The unemployment rate in America is hovering around 9%. But if you are a competent engineer, sales executive, online marketer or general manager in startup hot-spots like Silicon Valley, NYC or Boston, 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, it seeks to leverage the networks of its founding team and 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.
Jeffrey Bussgang is general partner at venture capital firm Flybridge Capital Partners. You can follow him on Twitter @bussgang