Hiring an Internal Recruiter as a Start-Up
The most important hire that you probably shouldn't be making (yet).
Buckle up, today’s going to be a long one. (There’s a TL;DR at the bottom).
Today, I want to cover a question that is all but guaranteed to be discussed by any start-up leadership team within the first few years of growing the business and team.
Should we hire an internal recruiter?
The answer is not an easy one to give (hence the length of this post), but in my opinion, hiring an internal recruiter can land anywhere from being the most expensive mistake you ever make, to being the most valuable hire in the team, and anywhere in between.
The reality is, it’s an extremely loaded question, filled with a tonne of sub questions that also need to be answered. And the plan today, is to do just that.
The Theory
Generally, the question of hiring of an internal recruiter or Talent Acquisition (TA) professional tends to come to the table after one of a few things has happened or is happening.
You’ve just spent far more than you’d like on recruitment fees.
You’ve just hired a few or more roles, and found that it was far more of a ball ache than you were expecting.
You’re planning a big period of growth, and would like someone internally to do all of it for you.
In theory, none of these reasons are ‘bad’ reasons to have the conversation. They are all legitimate concerns, and are challenges that a solid TA hire can help to alleviate. In fact, I think if you’re facing any or all of them currently, you should be prioritising time to address these issues sooner rather than later.
However, hiring an internal recruiter to magically wave their wand is often only going to paper over cracks, and in reality if done at the wrong time and for the wrong reasons, it can quite easily cause more to appear.
The Reality
Whilst the concerns listed above are all things that you should be keeping an eye on, they all have further nuance that is perhaps even more important to understand.
In practice, the vast majority of start-ups that hire internal recruiters either:
A) Let them go.
B) Burn cash attempting to keep them.
C) Branch out the role so much that it’s not an internal recruitment position anymore.
The reality is, almost all businesses that would consider themselves to be a ‘start-up’ (as opposed to scale-up, or something further along) should very carefully consider whether they need an internal talent function at all - or is it just an astronomical cost that can’t be justified?
The Costs
Whilst there’s a number of reasons that internal recruitment hires tend to work out so poorly in this space, I believe that cost - and more specifically, a misunderstanding of the true costs - is the number one reason.
Let me break it down as best I can (disclaimer, these aren’t exact, but are close enough)
Cost to Hire: The first challenge of hiring an internal recruiter is to do exactly that. Cost to hire can vary massively, but including interview time, advertising, onboarding, ramp up time and so on, we could probably call it an estimated $30,000.
Salary: Candidates that can succeed in start-up recruitment are extremely skilled, and are in very short supply. From what I have been told, my TA contacts are on circa $140K-$155K+Super for IC roles, and $170K+Super for management positions. Including super, let’s call it an average of $165,000.
Tools: “Recruiters just stick up an ad and send the best people right?”
No. LinkedIn Recruiter, Job Slots, Seek & Seek Talent Search, Applicant Tracking Systems, Onboarding Software, the list goes on and on, and if you want to be competitive, you will need most, if not all of it. Conservatively, we’re talking $25,000-$30,000.
For those that aren’t keeping count, we’re at $225,000 for an internal recruiter’s first year.
And that doesn’t even include the one that catches out almost every optimistic start-up founder…
External Recruitment Spend
Ah, you thought you’d seen the back of us? Unfortunately, I have some news.
Good internal recruiters still use recruitment agencies. In fact, I’d actually go so far as to say that if you refused to allow agency use, the very best TA professionals would avoid joining you altogether.
Across our clients that employ 1 or more internal recruiter, the average internal fill rate is roughly 70%, with the other 30% being filled by us (or other agencies for other disciplines where we can’t help).
If you hire 10 people at year, that’s roughly $75,000 in agency spend.
Maybe you’re planning to hire 20? $150,000 to agencies.
That’s not a small amount of money, and when coupled with the $225,000 we mentioned earlier, you’re at $300,000 on the lower end, or closer to $400,000 on the high end.
I thought the idea was to reduce recruitment and hiring spend?
And remember, we’re not even diving into the fact that an internal recruiter’s role in a start-up also involves onboarding, people & culture responsibilities, talent & hiring strategy, and so much more.
