8 mistakes to avoid when starting a recruitment agency
The allure of starting your own recruitment agency is undeniable. You get to be your own boss, win your niche, and connect talented people with exciting opportunities.
But before diving headfirst, you should evaluate the risk and be prepared.
Studies show that 70% of all businesses fail, so it’s important to know why and better position yourself not to make the same mistakes.
Here are 8 mistakes to avoid when starting a recruitment agency.
1. No business plan
A solid business plan is your roadmap to success. It outlines your target market, unique selling proposition (USP), marketing strategy, and financial projections. Without a plan, you'll be sailing blind and vulnerable to unexpected hurdles that the business world throws at you.
A lot of recruitment consultants that pivot to start an agency think their recruitment experience is enough to succeed and neglect the whole running-a-business aspect.
Creating and sticking with a business plan not only helps focus your mind on the essentials of recruiting, but it also instills confidence in banks or other financial organizations that you may need for financial aid should things start stagnating in the market.
2. Not niching down
In the United States, there are over 25,000 recruitment and staffing agencies and over 30,000 in the UK. There are plenty to choose from from a client and candidate’s perspective, so you have to go above and beyond to stand out from the rest.
Don't try to be everything to everyone. Specialize in a specific industry or job type. Develop a deep understanding of that niche and become the go-to agency for clients and candidates within it.
3. Lack of starting capital
When going into business, getting the budgeting right is key to starting on the right foot. When recruiters pivot to starting their agency, they tend to underestimate how much is required to maintain the agency in the long run.
To soften the blow of unexpected costs, it's probably best to reserve a year's worth of salary.
4. Not being patient
Although you don’t always have the luxury of time in a new business, it’s important to stay on track and let things play out.
With all the new tools, AI software, and “advanced ways to 10x your revenue”, it’s easy to fall down a rabbit hole of trying to fix things that aren’t broken. In the recruitment game, time is your most valuable asset.
Focus on putting in the hours and being patient– most businesses only begin to make a profit after year 3.
5. Boxing in
This is somewhat of a contradiction to the 2nd point, but if you niche yourself down too much, you could be missing out on opportunities. If you’re a recruitment business aimed at hiring, let’s say, PHP Software Developers for food tech startups, you might be in a niche with little to no opportunities, so it’s important to branch out a little bit.
6. Not utilizing technology
The biggest companies (and recruitment agencies) are using and incorporating the latest technology to get a leg up on the competition. It’s not enough just to source candidates and manually add them to your ATS or CRM or send one email after the other to potential prospects. There is enough technology around to automate your recruitment process and do the work of 2 people.
Don’t be afraid to invest in ATSs that can help you parse resumes, AI that can help with writing, and automation software to help you send emails at mass.
If your recruitment agency starts by learning how to integrate the right technology, you’ll see a massive difference.
7. Pricing yourself out
We all tend to guess that large companies or tech startups have a blank cheque at the ready for the perfect candidate, but this isn’t always the case. Most companies are cost-benefit calculated and set aside a specific budget for external recruitment and will try to get the best service for the least amount of money.
Don't overcharge yourself too much. Be open to lowering your fees without devaluing your services. If a tech company, for example, is hiring a C-level candidate for a salary of $350,000, they’re not going to give you a $87,500 fee just because it’s 25% of the salary.
You have to be willing to negotiate on your part as much as theirs.
8. Too many overheads
As you start your recruitment agency, it’s nice to go all out and spend money on things you think will be good investments in the long run. However, there are many overheads associated with starting a business and you need as much runway as possible. As a placeholder, don’t make any new buys until after your first 5 placements.
Overhead costs can include employees, renting an office, software and tools, and job boards.
While these all are important to impress the market and potential clients, this could drain all your money early on. Don’t invest in LinkedIn Recruiter InMails until you’ve exhausted your own database of candidates and don’t be afraid to use a starter version of a software.
You also don’t need more than 5 employees or a physical office location until you start making those placements. You can expand your business after every 3rd placement.
With the right tools and knowledge, you can turn the odds of success in your favor and better position yourself to be a success in the world of recruitment.
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