The unemployment rate in America is hovering around 9%. But if you are a competent engineer, sales executive, online marketer or general manager in Silicon Valley, NYC, Boston or other start-up hotspots, the unemployment rate is 0%.
The talent market has gotten as competitive and aggressive as I have ever seen in the last 20 years. CNN recently reported that 40% of the 130,000 job openings in Silicon Valley are for software engineers. Senior executives have never been harder to secure. That's why, even though it flies in the face of conventional wisdom, I'm advocating that all my portfolio companies hire recruiters when they are trying to fill senior or key positions. Immediately.
Typically, when a young company gets financing and begins to hire, they seek to leverage the network of the founding team and their investors. This network provides some valuable leads and perhaps a few hires. Leveraging existing networks has greater benefits than simply cost savings and convenience. Teams that have worked together in the past simpy are well-positioned to out-execute those that haven't due to their common history, language and relationships. I have read studies that show that one of the factors that correlates highly for success in a startup is if the team has worked together and made money together in a previous startup.
But tapping those informal networks alone doesn't scale. And reacting to inbound people flow generates an adverse selection bias – the best people are not looking, so they will never contact you and respond to your job posting.
As an entrepreneur, I was initially very skeptical of fast-talking, expensive recruiters. I thought hiring them represented a personal failure on my part as an entrepreneur. After all, it was my job to secure the best and brightest talent through my own efforts and my own network. But my years of recruiting have taught me that startup CEOs are at a distinct competitive disadvantage if they don't get outside help for recruiting. Here are the top five reasons why:
1) You Never Have Enough Proactive Time. As an entrepreneur, you are always battling dividing your efforts into proactive time (where you direct the activities through your own energy) versus reactive time (where you are reacting to people and forces around you). With the inflow of real-time information and people coming at you from all sides and demanding your attention (employees, investors, customers, etc), it's hard to find enough proactive time in the day. Recruiting is a proactive exercise. It requires effort and energy from the entrepreneur to generate candidate flow, meet candidates, vet them, check references. It is therefore important to have an outside force push you to react to candidates and help you prioritize the recruiting effort, just as your VP Sales is pushing you to prioritize sales and your VP Marketing is pushing you to prioritize marketing.
2) Hiring Inexperience. Most entrepreneurs are first time CEOs or even second time CEOs who simply do not have a lot of experience hiring, particularly hiring the particular executives they're hiring for (Try this exercise – ask your favorite CEO/entrepreneur how many times they've hired a CFO. Most never have but even if they've done it once or twice in the past, are they really now an expert at it?). Like anything else, hiring is a science. A recruiting friend of mine likes to say, "interviews are inquisitions, not discussions". Too many entrepreneurs don't actually know how to interview well. Further, they're not experienced at assessing their current human capital needs, analyzing the gaps of management team members, and then understanding the market and how to fill the gaps. Good recruiters are invaluable in this regard.
3) Shallow reference checking. Busy entrepreneurs and busy VCs typically do cursory reference checking when making even senior hires. They allow themselves to be swayed by their own conviction, let the candidates spoon feed them their top fans from past jobs and ignore the opportunity to push for a deep understanding of candidates' histories and claims. When I make an investment in a company, I typically do 8-10 reference checks and get a wide variety of perspectives from people who have worked with the entrepreneur in the past and seen them in a range of different situations. It's hard to have the discipline to replicate this thoroughness when making a senior hire, particularly when trying to move quickly in a competitive hiring market (see "You Never Have Enough Proactive Time" above).
4) Quarterbacking the Selling Process. Many hiring managers don't realize that the due diligence process for a candidate is as thorough, if not more so, than your due diligence on them. The best candidates have choices and are sought after. Even though you are deciding whether to "buy" over the course of a series of interviews, you need to be in a position to sell every step of the way. "Everyone's trying to be the coolest place to work," observed one Stanford junior who is being barraged with job opportunities. Recruiters can be very helpful in quarterbacking the selling process – proactively surfacing objections and handling them with data and follow-up conversations, linking candidates to the right people at the right time in the process.
5) Focus on closing. Closing candidates in this competitive a market is very hard. Counter-offers, compressed timeframes and personal considerations all get in the way of smooth closes. Again, if you don't have alot of proactive time available to you (and who does?!), there's great benefit to having a focused closer. Further, I have found having an intermediary helps tremendously with the negotiations. A candidate will be unafraid to tell a recruiter what it takes to get the deal done, and a tough back and forth with the help of an intermediary can avoid bad feelings aftewards between two principals that will need to work together as a team when the dust settles.
