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Recruitment agency founders sometimes confuse aspects of their business they are proud of with what actually determines value.
Attractiveness may encourage people come to the front door, but in the end, they will pay for the profit generated.
Businesses should aspire to be attractive and valuable; they are not the same thing.
What Makes a Recruitment Business Attractive?
Attractiveness in this circumstance is about creating confidence in a business. Characteristics include:
- Reputation amongst clients, candidates and industry peers.
- A morally and ethically strong brand
- Professionalism and consistency
- Values demonstrated in behaviour
- Leadership profile of the founders, and beyond the founder to other key leaders
- Energy and momentum
- Growth story and genuine future potential
- Participation and contribution to their client’s industry and possibly to the staffing industry.
And the big defining components of the business:
- Sector position and specialisation
- Geography and strategic markets
Private equity investors often refer to "platform attractiveness", while Jim Collins wrote in Good to Great about the characteristics that make people want to associate with great companies.
Neither concept is really about value. They are about confidence, interest and the desire to participate. Recruitment businesses should aspire to these characteristics.
Attractive does not mean valuable
We have all seen the young businesses with a huge LinkedIn following, a shiny tech stack, maybe even winning awards, operating in a trendy niche, based in beautiful offices, and “redefining the industry”.
But when the characteristics of their revenue and profit are examined, when “the risk of future profits” is analysed, does that match the public appearance?
Ultimately, investments in a recruitment business need to demonstrate their contribution to the quality and quantity of profit.
Valuable but overlooked
In the opposite manner, the industry has a lot of examples of companies that have strong financial engines, but the business is not appealing to the broader market. Their brand may be outdated, they do little marketing and they may have trouble attracting ambitious recruitment consultants.
But underneath, business is repeatable and delivered efficiently, risk is managed, and there are loyal clients and candidates. They know their sector and/or geography and they deliver results.
Many of these firms are well known in their niche, but they are simply not outwardly attractive. They are valuable but can be overlooked.
The Best Businesses Are Attractive and Valuable
Recruitment businesses should aspire to be known for the right reasons. They should have strong brands, professional reputations and occupy attractive positions in the market. These characteristics are important: they attract employees, clients and potential buyers.
Attractiveness and value are not the same thing. Attractive businesses do encourage people to come to the front door, but the scale and nature of the profit generated and the prospects of generating that profit again next year, and the year after, determine value
HHMC Global operates within the staffing and recruitment industry on equity transactions, market valuations and business growth advisory. Contact us to discuss further.