How can you hire identify, attract and secure the best people available when it’s only your priority for some of the time? There’s a reason that agency offer acceptance rates are so much higher than direct ones, and all of that has an additional cost too.
It’s at this stage in your journey (10-20 hires per year) when other people in the business need to step up. Hiring managers in businesses of this size need to understand that hiring, and being quite heavily involved in that process, is a legitimate part of their job description. If they aren’t pulling their weight, have a word with them, it’s costing you money and holding the business back.
The Turning Point.
There is a turning point though. I know that many TA professionals read this blog, and up until now, it may have felt like I was out to get you.
This could not be further from the truth.
Beyond a certain point, I genuinely believe that you are one of the most important hires that every start-up and scale-up needs to make, when the time comes.
In simple terms, that turning point is around the 25 hires a year mark. In more complex terms, it’s whenever the business is ready to become a slightly more mature version of itself from a hiring perspective.
Firstly, that cost equation that we went through - at 25 hires a year, it’s far more pallatable.
Secondly, any business growing or attempting to grow at that rate needs some serious process upgrades, something that a strong internal recruiter should be very comfortable implementing. These will be perhaps the most important 2-3 years of growth the business experiences, and the cost of messing it up will be significantly more expensive than whatever your internal recruiter is costing you.
Thirdly, it’s at this sort of size or growth trajectory where a founder or CTO needs to take a major step back from recruitment. Your time is too valuable, and your knowledge (respectfully) is not up to par with the people that do this every day.
Hiring at any sort of scale without an internal specialist in place is like driving the wrong way down the motorway on a motorbike with a blindfold on…
An external recruiter like Scouut can take the blindfold off for you, but without that internal guidance on a daily basis, and the processes and strategies in place, you’re still very quickly driving into oncoming traffic.
Some Rules
So we’ve established when to take this step, but plenty of the businesses that have reached that point still get it wrong.
Just yesterday, we got a call from one of the best Heads of Talent in Australia, informing us that he’d resigned from his role, and his ex employer is 100% to blame.
It’s key that as a business, the TA person or people within the team are given the tools, recognition, and power to deliver success.
Here’s the boxes that need ticking for an internal recruiter to thrive.
Power & Authority: The people in your business are the biggest contributor to success or failure, and your internal recruiter runs the function that brings in the people. They need the power and respect to manage up, and to demand better from senior leaders in the team when they aren’t pulling their weight.
Tools: The best businesses build the best teams utilising the best tools. Literal AI can stick up an advert and reach out to the people that look good on paper. When hiring directly, you compete with us, and no job advert is competing with us. Give them the tools they need to compete and deliver.
Bandwidth: Whilst 25 hires a year is the turning point, for a 1 person talent team, it’s possibly also the limit. Don’t be surprised if you need to go from 0 to 2 very quickly. This is especially true if the roles are extremely varied.
Genuine Ability: As with most roles, in most industries, the best people earn the most money. However, the start-up space is always looking for a bargain; for this type of role, it doesn’t exist. Hiring a bad internal recruiter as a fast growing scale up can cost from a few $100K to more than a couple $million.
That last one is no joke by the way, I’ve seen it happen, more than once. (Think overpromise, underdeliver, missed deadlines, pulled funding, and so on).
Harmony
At the end of the day, and similar to any other team or function within your business, you want it to operate harmoniously.
If you’ve been reading these blogs or some of my LinkedIn posts, you’ll know that I’m quite keen on reminding everyone that successful scale ups do not reach that point without recruiter help.
Usually I’m referencing external recruiters, but actually, it’s all recruiters. And the very best do it in harmony.
For us, and our best clients with internal talent teams or people, we know when we can help, they know when we can help, we all know when it makes sense for us to get involved, and then we deliver, and get paid.
It’s a simple, valuable, and harmonious process for all. That’s the end goal, but its a long play, and not always easy to achieve.
You may have noticed that it’s quite a violent transition from no internal recruiter to hiring one, but there are some alternatives that could be worth considering, in the short term, at least.
The Alternatives
Just because your business might not be ready for a full time internal recruiter, doesn’t mean that your TA function or processes need to be neglected.
In fact, I’d say the opposite is likely true. Given there’s no day to day specialist, the return on investment of outsourcing at least some of this stuff, or having a sanity check done on what you’ve already got in place is likely super high.
