2e. Agencies

2e. Agencies

Recruiting agencies are mixed ROI for small startups largely due to cost, incentives, and variance in quality:

  • Agencies typically cost ~20-30% of a new hire’s first-year salary. This is a lot to spend for a small startup.
  • Agencies can waste your time. Most agencies don’t care where they place someone, so they usually “shop candidates” across many opportunities, making them harder to close.
  • Incentives are misaligned. Most agencies get paid based on a percentage of first-year salary, so they may be incentivized to convince the candidate to negotiate your offer up or to take an offer from a larger company that can pay more cash. Most agencies are only held accountable for short-term performance and aren’t aligned with placing candidates that are a long-term fit.
  • Quality can vary, especially for engineering roles. Most top engineers don’t want to work with agencies and the ones that do are sent out to as many companies as possible. Some agencies may fill your funnel with low-quality leads as there’s no incentive against submitting lots of candidates in the hopes that one of them makes it through your process.

The one place where you may consider using an agency is when hiring for roles where you aren’t an expert and don’t have a strong network. E.g. at Gem, we tried a number of agencies in the early days but didn’t see any success until we were larger with a Director of Marketing search. In these cases, I’d make sure to find an agency that specializes in the specific role you’re looking to hire and has a deep network of qualified candidates. Even then, I’d encourage you to try your network first before engaging with agencies.

Also, note that agencies are hugely valuable for executive hiring, but that’s not relevant at your stage.

How to pick an agency

Start by asking your network for a few intros. You’ll want to pick an agency that references well from another founder that you trust.

Schedule kick-off calls with each agency:

  1. [5-10 mins] Give them an overview of your company and the role you’re looking to fill
    • Ask them what advice they have based on the stage of your company and the role you’re looking to fill. The best agencies will teach you something new.
  2. [15 mins] Ask them a few questions to dig into searches they’ve worked on in the past
    • Tell me about a search that took longer than 6 months
      • What happened? Why was it slower than expected?
      • How did you handle it?
      • How did you eventually close the candidate?
    • Tell me about the most recent full-stack candidate you’ve placed at a startup.
      • What made it successful?
    • Have you recruited for a startup at our stage?
      • How was it different than working with later-stage companies?
      • Were you successful and what contributed to that success?
    • Tell me about a search you never placed.
      • What made it tough to fill?
    • Write down the companies they worked with for these searches, so you can back-channel
  3. [5-10 mins] Ask them to pitch your company back to you in a few minutes or less. They’ll be the first touchpoint with every candidate they send you, and will likely be involved, so you’ll want to be confident that they can represent your company well. You can also schedule a followup conversation if they aren’t ready to pitch on your first call.
  4. Do a few back-channel references. You should have a good list from #2.

Outside of references and digging into questions, tiebreak based on who you enjoy talking to the most. If you enjoyed interacting with them, hopefully, your candidates will as well.

Working with agencies

If you go the agency route, make sure you manage them well by setting expectations/scope/evaluation criteria up front. Also be prepared to onboard them so they can do their job and represent your brand.

Next Steps

Back ← Back to home here ← 2. Finding & reaching out to candidates here
Next Up → 2f. Other sources of candidates here → Skip ahead to the initial sell conversation here → Skip ahead to nurturing passive talent here

Feedback? Suggestions? Ideas? Comment directly or email steve@gem.com