Last month employers in the U.S. added 288,000 jobs. It marked the best five month stretch of job creation since 2008 and the U.S. economy has now officially recovered from the job losses of the last great recession. Of course this is great news for everyone. But there's one tech industry in particular that particularly benefits when more people are working. Those are the companies that make human resources (HR) software.
There has been a quiet explosion of cloud based HR applications during the past few years. It's the new killer business app. And venture capital firms are literally throwing money at the companies that make them. For example:
• Work4, a social and mobile recruiting service, raised $7 million from investors in April, bringing its total funds invested to $18 million.
• A cloud-based service called Lever that assists human resource departments and outsourced hiring companies with their recruitment processes received its first venture funding in 2012 and now various investors from companies including Yahoo!, Yelp, LinkedIn and Pinterest have jumped into the fray.
• In February, cloud-based payroll provider ZenPayroll raised a $20 million Series A round of financing from General Catalyst Partners and Kleiner Perkins Caufield & Byers, after previously raising a $6.1 million seed funding round from the chief executives of Yelp, Box, Dropbox, Yammer and others, as well as Google Ventures and Salesforce.
• Zenefits, a start-up whose cloud-based software helps small businesses manage compliance and human resources-related tasks, has raised $84 million funding to date. A recent deal, according to Lars Dalgaard a partner at Andreessen Horowitz, was unusually competitive. "I've never seen a deal like this," he said in an interview. "The top five firms all asked me personally whether they could get a chance to get in."
Other young companies like The Resumator, an applicant tracking system, and Algentis a platform that provides payroll, benefits, insurance and HR administration for startups are also experiencing significant growth and interest from the venture community.
These startups are partnering with, and sometimes going head to head against some of the biggest names in the business: ADP, Paychex, SurePayroll, LinkedIn, The Ladders. Some focus on certain aspects of human resources, such as sourcing new potentials, tracking applicants and managing notes, dates and appointments along the interview process. Others are positioned as tools for the HR department to help them manage everything from employee evaluations to vacation days and benefits. A few offer full-blown payroll processing. They're easy to use, easy to deploy, inexpensive and are being snapped up by companies big and small.
"There is no question in my mind that every company will someday be using these tools," says Dana Stalder, a general partner at Matrix Partners. "They're replacing the spreadsheets with something much, much better."
Why the sudden popularity? It's not just the number of jobs the economy has been adding over the past few months. It's a triangulation of three trends that are particularly impacting this type of application.
Acceptance of the cloud. If there is still a debate about data security in the cloud, the growth of HR applications seemingly puts that issue to rest. Why else would so many previously-untrusting personnel and office managers from small and large companies alike be willing to entrust their employees' confidential data to these new cloud based services? It's because we've hit a tipping point. After so many years of suspicion and doubt, executive management has clearly accepted cloud based applications as a sustainable and secure business model for even some of the most confidential data. "Trust in the cloud is now such that the decision to get an HR application is finally back in the HR manager's hands and not with the IT department," says Dalgaard.
A pent-up demand. These managers appreciate the benefits that these cloud based services can provide to meet their pent up demand. Employee recruitment and management has become a more complicated business over the past decade. Regulations have increased. Benefit plans have become more complex. Policies have proliferated. Legal requirements, documentation and written procedures are now required by any sized organization. Yesterday's accounting and office managers who were previously assigned HR duties are now unqualified to keep up with all the changes. And even the most experienced HR managers need better tools to help them do their jobs. What was once done with spreadsheets now requires databases, workflows, forms and automation. And all of this data is increasingly needed to be integrated with other data from other companies to create a full picture of each employee - their benefits, pensions, total compensation, sick time, family members and of course payroll. Partnerships with these companies are easier because many are moving to the same, open platform.
A more affordable answer. Today's HR applications are rented as a service for a relatively low monthly fee. They can be quickly deployed. The companies that offer them also offer tools to migrate data from other sources and to integrate with other pension and payroll systems. They provide their customer with resources, training and the ability to get up and running with less effort than before. They can distribute updates immediately and provide enhancements without causing major disruptions. They are opening up their application programming interfaces and programming tools to developers who continue to build inexpensive and popular add-ons. Some even have wonderful user interfaces that fly in the face of those old-time black and white screens. Customers can gain entry to these applications for a lower fee and then pay more if they need more.
So what does this mean for you? If you're like many of my clients, you're probably starting to hire again. And you're probably also finding that managing your employees is becoming a more time-consuming and expensive task. You have spreadsheets, paper files and data in multiple places. This will not be acceptable for long. This new market of HR applications is not a fad. And you'll be using one of these services before you know it.
"It's a glorious time to be in HR," Dalgaard says. And he's right. For everyone.
A version of this column recently appeared on Forbes.com.
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