4 Factors to Consider before Setting up your own Recruitment Firm

As a headhunter since I was 23 at a global agency and now as the founder of DG Recruit, the recruitment agency servicing top-billing headhunters, here are 4 factors for other recruiters to consider before setting up your own recruitment firm:

#1. Your financial situation and capital backing.

With our lucrative commission potential, low barriers to entry, and low costs of running a recruitment business, every recruiter today would be remiss to NOT think about the opportunity to gain 100% of the production revenue versus splitting your revenue with your employer. However, there’s a reason why the world is run by recruitment agencies, not mom and pop recruiters.

Despite your best intentions, business cycles change, hiring managers move, trends shift, and more. Capital expenditures don’t stop. You’ll need to account for costs related to: hiring, website development, marketing, payroll, training, accounts receivable, accounting, legal fees, client and candidate meeting expenses, travel, technological/software needs, office if you choose to have one, and the list goes on. If you don’t have this money yourself or through others’, the risk and your financial pressures may hurt your life and career.

#2. Maturity to run your own firm.

As we all know in this industry, so many leaders don’t deserve to lead. In fact, the majority of firms are average and under-performing. The best firms are few and far between; the exception to the rule. Even within the best firms, many leaders lack the maturity to be leaders. They have detrimental characters flaws, usually centered around addictive behaviors.

Since our industry’s top performers are driven by an almost obsessive desire to succeed and create revenue, many personality problems also emerge from that type of intensity. Inappropriate sexual advances, addictions to toxic substances, narcissism and similar personality problems, and the dependence on unhealthy financial habits plague our industry. If you’re somebody who lives the high-life, works hard and plays harder, is arrogant and stubborn to boot, you’re not ready to be a recruitment leader.

Tip: I live by the motto of “work hard now, play later”. I’m not a big fan of “work hard play hard” because that’s breaking even, not getting ahead! Success is all about delayed gratification.

#3. Billing prowess as a full-desk producer.

Perm billing experience is crucial to setting up a revenue-positive firm ASAP without needing much capital investment. Of course, contract businesses are incredibly lucrative, but they’re only good if you have a LOT of money saved up, access to abundant credit, or an investor to front the payments to your contractors before you actually collect the revenue. If you’ve ever only done recruiter-side or temp-placements only, you’re not equipped to run a recruitment firm because you’ll have no idea how to develop clients from a cold-desk situation or you’ll need significant capital investment.

If you’ve only ever worked at a large recruitment firm where all the clients and candidates are warm, you’ll also find entrepreneurship hard because new businesses require cold-desk build-out experience. Furthermore, past billing numbers will predict future ability to succeed. If you’re a top biller, you’ll most likely do alright as a business owner. However, if you’re an average or below-average producer, it’s unlikely that you’ll all of a sudden become a million-dollar producer once you quit your job. With the added pressures and time constraints of running a business, you’ll likely bill less and hurt your career by going solo.

TIP: If you haven’t billed at least $300-500k (full desk perm) by yourself YEARLY and CONSISTENTLY, please don’t quit your job.

#4. Risk tolerance to be an entrepreneur.

Here are a few ingredients that make running a business less risky: health (mental and physical), having with no dependents nor ailing parents to take care of, supportive spouse/family situation, possession of capital and access to credit, freedom of time to commit to your endeavor, youth (physical stamina and speed to adjust to market conditions and technology advances), and minimal character flaws.

Many people suffering from severe anxiety, health issues, serious financial burdens, and intense family needs, should truly think twice about the stressors related to becoming an entrepreneur, especially within the aggressively competitive nature of agency recruitment. Of course, you don’t have to possess all the qualities, but you need to have enough going for you so that you can protect yourself from the downside risks.

In Conclusion

The reality is this: if you’re a top producer, life can be much easier as an employee. You can just bill and make good money with relatively low business stressors. Unless you truly, desperately, want the goal of being a business owner (and happy to tolerate the stresses that come with that), you’re probably better off just moving agencies – going to a startup situation where other like-minded people work. Together, you can build a business and share in the profits, minimizing your risks.

The only reason to truly be a business owner is if (1) You’re ready to put work as your #1 overwhelming priority (2) You’re willing to sacrifice your personal life and free time (3) Happy to be a leader, trainer, babysitter, therapist, coach, boss, customer-service representative, marketer, CFO, salesperson, legal counsel, and growth strategy consultant and (4) You possess the financial backing to NOT get screwed over by your decision.

If you just want a higher commission bracket, you’re better off staying an employee and finding a rapidly scaling firm that you can share in the profits and equity in a smaller startup environment with higher commission potential.

Because the fact of the matter is this:

Once you quit the employment realm, it can be safely assumed that you’re drastically decreasing your desirability of being hired by other agencies as an employee. Once you’ve become a recruitment agency owner, it’s not the same going back to employment. The best firms will be unlikely want to hire you, other than those with a very unique situation. It’s a tough adjustment and hiring managers are less likely to view you favorably.

It’s a dangerous path littered with many failures along the way, think twice before you set up shop. For more elaboration, listen to the 7 factors to consider before you set up your own firm on the DG Recruit Podcast in a lengthy discussion that builds upon these topics.