Thoughts from a recruitment industry venture capitalist .
A Seven-step blueprint?
Is it possible to capture and communicate everything you need to know about building a successful recruitment start-up in just seven steps? It is, and I’m about to tell you why. But first, let me tell you why I’ve distilled it into seven steps.
Recruitment start-ups are my deepest passion. They have consumed my time and energy for over a decade. I have founded, built and sold international recruitment businesses in more than 10 sectors.
My friends would say my pursuit borders on obsession.
The reason why is that recruitment businesses offer more financial opportunity for normal people than in nearly any other industry.
Recruitment companies take up some 25%+ of the Virgin Fast-track 100; they can be incredibly exciting places to grow your career and they have changed countless peoples’ lives.
It has never been easier to start your own recruitment company. It requires little skill, money or external resources. It doesn’t require good looks, a silver spoon or extreme intelligence. It is simple, you really do just need a phone and hard work.
But what does it take to be ‘the best’?
Given the resources, access to information and guidance available, it’s a wonder how many of the fastest-growing recruitment companies fail to turn a profit, let alone sell.
Which is why I want to help you avoid the most common pitfalls.
I will cut out the noise and highlight 7 areas that are fundamental to building a successful recruitment business fit for sale, in the hope that you as a new recruitment business owner are set-up for absolute success, whatever your goals.
Let’s get started.
- Time vs money
- What does it take?
- Talent Pools
- The one KPI
- Hiring badly
- Answer to someone
- Execution – nothing else matters
- Time vs money
When I ask people why they want to start their own recruitment company they tell me one of two things; they want to be rich, or that they want more time.
I’m sure you, reading this, want one of these things too.
You don’t need money, smarts or investment to quit your job, sit at your kitchen table, and make your first deal, but it’s where you go from there that defines what you can achieve.
For all those that try, less than 1% of recruitment business owners end up selling their business.
Most recruitment businesses end up becoming unprofitable, time-consuming and offer no career path to their employees, let alone their owners.
Building a recruitment business to sell takes a different skill set and one that even the best recruitment managers fall short on.
So before you start, it’s important to know what you want.
A lifestyle business maximizes year on year profit to support a comfortable lifestyle, without creating long-term value.
Growth businesses create long-term value but are hard to build.
Buyers of recruitment companies do not care about your personal billings, your cool logo or office beer fridge. They care about profit and growth trajectory defined by your systems, database, processes, finances, and market.
Most recruitment businesses fail because they fall between the two. They have founders with big aspirations, but without the drive or knowledge to create real value, which ends up being their downfall.
Hiring, expensive offices, new websites, and new business lines all cost money. If you don’t have a clear plan, indecision and growing in headcount for the sake of it – is usually the quickest way to fail.
To avoid failure; it’s important to know your goal and make clear decisions with this goal in mind.
- What does it take?
What does it really take to build a recruitment business of value?
Our investment team assesses all potential investees with a score of 320 across 7 different business areas to understand the full capability of any potential investee.
It can also be a useful tool to benchmark any recruitment manager who wants to benchmark their skills.
These seven areas are, in no particular order:
- Sales Operations
- Corporate Governance
- Business Strategy
We do this to help us understand a founder’s competency gaps so that we are able to support the business as effectively as possible.
As a baseline, a potential investee needs to reach a certain score for us to able to make an investment, as this gives a strong enough indication that they have some of the skillset required to launch a business that can sell.
We can teach a lot along the way, but there are also key things that we can’t teach; the same character traits to look for in a potential hire, outlined in section 5 below.
If you are serious about building a recruitment business of value, you need to be honest with yourself that you have these attributes.
They will be a key marker of your ability to succeed.
Email firstname.lastname@example.org to request a copy of Artius.
- Talent Pools
What makes your new recruitment business different?
Whether you are recruiting for Solar Engineers, Data Scientists or CFO’s - in 2018;
The best start-up recruitment companies operate in candidate short, niche talent markets.
Candidate short markets area markets in which the demand for talent outstrips supply, and where you have product that you can take to your clients.
The benefits of working in these markets are clear:
- It’s easier to sign on new clients
- It’s easier to establish influence with clients and hiring managers
- It’s easier to demand a higher price for your services
- It’s harder to build a talent pool (so prevents competition from entering the market as easily)
But there are some challenges…
- Good candidates are being approached all the time
- Clients aren’t good at closing the best candidates
The best recruitment businesses have small talent pools, own great relationships with their candidates and manage their processes from start to finish, with as little external influence as possible.
