The large number of start-up recruitment agencies in Australia continues year after year.
Unlike other industries, starting a recruitment agency continues to be relatively easy.
Low prior experience level required
Usually, a small financial threshold to commence
Limited regulatory approval
There is now a joke that executives are not on “gardening leave” between jobs, they start a recruitment agency.
This low barrier to entry to the industry has a few implications. Firstly, there is competition. I’m yet to hear of a client prospect complain they have never heard from a recruiter. Every sector in every geography has sales motivated recruitment agencies paying attention and specifically targeting the same client opportunities you are.
It is no wonder that so much of recruitment today is about brand and market positioning. Being heard in a saturated, energetic market is tough.
In a crowded market with swarming competition, there is always pressure on margins. Small companies with low overheads are comfortable using price as leverage into sales activity. And not all clients have either the experience or sophisticated processes to differentiate service offerings or consider the potential impact of certain practices on their own employee brand.
But reduced margins impact both the agency and the industry in the future. It inhibits growth. It reduces innovation. It lowers equity valuations. It is, as always, a race to the bottom.
The industry is full of organisations where the founder has built themselves a job, as distinct to having built themselves a business. This is reflected in the personal efforts required to win and deliver work, the need to be present at all times to maintain momentum, and for the value of the business to be tied to the current period’s financial result, not what may be achieved in the future.
But there are plenty of organisations that break out of this position, this cycle, and add the required sophistication to their business to enable their position in the market to be defended.
It is sometimes difficult to see what this change is from a recruitment agency. I often visualise it as the difference between selling a product and a solution. Moving from asking for a job order (and sounding like every other recruiter) to having a conversation with the prospect about their challenges. Then discussing a solution to their problem in their language in a manner that utilises your capability. Building trust and relationship.
The solution might simply be in the way you attract candidates, or in how the service is priced, or the onboarding assistance you can provide. The ability to be creative is endless, if you’ve listened to the clients’ challenges.
The important point here is that you have a greater chance of being called first next time. Others who contact the client are less likely to be given opportunities that are in your core areas. You are defending your position in the market.
The ability to add sophistication to your business and to create defendable positions in your market is what makes your business rise in a low barrier to entry industry with strong competition.
These industry structural features are neither inherently positive nor negative; they create both flexibility and opportunity.
They also produce predictable economic consequences. An industry that is accessible, diverse and lightly regulated will tend to display certain competitive patterns. Those patterns influence margins, sustainability and ultimately equity value.
HHMC Global operates within the staffing and recruitment industry on equity transactions, market valuations and business growth advisory. Contact us to discuss further.