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In most cases, small business owners can’t compete against bigger companies when it comes to benefits because they have less purchasing power. And they’re spending a lot of their time administering human resources, dealing with payroll and managing compliance with government regulations when they should be tending to their core business.

Recognizing those needs, two veterans of the human resources administration and insurance worlds, John Hovey and Mike Teachout, have teamed up to form Focus OneSource LLC. A professional employer organization (PEO), the company specializes in handling all of the critical, non-revenue-producing functions for small to medium-sized businesses, from benefits and payroll administration to marketing and talent acquisition. And by working with a PEO as a co-employer, small businesses can obtain benefits at rates normally available only to much larger organizations.

“That is the core of our model,” Teachout said. “We will flawlessly execute on the HR administration and payroll, and we will bring to our clients something they quite frankly can’t get on their own because they’re a small to medium-sized company.”

Focus OneSource is a start-up in the young but fast-growing PEO industry, which despite the recession is still expanding by about 15 percent annually. The PEO model is about 20 years old, and nationally between 3 and 5 percent of small to medium-sized businesses have contracted with PEOs to handle their HR, payroll and benefits administration.

New challenge

Focus OneSource’s partners bring more than 50 years of combined experience to the start-up. Teachout served as chief executive officer of what is now Coventry Health Care of Iowa Inc. for seven years before leaving the company last June. Hovey formerly led Merit Resources Inc., a PEO he helped start 20 years ago, as its CEO.

“Merit at that time had gotten large, and I don’t know if burnout is the right word, but I just needed a change,” Hovey said. “The interesting thing about my story is that I really didn’t have anything lined up, didn’t have any plans. I’m in my 50s, and people started asking me, how did I like retirement?”

Teachout, meanwhile, was looking for a new challenge after Coventry Health Care Inc. acquired his company from Mutual of Omaha Insurance Co. and he decided to leave.

“We’re friends; I buy hay from him, because he’s got farms and I’ve got some horses,” Hovey said. “We just started talking, and it came together.”

The PEO model is based on established relationships with specific providers for each type of benefit or service, which enables each provider to offer lower rates based on a large, stable group of employees and companies.

“Each client company pays a monthly fee, based on the demographics of the employer group,” Teachout said. “We think the combined package, more times than not, is going to be a better benefit to our customer base.”

In addition to Coventry for health insurance, Focus OneSource has contracted with Delta Dental of Iowa for dental coverage; Standard Insurance Co. for life and disability insurance; Avesis Inc. for vision coverage; Zurich Financial Services Group for workers’ compensation; and John Hancock Life Insurance Co. for 401(k) administration.

“Because of our past relationships, all of them have bought on to working with us, and are going to give us time to build our piece of business,” Hovey said. “They’re invested in the concept; they don’t have to deal with multiple contacts, they send one bill. So from their standpoint, it helps reduce their administrative load.”

Payroll insight

Focus OneSource also plans to roll out relationships with a property and casualty insurance broker and a marketing and communications firm as well as with a temporary and full-time staffing company to offer those services to its clients.

Teachout said another value the company is bringing to the table is its investment in a robust software system that will provide clients online access to their respective payroll records and benefits packages, as well as making that system available to their employees.

“We think the trend is that employers will outsource (these tasks) out of necessity, because it does make financial sense,” Hovey said.