Major scale: Behind First Step Staffing’s outsized acquisition
By Dave Shaffer | Georgia Nonprofit NOW, Spring 2017
After years of running his own thriving businesses, entrepreneur Greg Block decided to make an abrupt career change: founding a nonprofit staffing firm, First Step Staffing. With a curiosity and desire to contribute to the Atlanta community, Block spent time with Atlanta Mayor Shirley Franklin, who suggested that the city’s most pressing problem was finding sustainable solutions for homelessness. Looking at this complicated issue, Block saw the opportunity to use business as a tool. Temporary staffing, especially in light-industry, offers thousands of dignified jobs per day that do not require advanced education or strong prior experience. In 2006, First Step was officially opened, hiring as its first employees a group of Atlantans who had recently experienced homelessness.
In the years that followed, First Step continued to grow organically. By 2015, we employed as many as 100 recently or currently homeless people per week. With a growing headquarters staff and strong connections to the Atlanta community, Block’s vision was, by all accounts, a success. However, Block was not satisfied. After proving the viability of his idea and its potential for growth, Block felt that First Step’s job would not be finished until every person experiencing homelessness in Atlanta had a sustainable income.
Block achieved the seemingly impossible: A nonprofit bringing in roughly $1 million per year raised the capital to purchase a major for-profit staffing company with annual revenues of almost $18 million.
In late 2015, Greg Block’s desire for First Step’s significant growth in impact came to fruition. With support from Dentons law firm and a score of others, and after months of vetting and negotiations, Block achieved the seemingly impossible: First Step, a nonprofit bringing in roughly $1 million per year, raised the capital to purchase a major for-profit staffing company with annual revenues of almost $18 million.
Acquiring the Atlanta operations of LGS Staffing was an unprecedented strategic move. We were able to raise over $7 million through a unique financing structure comprised of commercial financing, government investments, and philanthropic investments, which has since been the subject of discussion in local publications and university classrooms. By December 2015, the $7.5 million deal was complete, growing First Step by a factor of ten almost overnight.
When First Step purchased LGS Staffing’s Atlanta business, it obtained two key resources. The first was the invaluable LGS Atlanta staff. Experts in their field, these men and women came with a wealth of knowledge about the staffing industry and light-industrial employers in Atlanta. Fortunately, all of the LGS employees who remained with us were more than happy to adopt the mission of their new employer – to combat homelessness in Atlanta.
The second key resource was the LGS customer pool: With the purchase of LGS Atlanta, we also took control of all their customer accounts. Even better, First Step did not lose a single LGS customer in the transition. Last year, we billed more than 100 Atlanta-area companies for staffing services, earning more than $19 million in revenue; after the acquisition, the number of individuals we employed skyrocketed from a maximum of 100 per week to almost 1,000. As the employee pool evolved under the First Step mission to include more military veterans and those who had recently experienced homelessness, we are proud to say that, by the end of 2016, more than two-thirds of our workforce came from those key populations.
Looking forward, we plan to continue growing our business in Atlanta, increasing the number of clients and job opportunities for veterans and those who have experienced homelessness. For instance, we recently started offering employment at SunTrust Park, putting roughly 100 employees to work at each home game. At the same time, we are looking closely at several other cities as potential expansion sites, and are close to acquiring a for-profit staffing company in Philadelphia using the same kind of financing model we found success with in Atlanta.
This unique blend of capital was secured by [convincing] funders that they could both make an impact and make their money back.
Looking back at our pursuit of this plan, we’ve identified a few lessons vital to our success. Some of the topline takeaways worth considering in your own attempt to navigate an ambitious acquisition or merger:
Find a funding coalition. Raising several million dollars to make an unprecedented purchase is not a simple task, requiring a network of sources and a delicate series of negotiations. Our funds were secured from an array of commercial lenders and philanthropies in Atlanta: traditional lenders like SunTrust Bank, civic organizations like Invest Atlanta (working through a private capital company), and local philanthropic foundations (including United Way of Greater Atlanta, The Wilbur and Hilda Glenn Family Foundation, The Cousins Foundation, The Nonami Foundation, and The Kendeda Fund). We even had some funders beyond Atlanta, including a community development financial institution, LEAF, in Boston. This unique blend of capital was secured by Founder and Board Chair Block, who convinced funders that they could both make an impact and make their money back. Once negotiations began in earnest, I used my own experience in financial planning to secure a deal that worked for all parties.
Onboard personnel by spotlighting strengths and opportunities. Facing an entrenched problem, and headed by a creative and persistent entrepreneur, the First Step board had been well aware of the need for the organization to scale; thus, they were ready to approve a bold plan to meet that challenge. Meanwhile, our existing staff was enthusiastic about the opportunity to grow their impact and, in the LGS Atlanta staff, to add experienced senior leadership to the team. For their part, LGS staff felt a greater sense of on-the-job purpose with the shift from for-profit to nonprofit work. To manage this complicated blending of cultures, Block sought a CEO who could not only cement the deal with lenders but help combine two disparate staffs and cultures; my previous experience as a CFO, COO, and CEO have all been helpful to the process.
We knew that some prior LGS employees would naturally leave the organization, so First Step leadership developed several key metrics to track a wave of new employees.
Transition with care. Another key to our success was to bring in all existing LGS Atlanta employees, nearly 1,000 in total, in a deliberately paced manner. Rather than all at once, LGS gave First Step 60 days to transition people from their payroll system to ours. At the same time, we knew that some prior LGS employees would naturally leave the organization, so First Step leadership developed several key metrics to track a wave of new employees who had recently experienced homelessness. By the end of 2016, we had achieved our workforce composition goal: 60 percent of our employees were individuals who had recently experienced homelessness.
Payback isn’t just financial. We keep our investors and supporters happy by making sure they’re informed as well as reimbursed. In addition to paying them back in accordance with our agreements, we provide consistent financial updates on the timetables they specify, reach out regularly with newsletters, meet with them as needed, and pick up the phone whenever they call. The bottom line is that our partners want us to succeed because they know we’re playing for the same team.
Dave Shaffer is CEO of First Step Staffing.