Rapidly growing headcount because of business growth is generally considered positive, however, this period opens businesses up to vulnerability through rash hiring decisions. During this significant stage it is important to slow down, follow a strategic workforce plan and assess all risks involved.
When a business is in its growth mode, one of the most burdening challenges is getting the right people cost effectively and within the timescales to meet the company’s goals. While rapidly increasing headcount can be essential to meet customer demand, it is crucial that the quality of hires is put above all else. In our experience of working with companies in the process of scaling their business, we have found that firms often feel the pressure to increase headcount too swiftly without considering unwanted consequences.
Do venture capitalists feel the most pressure?
This certainly is true among many venture capitalists, who need to develop businesses as quick as possible. To ensure recruitment is handled efficiently, many may believe that turning to recruitment agencies will be the best move, however this can be a mistake. In fact, this is often where investors that are scaling their companies expose themselves to risks of breakage and also a weakened workforce.
What are the risks when rapidly growing headcount?
When hiring activity is reactionary as opposed to strategic, managers risk swapping one problem for another. Relying on recruitment agencies to sort your company’s most important resource often involves dealing with people who may just be keen on filling a quota to a set deadline. While this method might mean you have enough people to run your business, it does not necessarily equal people who will do it well. If managers are not responsible for overseeing all recruitment activity, it leaves businesses at risk of future problems when it comes to aspects such as honing company culture, developing employer branding and pipelining future talent.
According to a new report from the Recruitment & Employment Confederation (REC), UK firms are failing to hire the right person for two out of five roles. The likelihood of this happening increases greatly when talent sourcing is put in the hands of someone who may have a less passionate take on your business goals. The use of multiple agencies certainly can add danger to misinterpretation and threat to the handling of valuable candidates. Deterring the right employee or onboarding the wrong one can have a detrimental impact on business. In addition to risking disruption to a high-performing team, creating imbalances in diversity and inclusion, it can also cost greatly too. According to the REC, a poor hire at mid-manager level with a salary of £42,000 can cost a business more than £132,000.
On top of wrong hires, another costly mistake is overspending on agency fees. Data from the REC shows that the average recruitment fee for a single permanent placement increased by 6.4% in 2017/18 to reach £4,238. When combined with separate figures from LinkedIn, which reveal that the average global staff turnover rate now stands at 11%, it can be deduced that a company with a headcount of 1,500 can expect to spend at least £699,270 annually on agency fees, while a firm with 5,000 staff will hand over a staggering £2,330,900 each year – and that is before growth is even considered.
How to strategically tackle this issue
Slashing such costs will certainly be of interest to private equity and every venture capitalist, and there are in fact several steps that can drastically reduce spend. The most effective and beneficial tactic will be to bring talent acquisition in-house with a focus on direct sourcing. On top of saving on agency fees, you will be able to ensure that the calibre of hire is in line with your standards and in accordance to your workforce planning. As we have written before, by taking a bird’s eye view of all sourcing activity, in-house recruiters can plan and execute detailed hiring roadmaps to ensure the right roles are filled at the right time. This, in turn, offers the freedom to pipeline talent and guarantee that you are setting your firm up for future success and a return on investment. By bringing recruitment in-house, private equity and venture capitalists will find the profitability that they seek.
If you would like any further help with strategically growing your headcount, get in touch today.