Too often I hear entrepreneurs say, "I'll work my network for a few weeks and then we'll hire a recruiter." Many VCs are over-confident about their own recruiting prowress and will tell entrepreneurs to wait until they talk to their partners and surface a few great candidates from their network. The problem, of course, is that everyone gets busy and distracted. A few weeks turns into a few months, a few candidates get turned up and interviewed but then discarded, and finally when the network comes up dry, the group reconvenes and decides to hire a recruiter. Now the recruiters need to be selected, interviewed, reference checked, negotitated with and ramped up – causing more delay. By the time you get around to getting the recruiter ramped up, the board and CEO feel frustrated that they are already behind. To be clear, not all recruiters are created equal and some are a waste of time and money. But if you can find a good one, don't let them go.
Paul English, cofounder of Kayak, is a truly gifted recruiter and there has been alot written about his approach to hiring. If you can be that exceptional, perhaps you don't need a recruiter. And, believe me, the price you pay for these folks feels exorbitant, particularly if you are in the scrappy, lean start-up phase of development.
My bottom line advice is to just bite the bullet and hire a recruiter now. The difference will cost you an incremental $50-100k, but everyone knows hiring an "A" has a massive positive impact as compared to a "B" – and that impact is compounded if it can be achieved 3-6 months sooner.
SEEING BOTH SIDES 
Great article! As an in-house recruiter for a VC who supports recruitment for our portfolio companies, I have seen a number of entrepreneurs spend too much time and money (initially think they will be saving it) by delaying hiring a recruiter and taking it on themselves. When recruiting begins to take up the majority of someone’s time who is NOT a recruiter, that’s when it is time to bring someone on board who can allow entrepreneurs to focus on managing other parts of the business.
LikeLike
TypePad HTML Email
Great points, Donna. Recruiters are
ultimately salespeople for your start-up. The better they are at selling
candidates, the better the candidates are that you will see and have the option
to choose from.
LikeLike
“…identifying great talent is only a part of the full recruiting equation.”
Agreed. This is called sourcing. Recruiting is much more — in effect, we are “hiring catalysts” and a full range of activities are required to support the objective of getting the right person hired.
Other arguments for using a recruiter include:
*The assistance that a recruiter can provide in assessing the startup’s desirability as an employer and providing feedback to the CEO as well as marketing the opportunity to candidates accordingly
*Providing insight on the marketplace and on compensation issues — which can be especially helpful during offer negotiations
LikeLike
As an executive recruiter, I totally agree.
LikeLike
TypePad HTML Email
Great advice. Thanks for sharing. It amazes me how superficial reference checking gets done. It pays to be thorough.
LikeLike
Great article –
I’m a professional search consultant and recruit within the energy trading industry. I can tell you that it will cost you a few bucks to hire a good recruiter/search consultant, but it could cost you more not too. My first advice: select a relevant specialist for your industry 2. ask for references – they should have placed individuals you have heard of in the industry and have recommendations from within the industry. 3. expect reasonable guarantees. If your search consultant is good, they should know your industry, your specific company, culture and have historical success documented so you can hire the search firm with confidence that they can reproduce this success for you. Make sure they are marketing your company with appropriate selling points, or keep confidential if preferred. All recruiters and search firms are not created equal – demand expertise, professionalism, references and commitment to working with you and for you. All things listed above considered ahead of time will position you as a top tier shop. The talent/individuals whom you hire are the most important asset.
staci
LikeLike
Always selling, always recruiting.
LikeLike
Jeff,
Excellent article. Afterall, talent doesn’t just accommodate the buiness, talent IS the business. When I began my career as a “Technical Recruiter” in 2000, I had no idea that the skills I was learning would end up being so useful as a founder of a technology product startup.
I would never have been able to assemble the level of talent to build a robust product on a bootstrap budget. The secret? I got people to believe. Sounds easy, right? Well, it requires you to put it on the line every single day without compromising your convictions.
As a founder/hiring manager/recruiter, you have to get candidates to believe in you, your company and/or your vision. If you’re not in a recruiting mindset everytime you meet someone new or if you spend your time selling people on compensation, pool tables, free lunch, cool factor, flex hours, etc. Then you’re doomed from the start.
Also, I like your comment on “lousy” professionals in other fields. I mean, let’s face it, most people aren’t good at what they do. That’s why recruiting is a 24/7 job. Well, that’s my $0.02.
Thanks again for your contribution to the “other side.”
-Paul
LikeLike
Jeff
Great points – I’m a recruiter, and really appreciate it when a business leader makes them. Too often when people within my industry try and defend our craft, it’s met with a look I expect used car sales people are all too familiar with.
Granted, there are enough bad actors in the industries past that it’s fair to say that look may be somewhat justified by history.
