Guest post from Kandidate
November 03, 2022
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As a company matures, and the headcount grows, there comes a time where a Founder must transition from network hiring, to building a scalable talent function capable of bringing the top percentile of candidates into the business. This is when founders are faced with a question whose answer will decide the trajectory of the company:
There are then two typical answers:
Hire internal recruiters and build an internal talent function. Or,
Work with several external contingency recruiters
However, building an internal talent function can take time, time you might not have. And, for a short-term hiring sprint, a long-term talent commitment may present long term risks. And agencies…well, we all know what working with agencies can be like!
However, there is a third option that is proving popular among many fast growing companies open to embracing relatively new strategies, and are reaping the benefits. This third option is working with embedded talent teams.
As their name suggests, they embed themselves into a company as part of the talent function - at a fraction of the cost of working with an external agency (even at a hardball 10% fee…which will simply result in the agency not prioritising your roles - at all).
In this blog, we will explore the advantages and disadvantages of all these hiring models, and you can determine which one is best for you.
Hiring in-house recruiters is the most logical step for startups who want to hire at scale. However it is, at least from a long-term fixed cost perspective, the costliest, and without a doubt the most time-consuming approach of them all. Let’s explore the advantages of hiring in-house recruiters:
Hiring in-house recruiters gives you complete control over the hiring process. From communicating to shortlisting candidates, you are in charge of everything.
It helps you communicate your Employer Brand more precisely - and ensures that you do not miss out on incredible candidates due to sub-par representation.
There is also the ‘cultural-fit’ component to the hiring too; those embedded within your company will always have a deeper understanding of both the company culture that exists, and the culture you’re trying to manufacture.
Another advantage of hiring internal recruiters is that it helps you establish your long-term talent function.The talent function of a startup is its backbone - it catalyses growth and supercharges everything that follows. Acquisition? Need talent. Product? Need talent. And it goes on.
Hiring in-house recruiters for sourcing and recruiting ensures the sustainable growth of your company and its talent function for the long term - emphasis on long term.
These in-house recruiters are not an expense - they are an investment.
Here are the disadvantages of hiring in-house recruiters for sourcing and recruiting talent:
Fast growing companies want to scale faster - many earlier stage companies have short runways and ambitious goals. But building up your entire talent acquisition function is time-consuming - taking anywhere between six months to a year to build your talent function properly.
Fast-growing startups cannot wait that long, especially if you have short-term headcount goals you need to hit.
Then there is the cost component. Whilst a fixed cost that, once running at capacity, yields fantastic returns, if you simply don't have the long-term headcount goals necessary to sustain a fully fledged talent function, you then have an expensive fixed cost running nowhere near capacity. And the best recruiters will expect large salaries with benefits and stock options.
Experienced Recruiters are in high demand, and finding an experienced industry expert in your field…whilst not impossible, it is certainly no simple task. Then there is the fact that a Recruiter can only perform a specific set of tasks that simply don’t complete a complete talent function.
Can a Recruiter screen, facilitate an end-to-end hiring process, implement your new ATS, and see roles through to close? Absolutely. Can they source the best candidates, ensuring you have the best and sufficient quantity of candidates coming into your talent pipeline? Absolutely not.
This lack of advanced knowledge of sourcing and recruiting becomes a big reason why in-house recruiters often can’t deliver. Or, certainly deliver less than if they had sourcing support.
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Recruiting agencies operate similarly to the BPO industry. You outsource your hiring to them, and they do all the sourcing and recruiting for you. Here are the advantages of opting for a recruiting agency as a startup:
Sourcing and hiring candidates for fast-growing startups requires a higher level of skill. In such a demanding function at a scaleup, entry-level professionals can’t deliver. But hiring experienced recruiters is not cheap and easy. Most are already working for the biggies in tech/other industries, making it difficult for you to bring quality recruiters inhouse.
Recruiting agencies have several years of experience - and their skill levels are relatively proven, especially if you’re selective in your selection process. Startups and scaleups usually don’t have enough experienced individuals on their team - recruiting agencies with experienced recruiters can add enormous value.
According to experts, from the moment you plan to open a job, it typically takes ten or more weeks to fill it. The time to hire can go up to 6 months for technical/professional roles.
Fast-growing startups need to hire fast. Waiting for six months is not feasible as most have tight runways and operate in cut-throat competition. It is arguably the biggest USP of the recruiting agencies - they can get bums in seats quickly.
Even though it brings some disadvantages like lack of control (more on this later), the speed at which recruiting agencies can help you hire can (emphasis on can) be very impressive.
There is no upfront investment to working with an agency (unless you pay a retainer). This ‘perceived’ reduction in risk is one of the primary drivers as to why many choose to still work with recruitment agencies.
Let's explore the disadvantages of opting for a recruiting agency:
It is arguably the most damaging disadvantage of a recruiting agency. They charge a hefty 20% fee on the salary of every hire - which is both unpredictable and unjustifiable.
The hefty 20% fee means an unpredictable expense for the startup, blocking them from accurately predicting costs and managing cash flow.
The high fee can become a waste if the candidate quits too early. The chances of this happening are also higher because the quality of hire is not at par.
Yes, you might negotiate a sliding scale, or even a 3-month 100% refund on a placement…but what if the candidate leaves on month 4?