Here’s some suggestions that I think all start-ups should at least consider spending money on.
One Off Consulting & Talent Strategy: Perhaps the biggest issue start-ups have with recruitment is the constant spinning of wheels whilst attempting things that don’t work, or that only work in an extremely forgiving market (2023 has been exactly that). Some consulting around your processes, EVP, comp structure, onboarding and so on may be really beneficial, and it’s something that you buy once, but utilise forever.
Scouut offers this, starting from $1500 and capping out at $5,000, but plenty of recruiters can deliver this - just make sure it’s from a specialist in the space that’s relevant to you, as you want them to cover market specific nuances.
Talent Acquisition as a Service: Each business’ offering will be slightly different and will cover different things (at different price points). The idea is that your TA function in managed for the lifecycle of a vacancy, often paid on a weekly subscription basis. Typically this will cover ad writing and posting, applicant shortlisting, applicant screening, interview scheduling, and a few other administrative bits and pieces.
Scouut offers this service from $500 a week, with additional extras that can be included if and when necessary. Similar to before, we aren’t the only ones that do this, so I’d suggest asking around and doing some research to find the best partner for you.
Ongoing Consulting: Perhaps not a direct alternative, as it often encompasses many or all aspects of Talent Acquisition, People & Culture, HR, and so on, but an ongoing consulting arrangement, usually 1-2 days per week, for a 1-6 month period, can be a really fantastic way of getting some solid and respectable processes in place for a fraction of a the cost of a full time hire.
Scouut doesn’t currently offer this, however, we’ve personally worked with Rachel Zerr of FirstFifty when she was back in Internal Talent land, and have heard great things about her ability to deliver all of the above and more since venturing out on her own with FirstFifty!
RPO / Onsite / Embedded Model: Effectively paying a monthly subscription for an agency recruiter to join you and your team onsite - hence the ‘embedded’ name. It can be good for really quick ramp ups, but I don’t like this model for an ongoing arrangement, only quick, volume hiring.
I’d suggest you do your own research, but I’ll leave you with one point that I’d be wary of. One of our biggest sources of new clients is the ex clients of a very popular onsite recruitment business in the start-up space. Make of that what you will…
Traditional External Recruitment: If it ain’t broke, don’t fix it. Hiring is a cost that every growing business will face. If that’s something you’re still in denial about, that’s a bigger problem. It doesn’t have to be Scouut either, there are heaps of good recruiters out there. I think that for start-ups & scale-ups, we’re the best, but for more corporate businesses, others are definitely better than us.
At the end of the day, it’s always nice to know that if the challenge becomes too challenging, you can engage a great recruiter and be confident that your headache will be gone in a matter of days or weeks. That’s a nice outlet to have.
TL;DR
Hello!
Firstly, save this for later, it’ll be super important at some stage of your start-up journey, I promise.
The Theory: All start-ups will eventually think about hiring an internal recruiter, but generally, it’s to solve problems that the internal recruiter can’t completely solve. (Recruiter spend, the ball ache of hiring, filling all future roles).
The Reality: Most Internal Recruiters are made redundant in start-ups, or they successfuly help the business bleed cash. Start-ups in particular find it very difficult to utilise a good internal recruiter properly.
The Cost: On average, an internal recruiter will cost you $225K in year 1.
External Recruitment Spend: I lied, they’ll actually cost $300K-$400K in year 1. Best best is to have other members in the team wear the internal recruitment hat, you’re still hiring in low enough volumes that it’s doable without much sacrafice.
The Turning Point: When you are hiring 25 people per year, you need to hire an internal recruitment specialist. It’s super important that you do this at this stage.
Some Rules: Let them boss you and your team around, give them the software and licences to succeed, you might actually need to hire 2 people, pay them properly. Oh, and I know a crap internal recruiter that cost a mid sized scale up in Sydney a couple million bucks.
Harmony: We should all work together and be friends. (Sounds soppy but its genuinely how the best businesses recruit - internal & external, in unison.
The Alternatives: One Off Consulting, TA as a Service, Ongoing Consulting, RPO/Onsite/Embedded, Traditional External Recruitment.
Fin.
Matt Cook // Co-Founder @ Scouut // 0477 622 408 // Matt@scouut.com.au
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