Starting A Recruitment Business (Part 1)

People have different reasons for starting their own recruitment business, some popular ones are:

  • They feel that they could make more money than as an employee
  • They don’t like the direction that their employer is taking the business
  • They have a passion for a specialisation or niche that they cannot follow under their current circumstances.

Whatever the initial motivation for considering setting up on your own recruitment business, I would like to stress that it is not an endeavour to be taken on lightly or without seeking appropriate professional advice, including your lawyer and accountant. Many new ventures struggle because the owner did not do effective groundwork before they began.

Before you begin:

Your existing contract:

You are probably employed in an existing recruitment firm and have a few years of success, preferably with supervisory responsibility, under your belt. The first thing you need to consider is your current employment contract. If there is a restraint of trade – what is the duration and what restrictions will it affect? One example is an Accounting Recruiter working in Insurance / Finance sector – is there leeway for you to develop a business in other sectors (eg: Accounting within ITC, Manufacturing, Government, etc) while you wait for your no-compete to expire?

The most important thing you take with you from job to job in the recruitment industry is your integrity. The last thing you want to have happen is to misjudge your current employers response to your plans and get into brand slagging competition with your previous and potential client base. One way to get around this potential issue is advise your ex-employer that you intend to honour your employment contract. It is crucial to make sure that you have legal advice before testing any of the clauses in your employment contract.

As a side note: Even if your lawyer says that the contract has more loopholes than grandma’s knitted sweaters you need to decide if it is the right thing to do to oppose it. Your work mates – the people you leave behind – are potentially people you may want to work with down the track. If you are perceived to act without integrity you can say bye bye to drawing on those relationships in the future. Relationships are what keep recruiters in jobs.

Your market segment:

There are many ways to partition a market. You can be generalist or specialist, you can have a vertical (Insurance: Receptionist to CEO) or a horizontal (“Accountants”). People often have strong opinions about what is the “right way”. The one and only “right way” is to consider as many factors that affect your market in terms of supply and demand, both internal and external, as you can and make an informed judgement call.

Surely you can’t be a generalist on your own? : This is often the case, why would a recruiter have credibility in Health & Engineering & Finance? If you have a limited geographic market – a country town for example – then you are probably going to develop a business around the constraints of the local talent pool and the needs of local businesses. There’s no point being a specialist Accounting recruiter when there are only 4 accounting branches in town.

Vertical is the way to go: Vertical is great if you have a track record in the whole vertical. This means that once you have got a client on board you can sell to all the levels of the business, so in effect the selling activity can ease off and you are more likely to be billing quicker.

There are a couple of downsides.

  1. You can be overly type cast to your biggest client which may make their competitors reluctant to do business with you.
  2. You can get tied to a client (you’re only one girl | guy!) and if another firm comes in over the top you loose your biggest revenue base in one day. OUCH!
  3. You are open to death by 1000 cuts (ok 3 or 4 really) from horizontal based businesses. If you have the Insurance client sewn up (Call centre, Accounting, Sales) and a horizontal niche business takes away “Accounting” it can create a void – a capability deficit perception that cuts your “grass roots” revenue base from your “cream”

Horizontal means credibility: True but it also means that you have to sell to more people to create an effective brand. Whilst the vertical might get 5 jobs with one client and it takes them 5 visits to land that client; as a horizontal you have to 25 visits to make 5 placements in 5 clients.

The upside is that you can generally charge a premium for your work and have some insulation from individual client’s hiring cycles.

Its going to be easier to develop your candidate brand as you have more adverts & messages in the same spaces. This could mean that working on a “candidate floating” / “reverse marketing” business development approach will generate revenue quicker.

The obvious pitfalls are that vertical players can pitch for the entire business as a “package” and offer price incentives and perhaps have a delivery capability at every level (including yours). The other downside is sullying candidate perception by misinforming them about job opportunities. The last thing you want in a niche is for candidates to get a perception that you are not advertising real jobs. If you are seeking “registrations of interest” then make sure the candidate is aware of it up front.

Business planning:

There are countless business planning methodologies out there so take a read of a few and create one that fits your own understanding and direction but also take time to learn what each heading means. HINT: If you are not learning new terms, skills & concepts in setting up your own business then you are probably skipping some important details.

One place to look for inspiration for business planning is venture capital firm’s web sites. These people tend to publish easy to understand pitching tools that cover off most of the important details. Its a great way to put together a “pitch” for yourself (and if at the end of it you can’t sell it to your friends / family / accountant then you probably need to tweak it in some way).

Plans don’t survive contact with the market: No matter what you plan is you will find it will change and needs revisiting. Some people condense the key points of their plan into a single page and always have a copy in sight. Plans by nature are big and complex beasts and do need to be tamed, my technique (no I didn’t invent it I just use it) is as follows:

  • Goal: What am I trying to achieve? [and why]?
  • Strategy: What are the collection of assumptions and expectations that lead me to the prediction of achieving my goal?
  • Action: What is the critical strategic path? itemise each step in the journey.
  • Tasks: Take each step and make into a list of tasks. Scan your tasks horizontally to see what activity can complete multiple tasks in multiple steps.

Ultimately we only ever actually “do” tasks. This is a really important thing to remember when its month 3, the phone isn’t ringing and you have no jobs on. If you are seeing all of your goals slip away from you then either your plan was broken to start with or more likely you are not focussing on the tasks, the tasks that deliver the actions, steps that make up the strategy, and the strategy that delivers the goal.

….that’s enough for part one.

Remember you can do all of this without having to re-mortgage your house or take out a lease; it might even be that you decide not to open your own firm but have a clear picture of what you want to achieve in your current job.