To use Recruiters or To go at it alone, that is the question!
Working with External Recruiters and Firms
One of the biggest challenges founders are facing more and more is hiring fast and hiring well. To achieve this it isn’t uncommon to both bring a talent function in house, but also, in tandem, to work with external recruitment firms.
Working with these firms isn’t always straightforward however, as many promise you the world and fall short if they aren’t well versed in your industry and key people therein. Additionally, there are a variety of ways to work with recruitment firms and each has their own unique twist to it.
To help decipher this process, I’ve teamed up with our very own Head of Talent, Alex Lewis, to address some of the typical questions that surface when engaging with firms for the first time.
Planning how best to start recruiting is a bit of a minefield. You have various options from search firms to contingent agency recruiters, to embedded and hiring your own internal recruiter. Each has their own pros and cons, but hopefully these FAQs will shed some light on your chosen path.
When to engage with a recruitment partner is a common question — personally, I’m of the view that initially, founders should do their absolute best to engage with candidates themselves, from getting roles advertised to headhunting through cold outreach and leveraging existing networks. For example, as Haroun from Dala, a Seedcamp company, was looking to hire, he did some cold outreach, and found some great candidates who did respond because (after asking them), they knew he was the decision maker rather than a recruiter who doesn’t know the business as well as the founder.
Once these outreach efforts are exhausted or you are under serious time pressure to scale, then it is best to begin an engagement with an external recruiter or firm.
Picking a Recruiter:
There are a few options you have to consider:
Executive Search Firms
Executive search firms focus on leadership hiring, primarily focusing on Executive (C-Suite), VP or Director level roles. This is a high-quality method of recruiting that consequently tends to have a significant price tag attached to it. Each firm’s methodology will vary, but it is a very detailed process that would tend to include global candidate market mapping, a selection of candidates presented to you for approach, and a rigorous vetting and preliminary interview/assessment prior to them being submitted into your company’s formal process.
They tend to perform advisory roles and will have substantial amounts of research available. Having a relationship with a search firm as a founder is very useful, but they should only be used when you have exhausted your personal network and efforts to fill a role.
Recruitment Agencies are a dime a dozen but good ones are invaluable. The general difference between a traditional search firm and a recruitment agency are the level of role they typically work. Some recruitment agencies have executive search capabilities but leadership hiring would typically not go higher than a director.
Recruitment agencies will tend to have a selection of consultants with very specific niches. They will have a database of candidates they can contact to fill your role and will do high-level headhunting. The candidates they submit to you will typically be across a few other “clients” and as they work on commission, unless there is a long-term partnership or relationship, they’ll be inclined to favour the client paying them the greatest fee — this will vary though; some agencies are more balanced than others.
Embedded talent acquisition/embedded recruitment is a relatively new but very popular model, developed as a more flexible and smaller scale version of an RPO, with a management consultancy approach. They would come in and act as your internal talent team, helping you scale at pace until a time that you build out your own internal function, or exist in support of your existing function at a time of significant scale. Outside of hiring, they would also be able to assist with things like optimising your employer brand and wider people ops initiatives, plus wider research to make you a more effective hiring machine/more attractive employer.
When you know what type of capability you require, track record is important to understand, for example if you’re hiring niché roles ensure the partner you are working with have experience in these roles and are able to prove they have done this through providing case studies, references or showing you candidates they have placed with other businesses, as long as there aren’t confidentiality issues.
What to Expect in Terms of Costs:
This is a tricky one to answer, but with executive search firms, you can expect to pay 25–30% of base salary, or in some cases where the individual is extremely senior, part of the entire first year compensation.
With recruitment agencies anywhere from 15–25% of base salary is the industry norm but this is flexible and often dependent on the volume of hiring being done.
Embedded partners again range anywhere from £8k-£20k per month per consultant/partner, however some pricing structures differ depending on if they take a commission or discounts applied on the number of consultants deployed.
Do I need to pay a retainer or can I simply do it on success?
Search firms often will work on retainer, either as a ⅓ up front, ⅓ on delivery of a qualified shortlist and a ⅓ upon successful completion of the hire, or ⅓ upfront and ⅔ on completion, different firms will have different structures, but the above options are the most typical.
Agencies will take a retainer if it is a larger volume of hires to mitigate the risk of deploying multiple assets to fill the roles, but this also gives you assurance that the firm is deploying consultants to work these roles exclusively for you, so make sure this is in place if they elect to close on retainer.
Embedded partners don’t typically work for a retainer, they may require a security deposit on a minimum length of deployment or will have a “notice period” of x months to roll off to cover loss of earnings.
Can I pay with Equity?
Yes, some search firms, especially the larger firms, have recognised that earlier stage companies are unable to pay their fees, so offer equity exchange contracts for their services. Make sure you understand your cap table thoroughly and speak to your investors (if you have them) before going ahead with this. The percentages should be equivalent to advisory equity circa 0.125–0.5%.
How do I best manage the process once initiated?
This differs by type of firm but you can tailor it to your preference. Search firms will agree on clear deliverables in certain timelines and some even have their own platform where you can monitor progress. Agencies again vary, but you can request weekly updates on stats. With embedded partners, typically you’ll have a weekly meeting and quarterly check-ins.
What outcomes should I expect and by when (quality and speed)?
There are a lot of variables at play here e.g. complexity of role, type of arrangement — but there is an element of opportunity cost when using quality and speed as expectations of success. When you first start working with a new recruitment partner, expect there to be a bit of a bedding in period where they get to understand what you think good looks like, what you expect and get to know you as a founder and a business. After that, you can make sensible judgement, but to assess quality, request data. Number of candidates contacted, spoken to, submitted for first interview and then assess interview funnel efficiency through conversion rate like you would a sales funnel.
What if I need to fire the person they recommended
Terms for this will exist within your contract with your agreed supplier, most will have claw back clauses stating that once you have made the decision to hire the individual, the third parties responsibility has diminished, however often there are refunds available on a step decreased based on x number of weeks of employee service.
What if I need to fire the recruiter?
If there is no retainer in place, again check your contract, but just let them know they are not performing and wish to remove them from the search. Make sure you give good feedback as to why. If there is a retainer in place, you may still owe a % of total fee.
Can I have two recruiters searching for the same candidate or is it a waste of time?
The short answer is yes; however, this doesn’t count for exclusivity arrangements or a retainer, as a retainer usually implies exclusivity. On standard contingency search, it makes sense to employ multiple agencies to represent your roles, especially if there is considerable headcount. If you are concerned about candidate representation, a first come first served rule usually applies, with written confirmation required from the candidate for representation as proof, which can be requested by you if conflict arises.
Hopefully these questions help you get started with the basics of recruitment and shed some light on the whole process!