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Erik Vonk: How To Become a "Company of One"

How Workers Can Transform Themselves Into A Powerful “Company Of One”

 
Erik VonkErik Vonk

 "The number of independent contractors, freelancers and solopreneurs has more than tripled since 1980, creating a new workforce reality." Erik Vonk

Welcome to a Innovation Channel podcast on TotalPicture Radio. This is Peter Clayton reporting. According to their Web site,  Back Of The House, (which uses acronym BOTH), the company transforms self-employment into a "professionally configured and completely supported company of one, providing a resource that fully integrates the key components of running your own business simply and cost-effectively."

Joining me today to tell us about BOTH is the company's founder and CEO Erik Vonk.

"Our model is based on the fusion of the employer and employee roles and has been designed for anyone who works independently as a freelancer, independent contractor, solopreneur, or as an independent, in some way or fashion, to contract for work as a professionally established business, but without any of the burdens of business ownership."

Erik Vonk, Founder and CEO, Back of the House (BOTH)
TotalPicture Radio Transcript

Welcome to a Innovation Channel podcast on TotalPicture Radio. This is Peter Clayton reporting. According to their website,  Back Of The House, which uses acronym BOTH, the company transforms self-employment into a professionally configured and completely supported company of one, providing a resource that fully integrates the key components of running your own business simply and cost-effectively. And joining us today to tell us about BOTH is the Founder and CEO Erik Vonk.

Erik, thanks for joining me.

Erik: Peter, it’s great to be with you. Thanks.

Peter: Eric, as I said in the opening, you’re company integrates the key components required to run a small business, so tell us about your business model.

Erik: Our model is based on the fusion of the employer and employee roles and has been designed for anyone who works independently as a freelancer, independent contractor, solopreneur, or as an independent, in some way or fashion, to contract for work as a professionally established business, but without any of the burdens of business ownership. The point of the departure is to let you be in business for yourself, but not by yourself. The first step is usually the establishment of a company or a corporation, depending on what the circumstances are, primarily is to establish liability protection.We then enable that entity to outsource all its business processes to us.

Peter: And so you also replace the employment arrangement by a B2B vendor relationship. Can you explain that?

Erik: Good question, Peter. Very simply put, self-incorporation or becoming the owner/operator of a company, an LLC or an S corp, enables an individual to contract for work through that legal entity. In other words, the individual no longer enters into a work arrangement with an organization, but lets their legal entity establish a vendor relationship. That is how you transform a work relationship or employment-based relationships into B2B vendor relationships. Yes?

Peter: Right. And, as you and I both know, most large companies are very adverse to having 1099 relationships with independent contractors.

Erik: Yes, absolutely. Both the IRS as well as the Department of Labor as well as various authorities at federal and state level are really zooming in more and more on contractor compliance. The reason is that both the states as well as the federal government believe that they’re missing out on a lot of revenue because people are - both companies on one hand and individuals on the other - underpaying taxes by entering into non-employment relationships. And, of course, employment – through tax withholding obligations – is a great vehicle to collect taxes! By pushing for employment, authorities shift the burden of tax collection to the private sector. Hence repeated warnings by the IRS that anywhere 1099’s are filed, becomes an area for the IRS to zoom into.

Peter: You sent me a PowerPoint slide that I’d like to talk about a little bit. It’s called “Workforce Dynamism: The New Reality”. It’s comparing what the workforce looked like back in 1980 to what it looks like today. A couple of pie charts, and those are quite different animals, beginning with just the average job length. In 1980, 82% of employees worked at their job for an average of 15 years. Today, in this pie chart you sent me, we have 59% of employees’ average job length of four years, and I would even suggest that it’s less than that. Some of the statistics I’ve looked at recently, it’s about two or three years.

Erik: The composition of the workforce is something that I have been analyzing for close to 20 years or so. To your point, Peter, I believe that only 59% of the total workforce has a “permanent” job, and that the statistical life expectancy of that job is now less thanfour years. You know, you may well be right, Peter, in that there are many statistics that put that average at significantly less than four years.

Peter: There’s so many underemployed people out there who may have perm jobs but they’re working in retail where they used to be a VP of marketing somewhere.

Erik: You’re so right, and the numbers do not reflect that.

Peter: Right.

Erik: What I have tried to include in the contingent portion of the workforce are the folks who work on a project basis but are ‘employed’ and get a W2. As W2s they show up in the statistics as employees. In reality, they worked on a project with a pre-agreed end date and should be classified as ‘contingent’ workers.

