Starting a Recruiting Business: Recruitment Franchise vs. Recruiting Networks

As the global economy rebounds from the depths of the Global Financial Crisis it seems recruitment businesses are poised to return to the days of a talent short market. Even in the worst days of the recession, there were employers with job orders for tough-to-fill openings. Those tough-to-fill openings are now being joined by the merely difficult to fill as well as the roles that are always being filled. This makes recruiting and starting a recruiting business look appealing to many who chose to wait until now to take the risk of starting a search firm.

If you are making the leap into a new business you are faced with options. The two options that those starting a recruiting business most frequently consider are the “Go It Alone” model and the “Recruiting Franchise” model.

The “Go It Alone” model may feel the riskiest to the new recruiting business owner.  In this model, you take what you have learned from your former employers, from consultants (business coaches, incubators, accountants, and lawyers) and from books and build from the ground up. New systems, new technology, new markets, and new challenges are all likely in the first year of business. As the owner of a start-up executive search firm, owners are faced with the prospects of doing it all. Since many start-up search firm owners were previously recruiters or HR managers, the complexity of managing the entire new recruiting business can be intimidating. The guideline that I have seen over the years says that a start-up business of any kind requires enough capital to survive about 18 months without a positive income. Most new search firms will require this kind of capital to survive the first year in business. By the end of two years the averages say 50% of all those start-up ventures will be out of business.

A second option for a new search business owner is to consider a recruitment franchise. The “Recruitment Franchise” model provides a business model for starting a recruitment business. Some of the “back office” process and tools are provided. There is a defined structure that will increase the odds of success but this insurance does not come without its own risks. A recruiting franchise can cost as little as $25,000 to $50,000 and as much has $200,000 to acquire. In addition to the upfront costs, there are downstream costs. Some downstream costs include the annual fees and the percentage taken off the top of revenue. Some franchised recruiting models call for 6% to 9% of revenue (this is before tax and profit) to be paid to the franchise group. There can also be requirements to participate in certain technology solutions, to attend required training, to contribute to advertising pools, and other must-do expenses. The chances of success are greater and the likelihood of failure reduced when starting a recruiting business with the support of a franchise behind you. If fact, if you have the cash, can afford the expenses and like being a part of something larger, a recruitment franchise is a wise investment to ensure success. Over time, some of the most successful recruiting franchise owners have struck out on their own after becoming successful within the franchise group. The downsides are about control and cost. If you are starting a recruiting business because you want to run the show and do it your way, a recruiting franchise is just going to create undue conflict and stress.

There are obviously other options that can support the start-up of a executive search business. There is always the option to purchase an existing recruiting business. This means upfront costs and the acquisition of methods, accounts, successes, challenges and people that you did not hand-select. Some will be a great asset and others will be a great distraction.

A final option that I think deserves consideration is the use of recruiting networks to support the start-up recruiting business. Recruiting networks can be formal or informal. There are many great recruiting communities online that can be a source of business opportunities and support for a recruitment start-up. It is always helpful for a new recruiting business to have multiple sources of open job orders and available candidates to work. The connections you make in formal and informal networks can provide jobs to work and candidates for those really tough-to-find positions. Yes, I’m talking about doing splits.

Some of you might be saying, “How can I afford to split if I’m starting a new recruiting business?” I would ask how can you not consider it. You will have so many things to do, why not do the ones you do best and let someone else do the rest. If you are client marketing machine…go get clients and let your split partner fill the jobs with candidates. If you are a sourcing machine, find someone that does the client marketing well and hitch your wagon to their efforts. Build partnerships based on trust and mutual benefit. And a big plus is you will have fellow recruiters to talk to during the day; more ideas = more business/better solutions. Formal or informal, networks can make your life easier and your business more sustainable.