True cost of a bad hire
A bad hire at a senior level could cost a business more than $150k. Shockingly, 85% of HR decision makers admit they made a bad hire, according to the REC. As 23% of start-ups fail because they haven’t got the right team, it’s important that a bad hire doesn’t make a big dent into your funding.
Let’s consider the cost of hiring…
- A round figure of $100k annual basic salary.
- Plus, about $25k recruitment fee, depending on your relationship.
- Between you and the team, you will have spent 30 hours interviewing for that one hire. Let’s call this $5k worth of time.
- You and the team will have lost productivity, and it’s safe to estimate $50k of missed revenue.
- The cost of training and onboarding could be anything from $5k-$20k, given the resources required.
- This takes the total to $185k-$200k if that bad hire stays with you for a year but brings nothing back to the table.
We appreciate that CEOs are likely to be product experts and not recruitment experts. The job of a CHRO in a tech start-up is extremely complex and unforgiving nowadays. Whilst CROs rule, they’re more aligned to sales and marketing rather than talent spotting.
The reality is that you have been funded, and now your investors are looking to get you through the next period of growth. Whether growth comes through product innovation or increased sales, it’s important to keep the momentum going even if a bad hire can through a spanner in the works. Long-term costs of a bad hire could be astronomical and take up a large chunk of your funding. As such, it’s vital that you install the basic processes first.
How you can improve your hiring hit-rate:
Know what you want.
Many bad hires are the result of rushing to fill vacant headcount, as opposed to strategic hires going horribly wrong.
According to Glassdoor, in 2017 the cost of unfilled vacancies reached $270bn. However, we would recommend that you envisage what you want a perfect hire to look like.
Using a sales person as an example, think about:
- Culture! You will work with your new hire daily, and it’s important that you get along with your co-workers.
- The relationships that a new hire could bring that will enhance your business goals.
- The territory plan that you are looking to implement. Using data, would you focus on a vertical market, state, country or continent?
- Technology that they have sold previously. Taking someone from your competition has its advantages, but if your tech is innovative and ground-breaking – what type of background would suit?
If you don’t know what you want from your recruiting efforts, it’s likely that your hire will not be successful. Try not to think “let’s give them a go, what’s the worst that could happen?”
Know what to ask.
We appreciate that preparing for an interview takes time. And you may feel that time is better suited elsewhere – especially when 4 in 5 interviews won’t be successful.
Based on you knowing what you want, you should uncover if the applicant fits the brief. To do this, you must ask the right questions and place the candidate in certain scenarios.
Again, using a sales person as an example, you could ask:
- What type of sales traits do they possess? Hunter, farmer, relationship-builder, door-breaker.
- What have been their targets, and how have they performed against those targets.
- The nature of the sale. Typical contract value, length of sales cycles, how they developed the relationship.
- Which markets they have successfully sold to and over what locations.
- How did they take a new product to market, without much internal support?
Get your interview questions prepared and research the candidate before they sit with you.
Know how to measure.
This will be a simple scoring system. Develop a scoring system that suits your tech company, using many templates that are available online.
Your hiring should always be based on data and insights – very rarely on gut feel. Fast Growth Tech companies will benefit from developing their own hiring processes which will reduced the time and cost of hiring.
Tech start-ups are spending $billions each year recruiting new hires. The time and energy spent on a bad hire is often a bigger loss than the monetary investment.
If you need help with your hiring processes, Org 3D are helping Fast Growth Tech businesses globally to hire and retain talent. Contact Peter Brzezinka on [email protected] or +44 (0)161 791 1546.