They would start a web-based company.
College roommates at LSU, best friends and wannabe entrepreneurs Will Boudreaux and Stuart Ethridge would take what they had learned about outsourcing payroll and finance over a dozen years at ADP and offer those services online.
“We were at the right age and the right time to be naïve enough to say, ‘We think we can do it.’ Looking back, if we’d have known everything there is to what we got into, we might have thought differently,” Boudreaux laughed. “But they say sometimes ignorance is bliss, so it worked out fine.”
As mission statements go, ignorance is bliss may not be the worst for a startup, especially one based on the then-taboo combination of the Internet and financial services. At the time, people didn’t trust the Web’s security or a lot of the online businesses, Boudreaux said.
The partners knew their idea was solid. Now all they had to do was convince their clients.
They opened Netchex in 2003, cobbling together their savings and a loan from the U.S. Small Business Administration. Boudreaux and Ethridge figured their company could make it 18 months with no revenue. But their first-year goal was $250,000 in sales.
Netchex clocked somewhere between $600,000 and $700,000.
In every year since, the company has exceeded its revenue goals, Boudreaux said.
Annual revenue is now about $14 million. The company has 115 employees spread among its corporate headquarters in Mandeville and offices in Baton Rouge, Jackson, Mississippi, Atlanta and Dallas. The company recently announced plans to add 240 employees over the next decade in Mandeville.
Boudreaux said there was really nothing in the partners’ background that made them naturals at outsourcing, no childhood event that pushed them in that direction, nothing that made the field particularly attractive. Basically, he was graduating from college and needed a job.
But he loves to create and build things, Boudreaux said. Netchex has just been a really fun project.
The “project” has been a frequent visitor to the Inc. 5000 list over the last several years and is expected to reach $20 million in sales and 170 employees in the next 36 months.
Netchex’s growth is taking place in a large and increasingly restive market for financing and accounting outsourcing, or FAO. From 2011-2014, the finance and accounting outsourcing market grew from $3.9 billion to $4.6 billion, according to Everest Research Group. About 55 percent of the contracts up for renewal were terminated in 2013, as buyers switched to new providers
Competition is also increasing, according to Everest. Ten years ago, the three largest FAO firms controlled about 70 percent of the annual contract value. Those firms’ market share is now less than 50 percent of annual contract value.
Meanwhile, companies with 1,000 to 10,000 employees are increasingly moving to outsourcing solutions, according to the American Payroll Association. Those companies traditionally processed payroll in-house. Now they want the same sort of sophisticated outsourcing services their larger brethren enjoy.
Netchex is offering those sorts of services, such as smartphone apps that connect workers to their time and attendance records, to the next layer of employers, those with 20 to 1,000 workers.
While that sounds like a large pool from which to draw, more than 90 percent of companies have 10 workers or less, Boudreaux said. The company’s targets typically have invested less heavily in human resources and accounting, and they have been underserved by FAO providers.
Netchex helps those companies run leaner, while using data to improve efficiency.
The startup that focused on payroll outsourcing now offers a dramatically larger array of solutions. In addition to the core services, such as payroll, direct deposit and tax management, Netchex’s software helps clients with recruiting, getting employees onboard, punching in and out, enrolling in benefits, performance reviews and training.
The market is saturated with companies that can do payroll, a service so common it’s practically commoditized, Boudreaux said. Netchex’s pitch doesn’t really involve payroll.
Instead, the company asks how clients are handling the Affordable Care Act compliance or temporary health coverage under the Consolidated Omnibus Budget Reconciliation Act, or COBRA.
“How are you handling all of your recruiting efforts? How are you getting all of those employees onboard and … in a consistent and seamless fashion?” Boudreaux said. “And when we get them in the technology, they see that workflow and all points are covered, it’s a big difference-maker.”
Toward that end, Netchex invests millions each year to maintain and improve its software and develop new solutions, Boudreaux said. Twenty-five of the company’s 115 employees are software developers, and that division is expected to grow as Netchex does.
“Most people know us as a payroll and human service firm, but what we are is a technology firm that delivers payroll and human resource services,” Boudreaux said.
For example, this is the first year the federal government will require employers to report health care benefits on a new Internal Revenue Service tax form, Form 1095-C, similar to a W-2.
It’s a complicated endeavor without the right tools, Boudreaux said. Employers have to collect this information on employees and their dependents, as well as the plan details from the insurance carrier, and make sure the data complies with the Affordable Care Act mandate and is in the proper government form.
If an employer doesn’t already have systems in place to accomplish this, that company is in for an uphill battle, Boudreaux said.
Boudreaux said Netchex has also pushed into “employee empowerment” products.
A client’s employees can use Netchex software to update their personal records, reprint paychecks, request time out, and clock in and out, he said. Nine out of 10 companies are looking to give workers this ability, which removes some of the traditional bottlenecks in payroll and HR.
That fits with another outsourcing trend, according to Everest. Companies want their FAO provider to do more than cut costs. They want their FAO contractor to help them better manage their people and their business.
Boudreaux puts it this way: “We pride ourselves on being passionate about what most business owners don’t think about when they get into business,” he said. “Our mission is to allow business owners and companies to get back to focusing on their business passion. That’s what we’re all about.”
Follow Ted Griggs on Twitter @tedgriggsbr.