Most Common Recruitment Business Startup Mistakes

Working with us should protect you from making mistakes as a business start-up, but here are the most common we’ve found.

So you’re sick of earning money for someone else? Good for you. But what’s your next step to getting your recruitment business off the ground?

The fact is – and it’s a harsh one indeed – 4 out of 5 recruitment businesses don’t last beyond 2 years. We all know the recruitment industry is one of the toughest sectors to work in, selling a product that can say no and only being as good as your last month. But with no barrier to entry to set up a recruitment company it’s even more challenging trying to survive in the world of a recruitment business owner-manager.

So with this in mind it’s quite scary some of the basic errors start up recruiters make which give their chances of survival a hammering. As Managing Director of Davidson Gray, the recruitment start up specialists, here are some of the most common mistakes I see when speaking to recruiters who want to work for themselves.

Not Understanding Cash Flow

It’s astonishing how many start-ups haven’t realised the need to understand cash flow. Placements are vanity, invoices are sanity but cash is king. Your P & L forecast may be well thought through but if your candidate doesn’t start for 30 days, and your client doesn’t pay for 60 days it’ll be 90 days before any placement turns into the hard cash you need to pay the rent. It’s fairly simple to turn a P & L forecast into a cash flow forecast, but make sure you allow for extended payment terms, plan for the worst and hope for the best. This should mean you don’t get caught out.

Spending Start-up Cash on the Wrong Things

I meet so many recruiters who are that keen, or plain impulsive, that they’ve already wasted some of their start-up capital on paying over the odds for some of the start-up tools, not bought wisely, or simply wasted it on things that aren’t essential. The most common of these capital spend mistakes is the website. I think because this is a tangible image of running your own business recruiters jump on this first. Building an effective website is a specialist skill, and I don’t mean the actual build, more the layout and the SEO behind it. Calls to action, how to submit a CV that automatically goes on to the database, and even deciding if the site is aimed at candidate or client attraction. A website is about getting your business free leads, be this candidates or clients so don’t get a “mate” to do it, or pay some random web company to build it, you could be simply throwing away precious start-up capital.

Invisible Websites

A nice looking, functional website is great for your existing clients and candidates to look at, but then again, they already know you, so what purpose does that serve? Yes it’s good for a start-up to have a website when re introducing yourself to existing contacts but surely it has to be the aim of any website to be found by the people who don’t know you, to drive new customers to your business.

SEO, or Search Engine Optimisation, is a black art that’s very much misunderstood, but in essence it’s how people find you by typing in a search term. It’s astonishing how many websites which have supposedly been professionally built are virtually invisible on the web. There is a great deal of skill involved in getting yours found by your target audience, and this can cost you thousands, but done correctly it can be relatively cheap and the best marketing spend possible.

Just imagine if you’d spent thousands on a slick glossy set of brochures for all your new clients, but you kept them locked in a cupboard. That’s how much of a waste of money an expensive but invisible website is.

Not Using Social Media

Ignoring the Power of Digital Marketing in the recruitment industry is common in start-ups but it’s a false economy to allow your business to set up without an online and social media presence. You’ll need a website, Twitter account, LinkedIn account, Facebook page and more. Social media is moving at such a pace you’ll have a job keeping up but if you don’t even make a start your business is doomed to fail. You can bet your competitors are using it to stay ahead. If you aren’t interested in social media, or can’t get your head around it, the set up and management of the various media can be outsourced to leave you more time to concentrate on the parts of recruitment you are good at.

Relying on a Single Customer

Clients are fickle and their businesses change. Many good recruitment and search agencies have gone out of business because they relied too heavily on one or two clients. Don’t make the same mistake – broaden and diversify your client portfolio. Look for a mix of small and large accounts. The larger ones will usually mean a lower rate but more quantity and the small clients can give you higher rates. Also look at short term business and longer term wins. Variety is the spice life for a recruitment client base, so don’t fall into the trap of thinking those big customers will be there forever. If you’re wrong, you can lose your business.

“Saving Money” By Using Excel Rather Than a Specialist Recruitment Database

This is a huge false economy. The most up to date software on the market does so many time saving tasks; parsing CVs, formatting CVs, interacting with social media and of course searching and matching for you. For me, a good database is more important than a website, especially if you are trading in a niche market. A quality well maintained database is an absolute gold mine in niche markets, and allows the business to employ low skilled, low paid staff who will still be able to make money. This of course means it’s much easier to expand and replace staff, which is by far the biggest growing pain for any recruitment business.

The Good News is it is Possible!

Now you’ve read this, please don’t be scared off running your own business. It was the best career move I ever made. But be smart, use some of these observations in your preparation. And most of all try and find someone who’s been there to help you. I set up Davidson Gray for this very reason – to help recruiters who want to start their own businesses. If I knew what I know now when I first set up, I’d have made twice as much money, twice as quickly and with half the effort!

Written by Rhys Jones Managing Director – Davidson Gray.

Rhys sold out of his previous recruitment businesses in 2012 to focus solely on helping recruiters set up and build recruitment businesses. Follow Rhys on LinkedIn or contact him direct for help with your start-up recruitment business or for coaching to grow an existing one.