And now for something completely different… (extra credit to those who can place the classic reference).
I regularly emphasize the importance of incentives, culture and hiring the right people, however, I cannot recall ever referring to it as HR, since it has certain very specific connotations. Early on in my career, I was advised about how to handle certain questions in a job interview (yes, I actually did hold many “real” jobs, as an engineer, manager and executive, before becoming a consultant; I could not have been effective advising if I hand’t actually done it first). “What do you do if they ask you if you have HR experience?” Honest person that I am, I said, “I would say, no.” My advisor’s response? “Really? Have you ever hired someone? Fired someone? Recruited? Disciplined someone? Created an incentive plan? Yes to all? Then you most certainly have HR experience; what do you think HR does??”
Nonetheless, HR has an unfortunate perception of being some regulatory/administrative “out there” area, perhaps because of many poor practitioners (which is unfair to the excellent ones), or because of the terrible name, “human resources,” as if they are the same as a building, laptop or $5,000 in the bank. For this very reason, many startups will call their HR department by much more appealing names, such as “Culture Builder,” “Head of People,” or similar, to encourage thinking about it positively.
The most recent Fast Company magazine has an article on whether one should use internal or external recruiters. Unlike most such articles, which seem to wallow in the softer opinionated areas, this one is hard numbers, with a little soft benefit thrown in. The author does the following simple math:
- You are hiring at least 4 people a year for the next year or two.
- Each of these people costs at least $85-100k/year, i.e. experienced hires or managers, not necessarily executives.
- You pay external recruiters 25-30% of the hire’s costs. This is true for both contingency and retained recruiters, the only difference being when you pay, although that massively affects the incentives.
Simple math shows that your hiring costs for these four people will be ~$25k * 4 people = $100k/year. Since an internal recruiter will cost $85-150k/year, depending on the level, you break even financially by hiring an internal recruiter. For each person over 4 that you hire each year, the recruiter fees of ~$25k each that you save by an internal recruiter is pure profit to the bottom line. Hiring 20 people, that is $400k in pure profit, adds a lot of money to any company, even one that by definition has enough investment or revenue to support at least 20 full-time employees. And any decent full-time in-house recruiter should be able to hire 20 employees a year, or 1-2 per month.
What are the (real or perceived) downsides to the internal recruiter?
- You need to hire them first. This is true, and involves finding the right person with the right experience, cultural fit, independence, and ability to represent the company to the candidate and the candidate to the company. As the article correctly points out, the best such person is one who is not quite like you, and can give you a diversity of opinion. But if you think using an external recruiter will eliminate this step, you are sorely mistaken. Sure, any agency will sign a contract with you today, but that is not the goal. The goal isn’t to have a recruiter, it is to successfully recruit, just as the goal of hiring an engineer isn’t to hire them, it is for them to deliver product. Sure, you could sign an outsource firm onshore or offshore, but you would go to at least as much effort finding the right partner for engineering outsourcing as for hiring an internal candidate; why should recruiting be any different?
- They can get bored. This is a particular issue with recruiters, more so than salesmen, engineers or marketers. Engineers will never get bored; the product feature request is always miles longer than capacity, and even if they finish it all, they are happy to experiment with new capabilities; marketers will always look for new markets or ways to market; salespeople will always be happy to find that next prospect. But recruiters are bound by the number of positions you have open and ready to hire. If it is just 5 this year, your recruiter is going to get bored really quickly. This is a major issue, but can be managed. First, be sure to hire the person who believes in your vision, not someone just looking for a job. You should do the same for marketers, engineers and salespeople, but it is especially true for those for whom there might be too much downtime. Second, if you have someone who believes in the mission, have them pick up other burdens. I have never met a startup – actually any company – that had enough people to do everything. From building culture to employee surveys to working with the attorneys to design benefit and retirement plans, there is always a lot of work to be done for which no one has the time. Finally, get them involved in strategy. If your most important asset is your people (they really are, and if you don’t believe it, find another job, CEO), and your recruiting is how you get them and culture is how you inspire them, then the person most responsible for all of the above should have a seat at the table. They should help you determine how changes in strategy will affect recruiting, culture and morale.
There is one benefit that far outweighs all the downsides, and that is culture. You are not hiring “butts in seats,” as many IT outsourcing/placement firms are trying to do. You are hiring employees who absolutely must fit with the company. Only someone inside the company, someone who would only be hired for a cultural fit, can get that culture and has a vested interest in maintaining and strengthening it. This is the single most valuable benefit to an internal recruiter.
Does this mean you should never use an external recruiter? Not at all. External recruiters have particular value in three key instances:
- Out of Time: You just don’t have the time to hire an internal recruiter, either because it would take too long to get an internal recruiter, or because you need to hire a lot of people right now! Personally, I view this as a nonstarter, unless those people are temporary. You want to get the best people for the job, in terms of skillset, experience and cultural fit. You aren’t going to get those by rushing the process.
- Too Few: You are hiring only a few each year, or you are hiring just a few in a particular area of specialty for which your internal recruiter has no access and connections.
- High-Level: You are hiring executives at a very high level, which requires particular connections and knowledge, or it must be done discreetly. In these cases, recruiters are invaluable, but only certain kinds of recruiters. They are known officially as “executive recruiters,” although that name has been claimed by every recruiting agency under the sun, but really they are the high-level retained recruiters. They are either one of a few large international firms like Korn-Ferry and Spencer Stuart, but also boutique specialty firms like ByalaSearch (the best firm for education and non-profit) and EverestSearch (absolutely use them for top technology and financial executives, period).
Most recruiters are on contingency, paid 25-30% of the hire’s first year salary, if they are hired and stay anywhere from 3-6 months, and are one of several trying to fill each role. Because they are paid on contingency, they have an incentive to send you as many reasonable candidates as possible, and get them in ahead of their competition. They put minimum effort on candidate matching, and maximum on volume. Retained recruiters, on the other hand, are paid a similar amount, sometimes a little more, but are paid upfront, whether they find you a candidate or not; they are more like consultants, no specific results are assured or guaranteed. One the other hand, if they fail to successfully bring you a candidate, you are unlikely to use them again, and their reputation will take a bad hit. Thus, they have every incentive to find the perfect candidates for your stated requirements, your unstated job to be done (why you are really hiring the candidate), and your culture. In addition, they are normally extraordinarily discreet, treating everything you say and do as confidential, like the best of consultants. I often refer to myself as a “reverse reporter”: everything a customer says to me is off the record, unless they explicitly tell me I can repeat it and to whom.
It is important to properly define your recruiting needs and why you are hiring, and how to get the best recruiter – internal or external – who will fulfill that mission. Never confuse the services and motivations of internal with external recruiters, never rush the process of retaining a recruiter, always ensure that the recruiter really fits your culture, and understand when a “search consultant” is the best solution.