There are, as you point out, a number of very good, even excellent, professionals in the industry. I think of someone like Keith Cline, founder of VentureFizz as well as being a career recruiter, or Steven Kosakow over at Optaros. Both honorable, intelligent individuals who are passionate about facilitating the growth of businesses by finding them the right people, at the right time.
There’s an advice portion to this that I think is important to look at. An experienced recruiter has been through the fire – they’ve (hopefully) failed a few times. They’ve also (again, hope springing eternal and all of that) learned from those mistakes. They’ll be able to share that learning with you. They’ll also be able to give you a strong gut about people, based on intense years of dealing with all the wonderful facets that make up the human race (I may be being a bit sardonic when I say “wonderful”). Along with that, they’ll push back on you when you’re dragging your feet, or moving too quickly. We become your strong right hand in what should be the most critical aspect of growing your business: growing your staff.
It may surprise people outside of the industry, but recruiting has one of the most passionate, and tightly knit, industry networks I’m aware of. We blog, meet on Twitter to discuss ways to lower the unemployment rate (#hirefriday is a weekly chat that gets intense), share best practices across social networks, etc etc. The network effect of all of this means that, if you hire a top recruiter, you’re getting the advice of more than just that one person – you’re getting a legion of top-tier recruiters through them.
Thanks again.
LikeLike
TypePad HTML Email
The opportunity cost is indeed huge, Len. Thanks
for adding the (vivid) image of the dentist to the mix…
LikeLike
Jeff,
Although we don’t know each other (I do know your colleague Chip), I wanted to compliment you on your article. I give you credit for taking a position that I suspect is still in the minority among VCs. Although you implied it, you might have added a sixth reason…..opportunity cost. As you well know, the cost of making an egregious hiring mistake in an early stage company (or any company for that matter) is much higher than the fee paid to an executive search firm. I am regularly amazed (and frustrated) by the “penny wise and pound foolish” attitude towards executive staffing fees held by many entrepreneurs and their investors. It’s interesting that fees charged by attorneys or accountants usually are not subject to the same level of scrutiny.
I have frequently used the newspaper picture and caption of an Israeli dentist who gained admission to the Guiness Book of World Records by performing a root canal on himself as an example to potential clients who question the cost and need for executive search services. Sometimes it has an impact….often it doesn’t.
We should meet….
LikeLike
TypePad HTML Email
I agree that many recruiters are lousy. Many entrepreneurs and VCs are lousy at their jobs, too. Avoid them all. But I think it's too easy to rest on your network and not find the absolute best talent in the broad market for the role. Further, identifying great talent is only a part of the full recruiting equation. Just want to push the thinking on this.
LikeLike
TypePad HTML Email
This is a great point, Gene. There are
definitely good and bad recruiters – just like in every industry. The best way
for a recruiter to prove they are transactional as opposed to strategic is by
taking on a hire they know will fail, trying to close someone they know won’t
be a fit, or encouraging executives to join start-ups they have no faith in.
All bad behaviors that will not lead to repeat business!
LikeLike
Jeff, I agree with you 99% of the time, but this one, I don’t know.
Some of this depends on the position and the company’s stage. For example, a technical person hiring a CFO could probably use a lot of help, not just from a recruiter, but from the Board.
Once you have a few people at your company, I like leveraging their networks. Collectively the company’s reach really grows with every hire. It’s worked well for me in the past, more than recruiters.
The other thing to note about recruiters is that a lot of people call themselves recruiters, but really suck at it. They are unqualified to screen candidates, so you get a lot of noise in your funnel, wasting a bunch of time.
Sean Lindsay from Viximo taught me a rule I really like here for recruiters: “3 strikes and you’re out.” Spend time with them teaching them what you want, give a lot of feedback on each candidate, etc, but if they send you three people you don’t like, cut the rope.
LikeLike
Interesting article and I agree with you. One thing though that you did not mentionthat while it may be minority of cases, it does happen(happened to me in past):
Some of these high priced recruiters will place their compensation above “doing the right thing”.
I’m referring to an experience in my past where a high priced firm contacted me about placing me into this company they were recruiting for. I explored and joined the company.
Found out later that the firm had known about serious flaws with the financials and models with the company based on very competent CFO candidates that had gone in to interview at the company(the CFO candidates told the recruiting firm about their concerns). The firm said *nothing* to the CEO or anyone at the company, including me(prior to and after I joined the company).
I queried the firm as to “why didn’t you raise the issues uncovered by some very competent CFO types” to anyone?
Their response was, “that was not what we were hired for”.
Needless to say, whenever anyone asks me about this particular recruiting firm, I tell them to run in the other direction.
LikeLike