This is the second article in a new point/counterpoint series here on the SJV blog. In this series, we will debate both sides of an issue to provide CRAs with some clarity. For this debate, we’re focused on an issue that is top-of-mind for everyone right now: COVID-19. Specifically, what does “the new normal” look like for CRAs?
The COVID pandemic laid bare some deep structural issues, and everyone is feeling the pain. But consumer reporting agencies in particular are feeling one additional type of pain: a newfound understanding that they were taking on far more risk than they actually realized.
For most CRAs, the business model hinges on hiring. When employers hire more, they request more background checks. Needless to say, the industry has been a lucrative one over the last decade as the country moved towards nearly-full employment.
But along with COVID has come an unemployment rate climbing towards 20%, destroying the hiring plans of countless industries. This bend in hiring has also caused strain on the pocket book of CRAs.
The question CRAs must ask themselves is this: how can I avoid this in this future?
The solution: CRAs should pivot to “essential industries”.
On the other side of the debate, the argument was made that CRAs should greatly diversify their industry strategy to reduce their over-reliance on any one industry, and thus their risk. In this article, we’re taking a different approach: rather than CRAs focusing on industry diversification, they should focus on industry specialization in “essential” industries.
What are the essential industries?
Luckily, we don’t have to guess at what is considered an “essential industry”. The government has released guidelines and a list of industries. Essential industries are those that are required to meet the needs of a society—which include food, safety, health, transportation, financial services, etc.—and the industries that provide the infrastructure for them.
The obvious industries are healthcare (and healthcare-adjacent industries like blood banks, labs, insurance companies, medical device manufacturers), law enforcement & public safety, food, agriculture, infrastructure, and some construction.
The Cybersecurity and Infrastructure Security Agency (CISA) — under authority by the Secretary of Homeland Security — created extensive guidelines, which included an exhaustive list of industry sectors and segments.
Why should CRAs pivot to essential industries?
The reasons for this pivot, in light of COVID-19, couldn’t be any more clear:
- It reduces risk. If your customers are based in these essential industries, your downward risk is mitigated substantially.
- These industries are already lucrative. By pivoting to industries like healthcare and infrastructure, you’re not sacrificing potential growth. These industries are already ones that many CRAs would want to enter without the threat of COVID.
- They’re stable and reliable. Barring some completely unforeseen circumstances, consumers are likely to need groceries, the supply chain will still need to be operational, and medical issues will still arise that will call for health services.
But it’s no easy task.
It’s easy for us to sit here and say that you should pivot to these industries. We all know it’s not quite that easy.
- Other CRAs are going to have a similar idea as they assess their strategy post-COVID. It’s more essential than ever to have clear differentiation and messaging if you’re going to be entering a highly-competitive environment. It’s a good suggestion here to consider conducting SWOT analyses or other forms of competitive analyses as you evaluate which industries to focus on.
- You may not have any real experience in the industry you’re pivoting to, which makes it an uphill climb. In that scenario, you may want to come in significantly under-price to build your industry bona fides, and then go from there. (Or, you may want to hire a new employee with specific experience.)
- Some industries may have dominant players that already have a high market share that they won’t easily relinquish. In many of the largest gig economy companies (Uber, Lyft, postmates, Care.com, etc.) for example, there are only a couple companies that dominate the market share.
- Based on the April jobs report, these industries weren’t completely immune. In fact, the only industry that saw any real growth during this was general merchandise stores, including warehouse clubs and supercenters.
Are you prepared? How are you responding?
Your go-to-market industry strategy is potentially one of the largest areas of change for you in the coming months and years; a good go-to-market strategy can ensure your success in upturns and mitigate your financial struggles in downturns. But don’t stop there: there are some other ways you can respond. CRAs can use more automation in background screening, expand into other segments of the talent acquisition and development process, and even add subscription revenue models with something like continuous criminal monitoring that bring in a stable and reliable base of income even in downturns.