And, perhaps you hardball the recruiter and bring them down to a 15% fee. Or, maybe even 10%! Well, this will simply mean that, as your contingency recruiter weighs up which one of their clients is going to contribute to this month’s billings, your role falls down the list. Simply put, the higher % you’re willing to pay, the more priority the recruiters will give you. But, this is a significant amount of money to pay for focus that, in all honesty, should be provided irrespective of the fee you negotiate.
Recruiting agencies do not share the process/tools they use to source and recruit talent. They also do not let you control it. You agree on a specific timeframe for sourcing and recruiting. And their job is to get it done as soon as possible.
It results in a lack of control and transparency. You don’t know if the same candidates were sent to three other clients they have.
Since you don’t have access to all the candidates who applied, you don’t have a choice if any candidate quits after two months of joining.
Transparency and control may seem vogue words but practically are the most crucial elements of successful hiring. With recruiting agencies, you lose both.
The key to successful hiring is not just about bringing in the appropriate skill, but the right cultural fit, too. The alignment of values and culture between the candidate and the company is essential for healthy growth. If you insert somebody into your company who is not a fit, the culture will reject them, the same way a body rejects a new organ - it just does not fit. How can an external agency find suitable candidates when they are assessing your culture over a 30-minute hybrid sales slash qualification call? The answer is: they can’t.
Recruiter’s main priorities are putting bums in seats, and then hoping they stay for at least 3 months.
Embedded Talent Teams are a hybrid of recruiting agencies and in-house recruiters. It takes the best of both worlds and helps you hit your hiring goals at scale. Let's explore its advantages:
One of the most prominent advantage of opting for an Embedded Talent Team is their pricing.
Unlike hiring internal recruiters, you don’t have to pay salary, benefits and equity - saving you a significant amount of time, and potential risk, over the long term.
You also save the hefty 20% fees. In addition, you get the chance to predict your costs more accurately, resulting in better optimization of your cash flows.
Most startups fail due to cash flow problems, and Embedded Talent Teams can help you overcome such problems by providing you more control over your costs.
The fixed-cost pricing also results in the consolidation of many of your recruitment costs. The cost of many tools, such as access to different job boards and talent pools, are included in the price - helping you consolidate all the expenses to hit your hiring goals.
Lastly, consolidating costs, more control, transparency, and accurate predictability help you increase your profitability. A total win-win in all scenarios!
Candidates now prefer companies that have a strong reputation. According to a recent study, 50% of candidates say they won’t work for a company with a bad reputation. Employer Branding is not a good-to-have anymore - it is absolutely necessary.
Embedded Talent Teams use your communication channels - everything from company emails to slack channels - helping you put your brand in front of the candidates. Since they embed themselves into your company, you don’t have to worry about how your brand is being positioned to the candidates.
And, if your employer branding needs work, they will work on that too.
Having control over the process is essential to ensure the quality of hire. Also, you need to know what tools/techniques/platforms are being used in sourcing and recruiting candidates for your startup. Embedded Talent Teams provide you with maximum transparency and control.
When working with recruiting agencies, you neither have control nor transparency regarding the entire process. All you get is an email with bullet-points about why you should interview this candidate (or, if you like your recruiter, maybe you add them to your ATS).
But as Embedded Talent Teams use your communication channels and embed themselves into your talent function, you keep track of the complete sourcing and recruiting process. Some Embedded Talent Teams will also provide training to your existing talent function too. And, in many cases, hire themselves out of the role, bringing in Heads of Talent and Internal Recruiters, helping you build that long term talent function that you might need, if your long term hiring goals warrant it.
When you source or recruit talent - you represent your startup to the outer world. Any mistake here can make or break the entire reputation of your company.
The experience, expertise, and modern techniques employed by Embedded Talent Teams ensure a better representation of your company. No “I am working with an exciting company who….”; no - they are a part of your team through and through.
Opting for an Embedded Talent Team has one main disadvantage:
Since Embedded Talent Partners are a fixed-price investment, many companies perceive this as higher risk. However, in many cases, this is a ‘perceived’ risk, not a concrete risk. For example, whilst you may commit to a 3-month fixed cost agreement with an Embedded Talent Partner, and this might seem daunting compared to a contingency recruiter, once a very small amount of capacity is hit, you start making significant returns. (This does, of course, depend on the Embedded Talent Partner provider you decide to work with).
To summarise, there is no right or wrong, simply better or worse, depending on your current needs.
If you are short-term risk averse, and are hiring 1-5 roles, a recruitment agency is likely the best fit.
If you have an existing talent function in place and you have projected headcount growth that warrants building out your internal talent function, hiring another internal recruiter may be the best option.
Or, if you either don’t have an inhouse talent function in place and need it built for you, are going through a hiring sprint, as well as significantly reduce your talent acquisition costs, then an Embedded Talent provider is very likely the best choice available to you right now.
If you would like to find out more about working with Lano partner Kandidate as your Embedded Talent Provider, please CLICK HERE, complete the short form, and a member of the Kandidate team will be in touch.
All Lano customers will receive a £1,000 discount on all of Kandidate’s services. Simply CLICK HERE, and mention Lano when you speak to a member of the Kandidate team.
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