Your start-up now has money, should hiring someone be your first investment?

So, you’ve made a good start, money is starting to tot up in the bank account and like most recruitment start-up owners you’re keen to spend it, hopefully on your new business! If you’re ambitious to grow your business and your goal is to grow a good-sized company, the chances are that your first investment to you is a no-brainer, your first employee, but is it really the best option?

Your first recruit

I’ll start by talking about the first employee as an option because that’s the one most people think of first. I’ll then come on to other alternative first investments.

I get asked a lot “how much money do I need for my first hire?” It is to a degree a “how long is a piece of string?” question, but if I can’t give you an exact answer, I will always highlight the aspects that you need to think through so we can come up with one.

How much you need for your first hire is largely dependent on what type of hire you want to make – is it an experienced recruiter, and if so, what level? Good recruiters are well paid, just go to any rec to rec and ask for a £200k biller and they’ll tell you! Do you go for a junior recruiter to train up, an experienced resourcer or a rookie? All these options come with different price tags. They also come with different considerations.

If you go for an experienced recruiter, how long would you give this person to bill? It’s usually not something that the keen-to-hire business owner will have thought of. I’m by no means a pessimist, but as a time served business owner, I’ve learned that you do need to be a realist, and to assume that your first experienced recruiter is 100% certain to work out is unrealistic. Of course, we hope they will, and we will do all we can to make that happen, but it’s by no means certain. Recruiters will very often benefit from their current working environment a lot more than they think. It could be from being on various PSLs, having a big database to tap into, having experienced colleagues who suggest candidates for jobs, plus often it’s intangible – they just bill better in that environment. It’s for these reasons when you are looking at an experienced hire that you need to dig as deep as possible and even better evidence where your hire really gets their candidates and vacancies from.

So to help answer the question of how much you need to have saved up to make your first hire, you need to decide what level you are looking to hire and importantly how long you would employ the new recruit until they start to bill. If we say 3 months, and if they’ve not billed then you will sadly let them go, then it’s 3 months’ salary, isn’t it? No, its 3 months plus how long it’d take for the first placement to start, and then how long it would take the client to pay, so maybe 5 or 6 months. And, don’t forget on top of the salary you need to pay National Insurance. The government often changes these rates, so check, but base it on 12% of earnings and re-check with your accountant when the hiring time comes. There will be other costs like company pension contributions, database licence and extra job board adverts but the NI is the big one.

OK, so you have an ex-colleague who works in your market and is a ‘nailed-on’ biller, but you can’t afford that 6-month worst case scenario money right now, so what do you do? I have recently done a podcast on How to Make the First Hires in Your Recruitment Business and I do explain how you can use the offer of equity/shares in your business as a sweetener in the deal, so I won’t go into much detail on it here. If you want even more detail on how equity/shares work, please see my blog on that very subject – A Recruitment Consultant’s Guide to Understanding the Offer of Equity/Shares by your Employer.

However, what I will say is that you need to get the balance right and ask yourself the question, is giving part of your company away now to ramp up the speed of initial growth and get that crucial critical mass worth giving away something that could be worth a lot of money in the future?

A cheaper option and a very good alternative is a resourcer. A trainee resourcer will be cheaper, but factor in how much billing time you will lose by training them up. You also need to think very hard about what you would want the resourcer to do. Often, we assume a resourcer will just find candidates, but as your business is a start-up and you want to scale what you do, your resourcer can be a lot more. Blog writing, social media management, CV formatting, database maintenance, basically anything that you do or should do, you can delegate to someone else. If you work out what you bill and divide it by the number of hours you are sat at your desk per week you will be pleasantly surprised at how much you bill per hour. For example, if you bill £15k a month, work 8 hours a day, and we base this on a 4-week month, that’s 160 hours a month. The maths on this tells us that you generate £94 an hour, which is nice! A £22k resourcer plus NI costs the company roughly £25k a year. Based on the same maths of 8-hour days and a 4-week month, that’s a £13 per hour cost to the company. The maths on this then tells you that your billing time makes the company 7.5 times more money than the cost of your resourcer. So, your resourcer only has to save you just over an hour a day and they pay for themselves! If you also factor in the low chance of failure on this option and the time it takes for a resourcer to start making a positive money-making impact in the business, it can be a much safer bet.

Marketing, as an alternative

So, what are the alternatives to a new hire? If you look at yourself, a recruiter, as an investment, then for a successful recruiter the return on investment is usually £1-£2 for every £1 of cost. If you spend a pound on salary you should get your money back, plus £1 to £2 profit. For a £50k package you can make between £50,000 and £100,000. Sounds great but there will be operational costs on top of that plus they will need management time, which reduces your billing time.