Peter: A huge slice of this pie from 2010 is the independent contractor slice, which is at 20% where back in 1980 it was 6%.

Erik: Yup. And that is relatively and absolutely the fastest growing segment of the workforcece. As you can see, the total workforce was 110 million in 1980 and has grown to 150 million by 2010. Over that same period, the independent contract portion has grown from 6% to 20%; The slice has more than tripled, while the pie has grown, too. Ergo,there’s enormous growth in idependent contracting, freelancing and solopreneur world.

Peter: And that’s your category, so let’s talk about these independent contractors a little bit. Back to my example of the VP of marketing who’s now working in retail, a lot of these VP of marketing folks decided they really didn’t want to go to work in retail or take some other kind of job that really didn’t capture their skills and their interests and had now become independent consultants and have started dealing with all of the issues, some of which we’ve already discussed, around creating some sort of a business structure; but then there’s all of the kinds of back office things that a company needs to have: tech support, what about health insurance, and those kinds of things. So tell us about how your organization supports independent contractors in that way?

Erik: We, Peter, provide what we refer to, and have even trademarked, Independent Contractor Total Support. The objective of this offering is to make an individual the owner/ operator of a completely equipped and fully resourced Company of One, without any of the burdens of business ownership. If a new client isn’t already incorporated or does not already own an LLC, we provide them with one, turnkey. In case they already own a legal enity we make sure it is configured professionally and is in good standing. From there on, we enable that little company of one to outsource all its business processes, operational needs, IT requirements, admin hassles and everything a business needs in its back office, to us. That includes a hosted IT seat - a Personal Virtual Office - that enables the individual to work anywhere 24 x 7 because all software and archives reside in ‘the cloud’; and as long as there is browser access, you can work! And then, in addition to that, we take care of all operational and administrative hassles. We do the billing and collections for your company; we keep the books; we help with establishing and filing taxes; and if people so desire, we help with establishing a health plan, a retirement plan and liability protection for their company.

Peter: There are a lot of these solopreneurs that are just getting started, they also need a website and somebody who can come in and advise them on how to do that. Is that something that your organization does?

Erik: Yes, we do, Peter. And thanks for reminding me of that because I left that out of the lineup; it is indeed part of the total support package. If people want, and most of our clients do, we help them with the development and the design of a website. We build it for them and then we host and maintain it for them on an ongoing basis.

Peter: Let’s talk about the fee structure here a little bit. I mean, how do you make your money? Do you take a percentage out of whatever is getting billed? How does this whole thing work?

Erik: No. Good question. We don’t. Let me preface the answer by pointing out that we are completely talent- or workforce-centric. We only serve the individual. Of course, we get requests from corporations and organizations to help them with providing our services to their independent contractors and contract talent. When we do, we turn to the individuals and meet their specific needs. Of course, the corporations or the organizations where they are deployed may have specific requirements or needs or standards and we are happy to meet those. We’ve done that to distinguish ourselves, because I don’t believe that there is any services provider in the sector who doesn’t serve two masters other than BOTH. We don’t. We only serve one master and that is the individual.

Peter: A lot of the other types of organizations similar to yours that I’m aware of have relationships with both corporations and then also with the independent contractor. And so when they go to work at, let’s say, Raytheon, for example, they’re actually working for that organization that they are a part of; and that organization is the one who does all of the 1099s and all that stuff; and they take a percentage of whatever that individual earns.

Erik: Yes. And we don’t. We charge a fixed fee to the individual because that’s who we serve, and that is advantageous for tax reasons – it becomes a tax deductible expense to the individual’s company. Of course, that fee is incorporated in the bill rate, in most cases. And that fee, Peter, ranges depending on what components of our services you buy but that fee ranges from $149 a month to maximally $399 a month, and one or two steps in between. That’s what we charge whether you bill $40,000 or $400,000 a year, this fee is constant. One drawback may be that we charge this fee always, whether you work or not. It’s just there. However, when people realize what they otherwise spent in total over a year on accountants, on attorneys, on tax advice, on IT geeks and so forth, usually they see that this is not only a net savings but a huge savings in opportunity cost at the same time.

Peter: As you well know, Erik, there are a lot of people today who are deliberating whether this is something they really want to do. I mean, you sort of have to have a DNA of being an entrepreneur to go out and put yourself out and do this kind of thing, which is why a lot of people still like having a perm job because they get a check every couple of weeks or whatever and they don’t have to worry about going out and constantly finding new business. When someone comes to you who’s considering doing this, what are some of the things that you advise them?