- The One KPI.
To confirm your suspicions, most of the KPIs recruitment companies enforce are ineffective.
They are set by business owners to give the illusion to everyone, including themselves, that they are in control of the success of their company.
They also allow them to hand out blame quickly when things aren’t going so well.
The reality is that there is only one KPI that matters when growing a start-up recruitment business.
I’m going to tell you what it is, but first why it’s important -
Successful start-up recruitment companies are driven initially by permanent placements.
Permanent placements are good because they bring cash into the business quickly.
They are reasonably easy to turn around in the first few months if operating in a candidate-short market.
The challenge with permanent placements is that they create inconsistent cash-flow, which has a negative impact on your business’ bottom line and potential future success.
If you make £40,000 revenue one month, and £5000 the next – the business will end up paying out a disproportionate level of commission and eroding your profit quickly.
So what’s the solution?
For both business owners and employees, the solution is to track one key KPI;
New first round interviews per week.
This KPI ensures three things:
- That there is consistency in new deals coming into your pipeline.
- That each candidate gets as many interviews as possible – adding competitive tension with clients and increasing the likelihood that any of those deals will happen.
- That consultants are refining their process with each client and candidate interaction as possible, to increase the % chance of a placement
- Hiring badly.
This is the easiest way to kill your business.
Hiring and making other employees successful in your business is one of the hardest lessons in recruitment.
Over 10 years and having hired in excess of 300 people, I’ve seen everything…
From 50p per hour margin driving recruiters from Hull move to New York and bill $1m in Data Science to £450k billing managers in Oil and Gas receive £60k salary increases for a new role and leaving within the next 6 months.
So what is the recipe for start-up success?
A blended approach of good market knowledge from experienced consulting managers, and a bullet-proof onboarding and training for juniors.
Hays’ did a large study of all their new starters across 4 years and found that their highest success rate with hiring came from people with 18 months to 2 years commercial experience outside of recruitment.
For start-ups, it’s a little different. You need a blend of different skill sets at the right time, to be successful, but most importantly when hiring any salesperson, it’s important to hire for character.
This study in the Harvard Business Review suggests seven key characteristics as attributes of top salespeople, and we interview based on them.
- Modesty – helps in establishing and building relationships
- Conscientiousness – have a sense of duty and are reliable
- Achievement Orientation – fixated on goals and measuring their performance against goals
- Curiosity – a hunger for knowledge and information
- Lack of Gregariousness – helps in establishing obedience with customers
- Lack of Discouragement – helps with emotional disappointment and mental stability
- Lack of Self-Consciousness – ability to be bashful and act without inhibition, helps with generating cold business.
Accountability is key to business success.
If you’re not accountable, who is there to tell you to stop or change when you know you are doing something wrong? Or act as encouragement when you are finding it difficult.
It’s natural to convince yourself that an outcome was ‘meant’ to happen rather than sticking to the targets you set in the first place.
So what does that mean in practice?
To keep everyone accountable to themselves, every business that Tempting Ventures invests in has a monthly board pack.
At first, it can seem a little overkill but it acts as much as a measure of success as it does for failure.
Whether you are launching a lifestyle or growth recruitment business, board packs are paramount to make sure you are sticking to your long-term vision.
Here’s a video of Emrah Baykal from R&O Energy giving an insight into his board pack, and how it keeps him accountable.
- Execution - Nothing else matters
I meet bold, ambitious people every week who have plans to disrupt or change the recruitment industry forever.
I still take as many of these meetings as I can – I love meeting people who share our passion.
But there is still just one vein of people that create their own success.
It’s those who ruthlessly work their way to success.
A new website, tech-USP or heavy marketing will rarely move the needle enough to have any impact on your bottom line in the first year.
Whilst we see the recruitment industry adapting to new technologies all the time;
The reality is that start-up success comes through sales first and enabling systems and processes after.
Remember to focus on what you are good at and make money from it. Make changes to move the needle once you are in a position of strength, rather than going all in at the start and expecting the results to come without the hard-work upfront.
Tempting Ventures is a Venture Capital investor founded to back high caliber management teams of niche recruitment businesses with which we have a shared vision. We offer our partners much more than capital. We offer access to best in class talent, mentoring, technology, marketing, and back-office functions.