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Expenses Versus Investments When Growing Your Recruiting Firm

QUESTION: Mike, 2019 has been a pretty good year for me. I am looking to break into another level and possibly start hiring people, but I am worried about the overhead and expenses with growing a firm. How can you help? – Larry

ANSWER: So, a big, wide-open question. We will start with this, here is a mistake people make when they begin to grow their recruiting practices.  Again, Larry, the only context I have here is your question. There are no expenses in running a business, but there are investments. Maybe taxes are an expense, but they are still part of the same process of investing in your business. 

If you sat down with a financial planner told them that you want to have $2 million net worth in 20 years, would you look at the money you had to put away every year as an expense? Let us say you put away $50,000 every year from your recruiting business into a retirement fund that you knew was going to grow at 5% or 6% a year. Would that be an expense? No. Because you are thinking of that as an investment.  

This is a great question and it comes up a lot. I am a recovering scarcity mindset individual. I do not think you ever fully recover. I could save for myself and my retirement and my kids’ school and all those things in life that are important for all of us without a second thought. Those were great investments, even if you are putting it into the market, right, it is at risk. You could lose money. It is still an investment.  

Especially in the first 10 years of my career and growing my business, I looked at, hiring someone was going to be expensive. Hiring a coach was going to be expensive. With rent, I would tend to get a nicer office building, not that our clients came near it. It is an investment because the people that were going to work for us, I was imagining people that went to college, guys, and gals walking into the front door and at some level when people do that, they are saying, is this a place I can work? That impression that takes place subconsciously in the first five seconds of them walking through the main door if it is an office building, it is a shabby place, but the rent is cheap, you are going to lose people.  

I actually spent two years in one really mediocre place, and I remember I could see from my office, I could see the parking lot. I remember a couple of times having a late day interview, looking out, seeing somebody pull in, you could tell they were dressed really nice, like sitting in their car for a couple of minutes and driving out and I never heard from them. I figured out that was my interview. They looked at the building and they go, this is out of alignment with what an executive search firm would be and leaving. From that point forward, I always got a space that a professional could see themselves in.  

One, it was more expensive, to use your word, for me it was a better investment. I spent probably 25% more per square on office space to attract and retain a higher quality individual. I invested in contests and incentives to spur performance. There were trips I would spend $25,000 to send my high-achieving recruiters to Hawaii or the Bahamas or somewhere else really nice. That is not expensive because that $25,000 probably helped generate $1 million in business.  

A better question to ask yourself, Larry, is:  Where can I invest money in my business so I (1) increase my profits and (2) decrease what I have to do so that I can have more fun. I am in the stage of my life right now that anything that comes up in my role running the RecruiterU with any friction, I find a way to delegate it. By friction I mean annoyance. What I would invite you to do for 2020, is starting to identify those points where there is friction in your business.  

We live in an economy now where there are all kinds of virtual help. You do not necessarily even have to open a physical office. But you are asking me about scaling. I am saying, let us say you went out and you spent $3,000 a month on rent, and I do not even think you have to spend that much, but pick a number, $36,000. Okay, well if you hire a couple of recruiters and get them up and running just in the next year, you can get them to do $400,000. This is even after you pay them, assuming no value to you for the rent, you have already gotten a significant ROI in paying rent and salaries.  

If you hire a Search Associate who is off your desk, you can pay them a smaller percentage because they are working on your things, thus higher margins. Last week I explained exactly what this looks like. Go here to read more about hiring a Search Associate 

When you start looking at bringing on your first recruiter, you will start asking yourself the following questions: What are the things I do not know about hiring and onboarding? What are the things I do not know about scaling the business? If questions come up under that, then you might want to reach out to us and see if or how we can help. Maybe it is attending one of our events. Maybe it is a mentoring program to put that in place.  

Whatever you put into your business in 2020, you need to look at if I buy a ream of paper for $40 from Staples, what am I going to be printing out on that? Oh, invoices. I know we email invoices but just think of something. All the things you do, if you start looking at it and trace it, it all supports in some way, shape, or form, revenue. There are ways to get more bang for your buck on your investments. 

My big challenge to you would be shifting your internal dialogue from expense to investment and then ask yourself what you really want. 

Photo by Webaroo.com.au on Unsplash

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