Erik: First and foremost, what we have learned over the last several years serving solopreneurs, independent contractors and freelancers is that most people, when they were considering to make the plunge, so to speak, from the job to independence, really felt ‘income secure’. Generally, a sense of income security has replaced job security. No one feels job secure anymore! However, most people do believe that they can capitalize on their skills. Now, one of the other points that you hit on is infrastructure: How am I supported? Who is going to do my taxes? How do I get a health plan? Can I get one as an individual? What about liability insurance? How do I fortify and protect myself? It’s not knowing the unknown that in our experience is the biggest hesitance factor when people are considering independence. Once people understand our model and see that they can get the same support as would otherwise be provided by a job, they go for it! And do you know what the biggest difference is between the BOTH model and the J.O.B? In the job, you ‘borrow’ that support infrastructure and health benefits, et cetera, from your employer. They’re only there as long as you are employed. In our case, you own it. It’s permanently yours.

Peter: Let’s talk a little bit more about the benefits that one can get through your organization, especially health care is certainly a huge issue. Because of the way you are structured, are you able to provide us with a better rate and a better deal and a better insurance than we’re able to get independently on our own?

Erik: Yes. At least in part. First and foremost, there is a myth that most of us are battling with and that is that company health plans are somehow less costly than individual plans. That’s not true. Putting a large group of people together doesn’t make them more healthy or doesn’t reduce the cost of health care. That’s not true. What it does do, though, is it averages demographics. And, a fact of life is that a 26-year-old marathon runner has likely much lower health maintenance costs than a 65 year old. So when you put a lot of different people together in a large group you kind of average out the cost of health care and health maintenance. What it really means, though, is that the 26-year-old marathon runner is overpaying, while the 65 year old, in this example, is underpaying.

In other words, when you insure yourself individually, you have to take into consideration that as age progresses, your cost of health care goes up; that is something an individual arrangement cannot take away. Having said all that, adjacent to ‘individually underwritten health plans’ we offer access to ‘defined benefit programs’ that can, and actually fairly significantly discounted, because of volume. Further,’defined benefit’ programs are ‘guaranteed issue’. There are no exceptions because of preexisting conditions, et cetera. They cost the same whether whatever demographic you represent – male, female, young, old – doesn’t make any difference, but they only pay out a defined benefit. What we are seeing is that combinations of defined benefit plans and high-end, high-deductible individually underwritten insurance programs, can create a comprehensive coverage picture for a person or a family at reasonable rates.

Peter: One of the things that’s a huge hassle for any small business or a solopreneur is the whole billing and collections piece of this whole thing. Is that something you help your clients with?

Erik: Yes, we do. We send out the bills or the invoices on behalf of our clients; the administrative act of sending out that invoice on behalf of your LLC, we do that for you. Then we monitor their receivable. If it says net 10 and the money hasn’t come in, which we watch, we will give you a call on day 10 and ask whether you want us to start reminding your client.

Peter: That’s a huge relief for most small businesses because…

Erik: Yeah, it is.

Peter: What haven’t we discussed that is important for a solopreneur to take into consideration, or that is part of your services that we’ve haven’t covered yet?

Erik: I think an important aspect of this – and you were already pointing to that on a couple of occasions – is perception, hesitance, and in some cases fear, caused by all the rhetoric and media coverage that puts independent contracting in a negative light. It’s so often you read, or hear or see on TV all representations about independent contractors and employers, chased by the IRS or other governmental agencies. there’s a sort of villainization of the whole concept, which is totally unnecessary. Are people making mistakes in their taxes for instance? Yes, it happens. But where we see that happening, it’s been a mistake, it’s inadvertent, it’s not born out of a desire to underpay taxes. And so my point is if you desire to be independent, which is very prevalent, inform yourself well and fortify yourself in the right way and just do it. There is no more exposure or insecurity around being independent than there is around the conventional job.

Peter: Erik, what’s your background? How did you come about starting this organization?