What else would make profit for your business? There are various outsourced services you can use in India as an example; however, I won’t talk about that because I find that it’s a minefield, so wouldn’t want to put my name to recommending this option.

What I do recommend and get amazing results from for the businesses that we partner with is marketing. Marketing is a broad-brush term and covers direct, indirect, brand building and the various software tools we can use to replace grunt work.

A successful marketing strategy is sector and role level specific. As an example, for some businesses LinkedIn is a gold mine, for others a complete waste of time. For some, SEO on your website can give you huge returns, for others there simply isn’t enough web traffic to make it worthwhile or research shows that the search strings you need to optimise are so competitive that you’d have to spend a fortune getting to Google’s page one. And, as we know, if you are not on page one, you may as well be on page 101.

I am so passionate about the value, short and long term, of good marketing in a business that it wouldn’t just fill one blog, I could probably write a short book on it! For this reason, I can’t really do it justice in this blog but going back to the £ return on £ spent, some of the marketing we employ for the partner businesses we can return 70X of the spend. Think bots, PPC, SEO, sponsored LinkedIn updates, automation tools, content, promoting your social media, the list is long, but what is essential with any marketing spend is that you measure the results and the return on investment.

Measuring your spend can be as simple as logging the source of every candidate you get to interview and every vacancy you receive and tracing back where it came from. You can even just do this with the ones you actually place. To do this you must get into the habit of asking every candidate that comes direct to you, or to your website how they found you. The same goes with any client who comes direct to you, however with a client I’d frame the question “who recommended us?” as it sounds better and suggests you win business by positive referrals. If you get the answer “from your website,” do follow it up with “how did you come across the website?” – it could be a link from social media, they Googled the company name, paid Google advertising or SEO, so it’s important that you find out which it is.

Choosing to make a new employee your first business investment can often be an emotional thing – it feels more like a business with a member of staff but even looking at the cheaper resourcer hire that’s still over £2000 of potential marketing a month, so you may want to look at the business logic for marketing now and curb that emotion to hire someone unless they are a guaranteed biller.

Marketing can be lower risk and by investing in marketing very early in the company’s growth, you can help make your business an easier place to make money, thus giving your new hires a greater chance of succeeding. One of the maxims I use in helping my partner businesses grow is that we must make the business environment an easy place to make money – it not only makes the business more profit but we can make average billers good and good billers great. Also, staff are far less likely to leave a business where it’s an easy place to make money and staff attraction becomes a lot easier. How we do this is of course not just marketing – good management, people development and office culture all come into it, but marketing is a good start and is often a snowball investment that will make more and more money as time goes by.

Your company website

The last option is an expensive website. I know a lot of start-ups skip a website altogether until they get cash in or get ‘a mate’ to create one for them, which often means a cheap and cheerful one that the business owner doesn’t really like. How much and what type of website you have depends on 2 key things. Is it a ‘brochure site’ i.e. just for people who you are doing business with or ones you are contacting direct and may visit your site because of this approach. Or, is it to attract clients and candidates who don’t know you. If it’s a brochure site it should be cheaper, if it’s the latter, to attract business, that’s when it’ll take more thinking through. Having a website that doesn’t appear on Google, either through natural rankings, or paid adverts, is a little like having a great brochure but keeping it in your drawer to only show people that come into your office. Do not assume it’ll start making you money just because it looks great and that people will magically find it.

Building a website that generates cash for your business is something we are very hot on, but it is a very big subject – I can’t do it justice unless it’s a blog on its own. What I would say though is before you look at a big budget, check the amount of traffic for the search terms you expect clients and candidates would use in Google to find a business such as yours. If the traffic is good, find out how

achievable getting to page 1 on Google is. For some markets the traffic is very low, so it’s not worth a big SEO and PPC budget, for others the traffic is high but the competition is also very high so your budget would need to be huge. Would that really be the best ROI on your money compared to the other options in this blog? Of course, some have good traffic and a realistic PPC and SEO budget could get you results if done right. However, a word of caution, SEO is an art and incredibly difficult to do yourself, plus finding a really good SEO person who will get you results is just as hard. There are many that claim to do a lot, but as you can’t measure the work they put in easily, you can get ripped off if you’re not very careful.

Conclusion

I only work with businesses that have ambition to grow and have been doing solely this now for 8 years, since I sold out of my own recruitment businesses. I’ve never had a partner business fail and some of that has come from getting the early investments right. With each business we look at the first investment question with an open mind and do not assume that one of the above is always the one we go for. It is case by case; however, I do hope that this blog has given you food for thought in getting your first investments right.

Rhys Jones

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.

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