this is a guest post by Jon Bischke, CEO at Entelo. it resonated so much with me, i used a couple of paragraphs in my new book with jason lemkin, “From Impossible To Inevitable“. thanks for sharing this great piece, Jon!
Predictable Revenue has become the Bible for many of us in the SaaS space. I remember reading Aaron’s original version within the first year of starting Entelo and it had a huge impact on how I thought about scaling our company.
Over the last few years of running our company and speaking with hundreds of other companies about how they’ve grown their teams I’ve realized a fundamental truth: The companies that recruit the best operate in a very similar fashion to the the companies that scale sales the best.
Let’s start with some basics. I’ve spoken with the heads of recruiting at most of the fastest-growing companies and the consensus is that there are two primary sources for early hires. The first channel is employee referrals. Many of your early hires will be people in the extended network of the company and everyone should leverage this channel to the fullest.
The biggest Pro Tip I can offer here is to sit down with your employees and actively go through their networks (typically using LinkedIn and Facebook although Github and Twitter can also be great for this). Most companies wait for employee referrals to “just happen”. That’s sub-optimal. You’ll end up with more quantity and higher quality of employee referrals if hiring managers spend time with the team identifying who in their network might be a good fit for open roles. This won’t scale well as you get past 50-100 employees but it’s critical to do this in the early stages of growth.
The second channel is direct sourcing. For many companies, they outsource this part of the equation to third-party recruiters (who are themselves doing direct sourcing). That’s not necessarily a bad thing as there are certainly some solid recruiting agencies out there. That said, think of outsourcing this part of your recruiting as the equivalent of outsourcing your lead generation (SDR) function. What would be good and what would be bad about that? The same general pros and cons apply when it comes to sourcing candidates.
Indeed, the vast majority of the fastest-growing companies have pulled sourcing in-house and it typically starts early than you would think (<50 employees). In fact, it usually happens when hiring starts to stall out as the employee referral channel becomes less effective. Rather than waiting for that to happen and going through a couple of rough quarters on the hiring front, the smart companies get out in front of this.
Direct sourcing has the most parallels to Predictable Revenue. In fact, you can simply replace some words in the book and you could probably sell an entirely new version (Aaron, let’s do this?! :)). For example, replace “SDR/BDR” with “Sourcer”. Replace “sales prospect” with “candidate”. All of the funnel metrics are virtually identical (just with different names) and things like close rates, sales cycle (i.e. time-to-hire) are essentially the same.
3 Steps To A Predictable Recruiting System
1.) Division of labor. Just like the fastest-growing SaaS companies have divided the sales and post-sales function into lead gen (SDR), closing (account execs) and customer success, you should be doing the same thing on the recruiting front. You should have lead gen (sourcers), closing (full-cycle recruiters and hiring managers) and “post-sales” (HR or People Ops).
By dividing up the duties you allow people to specialize in the areas that they are best at. Your sourcers get really good at sending outbound messages to candidates and putting interested people into the top of your funnel (sound familiar?). Your more experienced recruiters work with the hiring managers to interview, evaluate and close. And HR/People Ops focuses intently (in conjunction with hiring managers) on employee retention. But don’t just take my word for this, feel free to connect with the best companies in the world (e.g., Google, Facebook, Palantir, etc.) on the recruiting front and you’ll see that this is how they do things.
2.) Measure activities, conversion rates and elapsed time at each stage of the funnel. Your outbound recruiting team (i.e. sourcers) should be focusing on reaching out to a set number of candidates each week the same way you probably have activity metrics for your SDR team. You should be tracking things like message open rate, how often candidates are clicking on links you send them, which templates are performing best, etc. You do this for sales. Why wouldn’t you do it for recruiting?
Just like you’re tracking the conversion rates and time at stage in funnel for sales, you should track similar hiring metrics. No ATS does this perfectly but some of the more modern ATS products like Greenhouse and Lever are getting much better at this (as a sidenote, read David Skok’s recent excellent post on recruiting for some more background on this). If you know your hiring plan, your conversion rates at each stage (e.g., phone screen, 1st onsite, 2nd onsite, offer letter, etc.) and average time in each stage, you can back into how many candidates you need to reach out to to hit your hiring goals.
3.) A/B test the crap out of your messaging. Zenefits is not the fastest-growing SaaS company in the world by accident. They, like most other fast-growing SaaS companies, are religious about testing their messaging: what the subject line is, length of message, message copy, even who the message comes from. Over time, you find that certain messages perform much better than others and can simply double-down on what’s working.
We learned something in talking to many companies that were really good at recruiting and that’s that who the message is coming from was highly correlated with response rate. Engineers tend to respond to recruiting messages from other engineers. Sales to sales. Marketers to marketers, etc. This is an example of something you can fairly easily discover during testing but that 99% of companies don’t take advantage of when recruiting.
There’s so much more that could be said about the parallels between the Predictable Revenue approach and great recruiting. The reality is that for many post product/market fit companies, sales feels like a somewhat well-oiled machine and recruiting feels more or less like a crapshoot. It doesn’t need to be that way and isn’t that way for the best companies. And since recruiting is, to some extent, a zero-sum game the companies that are leveraging an approach like the one above have a strong competitive advantage over those that don’t.