Erik: As you may recall, Peter, I established the operations of Randstad Staffing Services, the European staffing company - now the second largest in the world - here in the US from scratch. I built that organization starting with yellow pages and little yellow stickers on the wall finding a first client and had the privilege of seeing the company grow over the years to a significant size. After I retired from there, it was with a notion that there were thousands and thousands of professionals that we had served over the years who felt they were income secure but didn’t really like temporary employment as a flexible or independent life arrangement. Remember that the staffing company provides benefits and support and all the things we’ve just talked about for the duration of an assignment; when the assignment ends, so does your employment with the staffing service and you’re on COBRA, the tax integrity of your 401(k) is compromised and so forth.

So, it’s a long story to say that in those years it dawned on me that if there were a way to support people permanently, by kind of transferring all the accoutrements that are normally associated with a job, like benefits, accounting support, tax filings, and so forth to a ‘rucksack’ that you can carry with you as an independent, wherever you go – long periods, short periods, high rates, low rates, it doesn’t matter, then you’re always supported. That’s where the idea has come from.

Peter: And from what I understand, staffing companies take a pretty good slice of whatever that hourly rate their billing out is, right?

Erik: Yeah, yeah. There are markup practices that range from 20 to as high as 50% – 60% and more. Yes, it’s enormous.

Peter: Right. So it really behooves an organization to find the solopreneur who has really all of the tax and liability issues under control and has an LLC or a sub S corporation and work with them directly.

Erik: And pay them a little bit more so as to enable the individual to have that fortification. In our model, what we charge our clients is far less than the cost of employment would be. Plus, the company that deploys our clients doesn’t need to live with the feeling that there are any shortcuts on benefits, or that now all of a sudden the contractor is the secondhand citizen at the water cooler compared to company employees.

Peter: I think there is a trend out there, Erik. We’ve gone through a number of recessions over the last 20 years. Instead of doing this binge and purge cycle where in good times you start hiring lots and lots of people and then as soon as there’s a downturn you have to start laying a bunch of people off, that’s a very expensive proposition. And not only it’s expensive but it’s emotionally draining. And I think companies are really looking, and as you know, there’s a lot of talk in the press today about the jobless recovery, well I think what a lot of companies are doing is they’re not going out and hiring perm, fulltime employees. They’re going out and looking for the solopreneurs, the staffing agencies that can help them with their current needs but without all of the liability that exists when bring fulltime employees into an organization.

Erik: You’re absolutely right. As a matter of fact, last week I was at a conference of Littler Mendelson, which is the largest employment law or labor law firm in the nation - or in the world for that matter. They anticipate that more than 50% of people who have been unemployed during this recession are finding, or will be finding their way back into the workforce as independents, which, to your earlier point, has also happened to a certain extent during previous recoveries, but not to the same extent as it has today.

And, Peter, there no longer is a desire to connect on a permanent basis anymore, neither among companies, nor within the workforce. It makes so much more sense, in this enormously dynamic environment - where the permanent job doesn’t last more than a few years anyway – to attach benefits, fringes and support to the individual instead of the place of work. So, if you are an organiziation that wants to make sure that independent professionals are properly supported and fortified, you call BOTH!!

Peter: Thank you so much for taking time to speak with us today on TotalPicture Radio. This has been really enlightening.

Erik: It’s been a pleasure to be with you, Peter. I really appreciate it.

Peter: Erik Vonk is the founder and CEO of BOTH (Back Of The House). Their website is backofthehouse.com.

We welcome your thoughts and opinions on our podcast today. Visit Erik’s feature page on TotalPicture Radio. That’s totalpicture.com to voice your opinion, or join our Facebook group which is TotalPicture Radio.

This is Peter Clayton. Thanks for tuning in to TotalPicture Radio, the voice of career and leadership acceleration. Our interviews connect your company with customers, prospects, employees, and passive candidates.

About BOTH BOTH – Back Of The House – fortifies Independent Professionals individually with personalized health plans, tax and administrative assistance and general work related tools, eliminating any need to rely or depend on workplace support or employment infrastructures. An individually owned corporate entity and a Personal Virtual Office frame the concept; ongoing Total Support is provided by a Personal Business Advisor and consists of billing, collections, accounting and tax services, augmented by health & retirement plans and liability insurance. The BOTH enabled "Company of One" establishes true autonomy, offers a fresh, contemporary contracting vehicle for independent professionals and represents a safe, cost effective platform for organizations to engage and support contract talent. For more information, please visit www.backofthehouse.com

Peter Clayton

About Peter Clayton

Peter Clayton, Producer/Host, is an award-winning producer/director of radio, television, documentary, video, interactive and Web-based media who has created breakthrough media for a wide array of Fortune 100 clients.

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