Can Recruiters Work With Startups?

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3 would never pay options for recruiting.
1 suggest deferring payment either until financial position better or next funding round.
2 would pay up to $5K, preferably less.
1 would pay 5% of salary but not more.
1 would pay options if there were future services/longer relationship
1 would pay options with no expectation of future services/longer relationship
1 would be happy to pay the normal recruiting rate 10-33% of salary

All are concerned that recruiters would deliver good candidates at all. Their experience with many recruiting firms was that they were not able to deliver great candidates. Also, there could be conflict of interest in that if recruiter is compensated on % of salary, a recruiter may negotiate for higher salaries. Or they just find you any candidate whether they are good or not, just to get paid.

2 suggested - was there a way to reward recruiters more for a good hire (ie. lasts longer than a year, and performing well) and rewarded little for a poor hire (ie. let go within a year).

One person suggested, could recruiter fees be paid by VC firms as part of their services or use of funds?

In looking at the responses, the consistent message was that startups were very cash strapped and did not want to, or could not, pay any cash at all. Or they did not want to pay until later. Everyone had a different opinion on whether or not they were willing to pay options and what paying options meant.

Looking at it from the recruiter side, there are definitely issues with working with startups:

1. For startups, many times it's low salary and high equity for the new hire. If a recruiter is getting 10-33% of hiring salary, then how does recruiter make money if the new hire salary is much lower than what they would get at a traditional company?

2. Startup equity is notoriously risky. If a recruiter only takes equity for payment, much of that payment will be forfeit since most early stage startups fail.

3. Recruiting is a cash based business like other consulting services. You need upfront cash to survive but startups are reluctant to give you any cash at all.

Given what I found out here, I am not sure that the current recruiter model can work. Some other comments and options I have found interesting that are out there:

1. Incubators and VCs already have recruiters on staff. Some of them are contractors paid through venture funds but some of them are actually on staff so they are not compensated like external, independent contractors.

2. StartupDigest is an email digest focused on startups, but there is a recruiting model hidden inside. It's an application driven, VIP only members list of both startups and key individuals who get matched to each other.

3. Codeeval allows those seeking to hire engineers to post coding challenges and a place to upload solutions. You set potential coding hires to your section of the site and they solve problems that you create. They write code and upload the code to the server where it runs the code and publishes the output and the code for the hiring manager to evaluate.

4. Ovia HR is video based recruiting, but in an asynchronous manner. You upload videos of the hiring manager/recruiter asking interview questions and interviewees come and answer via video. Actual interview situations are mimicked because there is a time limit to answering a question so you don't get time to prepare answers; you have to answer on the fly, just like in a real interview.

Still, in today's world, hiring is a big problem for startups and likely to remain that way for a long time. The explosion of startups means that there are too many choices for prospective new hires to join. Using new technology to help find candidates is nice, but there is no substitute for the power of getting out there and networking yourself. Ultimately, people join your startup not only for the cool idea and opportunity, but for the opportunity to work with smart people whom they respect and can learn from.

3 Comments

  • Bill Schultz wrote: 08/17/2011 4:49 PM

    Hi David- Thoughtful Article. Not sure what stage startups your email went out to. I think it is wise tailor a recruiting package that best fits the stage and financial status of the company. That said, I'm surprised at the responses since most startups do pat recruiting fees.

    Reply
    • Bill Schultz wrote: 08/17/2011 4:50 PM

      I meant pay, not pat.

      Reply
    • David Shen wrote: 08/17/2011 6:32 PM

      The email went out to a list of entrepreneurs, both past and present, most of them at very early stage, maybe a few that are a bit later. These startups are mostly internet startups, where being lean is usually taken to the nth degree and nobody wants to pay for anything at all. As you note, the stage of startup will affect their ability and willingness to pay for recruiters, and this could be affected the industry in which a startup operates as I'm sure philosophies differ...

      Reply

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