In our last post, we wrote about getting your criteria right for strategic technical hiring, and provide guidelines for determining the right category of resource.
Still, even after learning those lessons, getting employees in the door when they have so many lucrative job choices is still costly:
- Contingent fee recruiters can cost 20-30% of salary
- Hourly recruiters are less expensive, but often less effective
- Very few technical recruiters can actually screen for talent and can only look for keywords
- Networking, screening, interviews, reference checks, and compensation negotiations consume many technical staff hours per candidate
- Candidates can accept a position yet never show up if they get a better offer
- Onboarding includes many additional staff and other direct costs within Finance, G&A, Facilities, etc.
- New employees need to be trained on your business processes, meet co-workers, etc.
Only after all these costs have been expended do you get to the real bottom line: Is my new employee going to fit into the team and be highly productive over the long term?
The answer to that question only comes after the employee has worked on a significant project of some months and proved effective:
- Proved effective understanding your business requirements.
- Proved effective using your technology and tools.
- Proved effective working as part of their team and broader organization.
- Proved effective balancing your work with their personal life.
- Proved effective in your industry and corporate culture.
If your new employee is effective after three or more months, congratulations, you’ve done everything right (and/or got lucky).
But if your new employee is not effective, you will either assume more costs via underperformance, coaching, conducting a performance improvement plan, or termination.
A Better Way of Hiring
Surprisingly, there is a method to both eliminate avoid most all these costs and risks, but which is rarely used: Find a contract to hire partner, and only convert those workers who are proven to be strategically effective into employees.
With the right contract, your professional services partner will assume all the costs of talent acquisition: Sourcing, screening, interviewing, onboarding, training, etc. After the partner’s resources work for you for a reasonable period of time, you can convert them to employees nearly risk free. If they can lead a team, your partner can even assume some of your technical management gaps, such as: customer interactions, clarifying requirements, estimating and planning, technical task direction, artifact reviews, sprint retrospectives, etc. This arrangement allows you to hire even senior team leads and managers nearly risk free.
So Why Isn’t Contract to Hire Common?
I believe the primary reason is that most companies don’t really understand all their costs of talent acquisition, and therefore think contract-to-hire firms, which typically charge for work on an hourly basis, are too expensive. But if they did a true and honest cost analysis combined with non-financial strategic factors, such as flexibility and variable costing, they would see that contract-to-hire is a more than viable. (We’ll go into this in detail in a later post.)
A second reason is that too many managers think only employees can be counted on to work hard, follow direction and achieve their company’s mission. It is simply not true, and is usually framed as an either/or choice between professional services and employees receiving stock options. But there is no all-or-nothing decision to make between traditional hiring and contract-to-hire consulting. The two methods complement each other.
The third reason contract-to-hire is rare is that most high quality consulting firms don’t offer it. Because it is difficult to find top talent, these firms insist on ‘non-solicitation’ clauses to inhibit hiring of their consultants. These firms therefore only offer short term or intermittent advisory or project services.
A fourth reason is that “staff augmentation” or “body shop” firms that do offer contract-to-hire terms often provide poor quality candidates. These firms offer jobs fairly indiscriminately to any candidate willing to apply whose resume includes the right keywords. They provide no technical assessment of talent, nor character, career vector, etc., just the bare minimum of legal requirements. Staffing firms are usually found filling the lower-level and non-strategic positions at big corporations., corporations who end up assuming the cost of winnowing out the weak candidates.
A fifth reason is labor law and tax complications. As the many Uber lawsuits demonstrate, technology can easily run ahead of our existing legal, finance and social structures. In the interest of assuring that everyone pays their taxes, there are rules that can permit a government to reclassify a contractor as an employee. These rules don’t completely account for today’s more fluid work relationships, and more common law changes will be required as software continues to change the world of work. (For example, one of these tests asserts that consultants manage their own work, and only produce “deliverables”, whereas employees are supervised and don’t necessarily produce deliverables. But where does this leave a consultant programming on an agile team?)
Picking the Right Consulting Partner
The right consulting partner will understand your industry and workforce, and have large, deep relationships to candidates relevant to your firm. Unlike most recruiters and staffing firms, the right consulting partner will have strong technical management, and will explicitly take on the responsibility of providing you elite talent. The right partner will also have the legal and contracting skills necessary for protecting your firm in an age where work relationships and laws are always changing. And the right partner will be able to price consultants at a rate roughly comparable to your fully burdened cost of hiring.