Imagine this situation. You are competing against two other firms for the same piece of business. One firm is the 900-pound guerrilla in your market, and the other is a competitor of about the same size. You have the best technology, the big company has the most market share and brand recognition and the third competitor has the lowest price. Who gets the business?
The answer is extremely predictable. The company that gets the business is the one with the best sales people. Good sales people win more business regardless of the circumstances. Are you going to win the next time you find yourself in this position?
The best opportunity you have to impact the productivity of your organization is every time you make a hiring decision. Good hiring decisions propel you to success. And, all the managing, coaching, systems, training and technology CANNOT help you recover from a hiring mistake.
Over and over again we see examples of companies with inferior products; over-priced products and poor reputations win the business. Why? Because they have the best people. Today’s market is as competitive a market as you are going to find. If you want the edge in this battle, upgrade your work force and you have the best chance of succeeding.
Most organizations suffer from the 80-20 rule. You get 80% of your productivity from 20% of your people. This applies to hiring as well. For years I have listened to Business Owners talk about hiring five and keeping one good person. This is a terrifically costly way to do business. Let’s translate some of the costs so you can see just how much this flawed strategy is costing you. Here’s an example:
You hire John in your Seattle office. After a month it doesn’t look good. After 90 days it is really bad. At six months you give up and let John go. This problem is even worse when John worked with some of your best clients.
This all too familiar scenario happens time and time again. Unfortunately, you get lulled into believing that all you lost was six months of salary and benefits. Nothing could be further from the truth. In addition to salary and benefits you have the following hidden costs; opportunity costs, administrative costs, training costs, vacancy costs and separation costs. And for a small business, these costs could be fatal!
Let’s look at a CPA with a $75,000 base salary. Salary and benefits for six months cost $48,750. It cost you $10,000 to recruit the person. You spent $5000 on training classes and materials. And those are just the hard dollar costs.
Your soft costs begin with lost opportunity. If John alienated you top client, what is the life-time value of that client? (Cost $200,000)
How about your time? Would you have been more productive using your time working with someone who was more productive? (Cost 15% of your annual compensation ($45,000) Make sure you add separation and administrative costs. (Cost = $60,000)
Another intangible in this equation is employee morale. Your good employees resent having a non-performer on the staff. It makes them look bad and they have to work harder as a result. (Cost: What is the cost of losing one top employee?)
Your cost of one hiring mistake is roughly $308,750 without counting the cost of losing one of your top employees. And here is the really sad part, if you do make this hiring mistake; you have to do it all over again doubling all the numbers! How does $617,500 sound for a $75K CPA?
Now you can see why the “hire a bunch and keep a few” staffing strategy is a mistake. The good news is you are on your way to fixing the situation as we speak. The first step in upgrading your work force is to recognize the problem. Next, you have to put a great recruiting and hiring process in place that gives you the highest probability of hiring top talent.
A great way to get started is to invest in your education. The more you know about recruiting and hiring good people, the better chance you have of building a winning team. Reading books and attending workshops will help you expand your knowledge base. If you are not expanding your knowledge base, when you compete against someone who is, the outcome is fairly certain.
You have to start by knowing what you are looking for. This sounds so simple but is at the heart of most hiring mistakes. Begin by outlining your work process. Understanding the mechanics of your business cycle is crucial to understanding the type of person who will be successful. Just because a person was successful at another company (even a direct competitor) does not mean they will be successful on your job.
At each step of your business cycle, identify what behaviors are necessary for success? How do your successful people behave? The answer to this question is the key to building an effective performance-based success profile. Build a list of all the behaviors necessary for success on your job.
Now the question that I am sure is swimming through your mind is, “How do I figure out if the person sitting across the desk from me behaves this way. Let me start by saying if you rely on gut feel, interview behavior and the person’s track record you are doomed to fail. That’s right; these typical measures are not the best way to predict success on your job.
You need a proven system of gathering and evaluating data if you are going to make good hiring decisions . The more you know about a person, the easier it is to predict success on your job.
Once you realize the economic impact recruiting and hiring has on your business, you’re ready to take the steps necessary to get on track. You just can’t leave your recruiting and hiring to chance. Recruiting and hiring top talent has to be your top priority.
Typical Costs of a Bad Hire
Separation Costs:
$ Termination administrative costs
$ Costs for exit interview
$ Severance/separation pay
$ Unemployment compensation
Vacancy Costs
$ Additional overtime
$ Temporary help
$ Missed deadlines
Replacement Costs
$ Recruiting costs
$ Selection interviews
$ Testing
$ Travel/moving expenses
$ Pre-employment administrative expenses
$ Acquisition and dissemination of information
Training Costs
$ Formal training
$ Informal/OTJ training
Opportunity Costs
$ Lost sales
$ Missed opportunities
$ Management time
$ Dissatisfied customers
$ Low employee morale
$ Cost of mistakes made by poor employee
