Small firms plan growth with long-term contingent labor model


By Ann Meyer

Bernie DiMeo launched Bernie DiMeo Communications two months after closing DiMeo & Co.
Public relations consultant Bernie DiMeo relies on independent contractors to keep overhead low

When Bernie DiMeo shuttered his advertising firm last year after 22 years in business, it signaled a new beginning.

Within two months, DiMeo was back, having switched his business from DiMeo & Co., a full-service agency employing 15 workers, to the new Bernie DiMeo Communications, a small public relations firm that relies on independent contractors. He also launched an online apparel business, Rocco Shirts Chicago, out of his home, creating part-time jobs for his wife and oldest son, who recently graduated from college.

“I’m adjusting to the new normal,” DiMeo said. “In this business climate, you better have several streams of income. And, in my opinion, it’s better if they are unrelated,” he said.

DiMeo’s sentiments are being echoed by many small business owners who downsized during the recession and have yet to add workers, experts said.

More firms use independent contractors

Payroll data from Glenview-based SurePayroll indicates 5.35 percent of workers paid in February were independent contractors, up 40 percent from 3.82 percent in February 2009.   What’s more, a new report by the Kansas City, Mo.-based Kauffman Foundation indicates while entrepreneurial activity has increased since the recession started, most new businesses are not generating full-time positions. See the related SmallBusinessChicago story.

While the sluggish economy is spurring small businesses’ growing reliance on contractors,  it could be  a long-term trend, said Michael Alter, president of SurePayroll.  In Illinois, SurePayroll’s data indicates employment was down 2.7 percent in February, while use of independent contractors was up 1.6 percent, Alter said.

A new employment model

“This is a permanent change,” Alter said. Technology now makes it easier for companies to find freelancers, while also making it possible to work virtually. What’s more, small business owners recognize the value of paying independent contractors a higher hourly rate but for fewer than 40 hours.

DiMeo is among those who use freelancers to reduce overhead costs, such as office space, health care and other benefits. “Now I don’t care if I never have another full-time employee,” he said. “I feel better being small and manageable,” he said.

Likewise, many former full-time workers like the flexibility of freelance work. Keith Romero, principal at Krome Communications, worked in several different public relations and marketing communications positions before hanging out his own shingle three years ago, when his mother was seriously ill with cancer. At the time, Romero felt he had no other option.

Flexibility a big draw

Now, he said, he has no plans to return to full-time employment.   He likes the flexibility and the fact he can take on jobs he is passionate about even if they don’t pay well. What’s more, Romero said, he hasn’t been pigeon-holed into one specific discipline and looks for ways to diversify.

“One upside to this down economy is increased entrepreneurial spirit,” Romero said.

While Romero said he works seven days a week, he also takes time off during the week. Many others choose freelancing because it allows them to work part-time and set their own hours. Public relations consultant Robin Boesen has worked for DiMeo in on and off for 14 years. Boesen, who has two school-aged children, said she likes the flexibility because it allows her to be involved in her children’s after-school activities. Thanks to technology, she said, “You really can work from anywhere, anytime.”

While many people start freelancing out of necessity, some like it so much they’re unwilling to return to a full-time office job, Boesen said. “They’re going to continue to freelance even as you see more help wanted ads,” she said.

So far, finding talent hasn’t been an issue for DiMeo. He relies on three contractors whom he has worked with before.

For Christa Rivera, who had been a summer intern for DiMeo in 2009  while a student at Columbia College, serving as a freelance account director and art director for DiMeo means she can teach dance about 10 hours a week. “This way I get the best of both worlds,” she said.

Less overhead means lower prices

While relying on contractors keeps small businesses nimble, the contingency labor model generally results in lower prices for customers, giving small firms an advantage over larger competitors with more overhead.

“The new normal is lean. Prices and fees are less expensive,” DiMeo said.

With less pressure to generate more and more revenue, DiMeo has fewer headaches. He prices projects on an hourly basis and drafts plans based on his clients’ budgets. “I go in and say, `You tell us how much you can afford to spend, and I’ll tell you how many hours I can put toward it,'” he said.

DiMeo and his team of freelancers meet as needed at his office, a coffee shop or over lunch. But most of the work is done virtually, Romero said.

Even as the economy strengthens, Romero expects more businesses to work with virtual staffs. “I think the future will be vagencies, virtual agencies,” he said. “More overhead doesn’t reflect more creativity or greater problem-solving skills.”

Expansion a possibility

DiMeo said he shifted his focus back public relations, where he had started his career, because it is easier to manage than a traditional ad firm in this economy. But he hasn’t ruled out expanding the firm or the online apparel business, or adding a third company to the mix.

“My hope is I will at least keep two businesses, maybe more,” DiMeo said. “It used to be OK to be an entrepreneur. Now you need to be a multipreneur,” he said.

Posted updated March 15, 2011