. The company is approaching the $100-million mark in just its second decade.
As Kahoe watches the consolidation happening in the thriving PEO industry, he predicts that eventually there will be five to 10 big PEOs, and lots and lots of little ones, which presented him with a choice.
“I decided to be one of the bigger ones because there’s some tremendous advantages to being able to compete in all 50 states,” he says.
Kahoe has said publicly that GMS is chasing Cleveland Clinic to become Northeast Ohio’s largest employer — even if, because of the legal disposition of the PEO/employer relationship, it’s just a technicality. The company is a little more than halfway there.
His plan to close the gap? Fifty calls a day. Six appointments per week. Nine proposals a month.
“That’s why we want to just keep hiring more people and keep plugging along,” he says. “It’s like riding a bike: if you stop pedaling, the bike is going to fall. I feel like somebody’s been chasing me for 23 years.”
» Success comes one phone call at a time.
» Sales are great, but don’t forget about retention.
» Hire fighters. They have something to prove.