8/10/12

1099's in the House

Enterprise by Design (Part 5)


It’s a vendor, it’s a customer – no, it is an independent contractor.  Independent contractors, 1099’s, are a significant part of the American workforce.  There are certainly 1099 vendor only contractors but these are easier to work with and defined.  The 1099’s that impact operations and relationships in an enterprise are those that blur the definition with activities and characteristics as both a customer and a vendor. 

The opportunity and challenge is in knowing which hat each party is wearing at the point where money is a part of the conversation.  This is particularly true in companies that use independent contractors as their primary staffing of projects and sales organizations where the sales are not necessarily company driven.

Consulting companies, particularly IT services companies, frequently employ 1099’s to bring specific expertise to client projects.  This use makes sense as hiring a permanent employee for a limited time project would not be a good decision. It allows the company to meet demand without having high overhead.  It also means that resources are not necessarily instantly available when you need them.

Real estate companies, due to licensing laws have a special arrangement with independent contractors that aligns the 1099 with the company closer and for longer terms than the 1099 who is basically a freelancer. A real estate agent, associate broker who affiliates with a broker is differentiated from staff first by compensation.

Particularly in situations similar to the consulting 1099’s and real estate licensee 1099’s, the enterprise needs to see them and provide interaction to meet the needs of both customer and vendor relationships.

They are a customer in that they need tools, services, expertise, management and resources of the company and purchase these with either a fee or a portion of earnings.   They are a vendor in that they have tools, services, expertise and in some cases, either relationships or inventory that the company will leverage and profile as its own through the affiliation buying these at a negotiated rate, contingent fee, or fee for service.

So where do the challenges occur?  Recruiting is a great example in both consulting companies and US real estate companies.

It seems that the pursuit of the independent contractor due to either need or competitive pressures often seems to have what the company is offering of value fade to the background.  The independent contractor feels the power that is driven by the passion of the company’s pursuit and the balance that should be the value received by both vendor and customer, in the negotiation is lost.  It is almost as if these companies come in with wallet open saying what do you want and what will it take to get you? 

Most recruiters in the pursuit not only abdicate negotiating position but also set in motion an expectation that will continue throughout the tenure of the relationship and into any subsequent negotiation.  It is often the beginning of a management nightmare.   A lot of this occurs because the recruiter is compensated on immediate recruiting results rather than good judgment, quality or alignment with the long term needs of the company.

The impact to an enterprise is even more significant than a company that has only one core business.   The value and opportunities that could be leveraged across the enterprise have not been a part of the value proposition in the beginning and will be difficult to engage without significant work, probable negotiation and competition of outside relationships that the 1099 may have had prior to affiliation or contracting to a project.

It is both a customer and a vendor relationship that should be defined by value given and received.  The 1099 strategy for staffing is a great option but one that needs a business focus from the beginning. 

Perhaps in negotiations some of the lyrics from either the Black Eyed Peas song called “House” or LMAO, Steve Aoki song – “I’m in the House” should resonate in the owner and recruiter’s heads.


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