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With Labor in Short Supply, Now is the Time to Revisit Your Business Model

August 24, 2021 6 Min Read Business Strategy
Mario O. Vicari, CPA
Mario O. Vicari, CPA Director, Family-Owned Businesses Group Co-Leader, ESOP Group Leader

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Labor market tightness is at unprecedented levels. Most companies are struggling to find workers, wages are rising, and help wanted signs are everywhere. It’s become so difficult to find workers that many companies are offering signing bonuses, including my local Wawa.

Many believe the continued flow of federal money in the way of supplemental unemployment benefits and child tax credits is fueling this situation, and hope to see an end in sight as the unemployment benefits expire. While the expiration of benefits may cause some workers to return to the labor force, this factor alone is unlikely to fully solve the structural imbalance in the labor market.

There has been a shortage of workers for years, especially in skilled jobs like manufacturing and construction. Much of this is being driven by a number of structural factors, including the following:

  • The U.S. birthrate began to decline during the financial crisis and is now 1.6 births compared to 2.1 ten years ago. The pandemic may exacerbate this problem.
  • U.S. immigration has been declining.
  • Many of the baby boomers continued to work through their sixties either out of want or necessity, but the oldest of them are turning 75 and they are dropping out of the workforce. COVID has accelerated this trend since that age cohort is at greater health risk.
  • Many workers, having been laid off or thrust into remote work to care for their children during COVID, have become self-employed and trends indicate that many plan to stay that way. This situation is made worse by lack of day care due to safety and labor issues.

Based on what I am reading, it seems reasonable to expect that an overall tight labor market may persist for some time. While many companies are focused on the retention strategies and increased recruiting efforts, I believe that this situation represents an opportunity for every company to re-evaluate their business model and tactics to deal with it. Here are four ideas:

  1. Outsource – While the pandemic has accelerated the underlying labor issues, it has also forced us to learn new work techniques that leverage communications technology and remote communications. Satya Nadella, the CEO of Microsoft, estimates that COVID has accelerated technology adoption by 10 years. One way to use this to your advantage is to consider outsourcing certain functions of your business, especially the non-value added activities. These will be different for every company, but technology adaption offers many more opportunities to outsource work. This is not a typical consideration for most companies but will likely become a requirement for many in the present environment.

  3. Technology Adaption – Most private companies don’t look at technology as a strategic asset but rather a necessary utility. I believe that is going to have to change. Investments in new technology that make processes more efficient and thus reduce the reliance on people to complete tasks is another area that will likely be a necessity for many companies. For smaller companies without large IT budgets, there is some crossover with outsourcing here. More powerful tools coupled with significantly expanded bandwidth allows access to more technology than ever.
  1. Geographic Expansion – As stated earlier, we have all had to figure out all remote work tools in the past 18 months in order to maintain our businesses and be flexible as we were thrust into a new environment. It may be worth considering expanding your hiring for certain positions beyond your typical geographic location since many tasks can now be done remotely with improved technology and connectivity. For instance, does a customer service representative really need to be local in order to handle inbound customer calls? One of my clients has all customer service representatives working remotely in different states. This is just one example, but there are likely other areas in your company in which similar tasks can be done from any location. This won’t apply to every position, but even if it works for certain jobs in your company, it may take some pressure off your hiring needs.
  1. Revenue Management – I have written on this subject many times. When resources are constrained, revenue management is one of the most important things a company can do to cope with such limitations. All too many companies are focused on volume as a measure of success as opposed to profits. Volume equates to work which equates to resources and people. Volume does not necessarily equate to profits. With constraints on people, it is time to re-evaluate your customers and product lines and get clear on how they each contribute to profits. Not all customers and product lines are created equal and when you are able to identify those that present an imbalance between work (volume) and contribution to profit, you start to realize that it may be time to get rid of the non-contributors. This means intentionally reducing revenues which is counterintuitive for many companies. By eliminating bad customers and product lines, you can reduce revenues, the amount of work, and the number of employees while increasing margins.
    We have completed revenue segmentation projects like these with many companies and it is a rare case that profits don’t increase by getting rid of bad customers and product lines that waste resources and don’t contribute to the bottom line in a way that is commensurate with the effort involved.

Not everything mentioned above may work for every company, and it is likely that most companies will have to undertake several different strategies to address the problem. However, I believe that waiting for the labor markets to return to the way they used to be is likely a failed strategy. It is best to be proactive and to start adapting your business model to address the evolving structural changes in the labor markets.


Mario Vicari, Kreischer MillerMario O. Vicari is a director and a specialist for the Center for Private Company Excellence. Contact him at Email.   



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Mario O. Vicari, CPA

Mario O. Vicari, CPA

Director, Family-Owned Businesses Group Co-Leader, ESOP Group Leader

Construction Specialist, Family-Owned Businesses Specialist, ESOPs Specialist, M&A/ Transaction Advisory Services Specialist, Transition/Exit Planning Specialist, Business Valuation Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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