The High Costs of the Wrong Hire


The High Costs of the Wrong Hire Photo

Startups often have no idea how much the wrong hire can cost them. Particularly where an executive leadership role is involved.

According to the US Department of Labor, the average cost to replace a recent hire is about 1/3 of annual salary. But that’s the average. The Society for Human Resources Management (SHRM) suggests replacing a bad hire can cost up to five times annual salary. And one thing the Labor Department and SHRM agree is that costs rise steeply as you ascend the organizational ladder.

It costs about $840,000 to replace a mid-level manager terminated after a couple of years, according to HR consultant Jorgen Sundberg. (That cost “includes hiring, total compensation, eventual severance pay, and other factors like legal fees.”) Replacing a CEO can run in the millions of dollars. Perhaps even more sobering is an informal rule of thumb among recruiters that replacing a mid-level manager after just six months—through quick and determined action when things do not work out—will still cost 2.5 times annual salary. That’s $250,000 to replace an employee who receives $100,000 a year, even if you terminate before the first year is over.

Then there are intangible costs. High turnover means lower morale, organizational drag. and lost opportunity costs. These are especially steep when your leadership team hits turbulence. Once you are in high-growth mode, it’s do or die: anything that slows you down is something that translates to lost market advantage. Poor or incomplete leadership can easily bring a growing enterprise down—or at very least weaken the brand in significant ways. Growth is crunch time: either leadership will have the capacity to grow organizational competence and brand and corporate values apace, or growth will mean dilution of the things that made your startup a hot prospect at the outset.

So how do you recruit for key roles in the right way? There are a number of important factors, but there are three basics we can’t stress often enough.

That’s why here we’re going to jam them into a handy ABC:

  1. Anticipate a wait

This one may seem counterintuitive. After all, when searches languish for months as over-stretched execs spend their days firefighting and making it work (the everyday norm for growth mode) organizational chaos is not far behind.

You need to fill key roles fast.

But there is an old journalist’s slogan that works equally well here: “Get it first, but first get it right.”

The need to get those empty slots filled can pressure executive teams to make hasty decisions and rely on paper indicators. That can be a costly mistake.

To paraphrase what the journalist’s say: “Get the hire fast, but first make sure it will last.”

  1. Bring in help

If you’re beginning to ask yourself if you need a professional recruiter on your side, then you should have hired one last month.

Look at it this way: your startup is taking off because you value expertise. But expertise doesn’t start and end with tech know-how. Find a recruitment agency that has been in the trenches, gets start-up culture, and—ideally—one that handcrafts every fit, rather than simply running potential hires through a series of prefab tests. And if the cost of a recruiter has you in sticker shock—compare it to the costs of replacing a bad hire as noted above, and then grab a cup of coffee and rethink your math.

  1. Culture fit

Real estate has Location, location, location.

Exec talent recruitment has Culture, culture, culture.

A high-level candidate’s skills and talents won’t count for much unless they can actualize those skills and talents within the culture of the workplace and their team. And gut instinct isn’t always a reliable guide. When your management team is a team of three buddies, then yeah—your instinctual liking for one another counts for a lot. But as your organizational grows, assessing cultural fit becomes a much more subtle and complex challenge.

Refer to A and B above. Recruiting for a seamless culture fit takes time—and it takes expertise to manage and expedite. When in doubt, give us a call at Dave Partners. Because matching the right Top 1% Executive Leaders with the right high-growth startups is our forte, our passion, and how we make our mark on the revolutionary space of tech entrepreneurship.

Let us get it done for you.



Reprinted by permission

Image credit: CC by Flazingo Photos

About the author: Dave Carvajal

Dave Carvajal built HotJobs (650 employees, IPO & $1.2B market cap then sold to Yahoo!) as Co-founder & TheLadders (400 employees, $80M revs) where he focused on attracting, retaining and developing all employees. These days he’s asked by top VCs and CEOs of high-growth startups to build their Boards and leadership teams with the top 1% of A+ executive talent. He is an Ironman and lives in NJ with his wife where he is co-founder of twin boys and a pup named Clover.

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