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Straight Talk for the Recruiting Profession


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The Fatal Assumption

by on Jun. 1, 2004


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The Fatal assumption:

One of the biggest reasons that so many small businesses fail is that they lack a clear system of operation. Michael Gerber, author of the E-myth, talked about what he calls the “fatal assumption” that many business owners make. It goes something like this; because you understand how to do work of a recruiter you therefore assume that you understand how to run a successful recruiting business. Or put another way, because you are a great chef, you assume that you will automatically be a successful restaurateur. This erroneous thinking is a big part of the reason why 80% of all small businesses fail in first 5 years. Many owners are “winging it” instead of building a business from a systems point of view.

A systems mindset:

A systems mindset will make your firm much more efficient and will reduce turnover and wasted time. The beauty of systems is that if you take the time to document a function properly, let’s say how to take a flawless search assignment, and enforce its execution, you never have to create it from scratch again. Small business owners will earn more profit in less time if they focus on system solutions to their business frustrations. Systems can and should be simple and can be created and implemented quickly.

A few definitions:

System: a documented way of performing a task that solves a problem and ensures that the task is performed properly and consistently.

Frustration: a frustration in your business is an undesirable pattern of events that can be eliminated by installing a system.

Why do you need systems?

Some grim statistics:

- 57% of all small businesses fail in first year.

- As mentioned above, 80% of all small businesses fail within the first 5 years.

- 80% of those that survive the first 5 years are gone after the second 5 years.

- 80% of recruiters that you hire will not be with you after 12 months (if you’re an average firm).

What if we said the cure rate for an experimental surgery was 20%? Or there is an 80% chance that you’ll lose your 100K investment by going ahead with a proposed venture? Or you should hire this applicant even though he’s been fired by 80% of his employers? How many people would sign on with such odds? And yet, these are the odds of making it for most new business owners.

Franchise statistics:

Franchises have exploded in the last 30 years and have been extremely successful. Here’s a staggering statistic, 80% of all franchises succeed in first 5 years. So let’s contrast the difference in the failure rate between small businesses and franchises: 80% of all small businesses fail in the first 5 years and 80% of all franchises succeed in the first 5 years. You don’t have to be a genius to realize that there is a strong message being sent by those numbers.

Here’s the #1 difference between the two: franchises rely on systems that have been perfected and proven over time and most small businesses operate without documented systems. Some franchises are a complete waste of money for their members but compared to your average entrepreneur, their success rate is much higher.

Systems solutions:

Becoming systems oriented is at first a mental mind shift. You have to begin to view problems and frustrations as being cause by the lack of a good system as opposed to simple “people failure.” So for example, when you realize that you are spending too much time going through useless resumes you’d say to yourself: “What system am I missing that would solve this problem?” Or, if you can’t motivate you or your staff to consistently be on the phone, you’d ask, “What system am I missing that would ensure that my team is bringing in 5 new clients per month?”

All successful businesses are nothing more or less than a collection of well running systems. So, your job as a business owner is to design your business so that it runs like a finely tuned watch.

To do that, you must begin to think of your business as a collection of systems that is apart from you, rather than just a part of you.

Many owners operate as if their business is nothing more than a glorified job so part of the shift is looking at yourself and your role in a new way. As the E-myth says, you must go to work on your business rather than simply in it. You need to think about your business systemically, rather than personally.

Conclusion

A systems mindset will give the owner more freedom, less headaches and will help to build equity in the firm. This one idea is the core of the entire franchise industry that has exploded over the last 30 years. As an owner, this concept can provide you with security and freedom as much or more than any other strategy that you can employ. I’ll write more about systemization in future articles.

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Quit And Win! – How To Reduce Staff Turnover

by on May 1, 2004


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He had many years of experience as the successful owner/manager of a fine firm, yet he had a problem. “It’s not that I hire the wrong people,” he said to me. “It’s that I keep the wrong people too long.”

To coin a phrase, “He ain’t the only one!” Were a long-tenured owner/manager to add up his cumulative costs over his time in business, putting aside only commissions paid to consultants, it is probable that his highest expenditure would be not rent, not phone, not furniture. Rather, it would be the lost draws, social security, unemployment payments, phone, and business costs associated with ultimately unsuccessful consultants!

Moreover, in addition to tangible costs, that owner would have such items as time, emotional drain on both manager and office, lost deals (not always known), negative client reactions to a poor consultant, the fact that another person on the same desk could have been doing much better, candidates not recruited who might have been placed by someone else in the office. . . The expense of an unsuccessful consultant is truly staggering.

As our market continues to improve and we add to staff, we can expect a spate of tests, services, and consultants purporting to improve your odds in the selection of new employees. Bad idea. For some years, heavy testing was in vogue amongst many major corporations. Huge amounts were spent in an attempt to arrive at a formula or test which predicted success. Consistently poor or mediocre results have cause most of these firms to drop the testing programs. They have been weighed extensively and found wanting. Thirty-five years ago, Charles B. Roth, one of America‘s finest sales trainers and business authors, wrote, “The weakness of aptitude tests lies in the fact that they can’t tell much about intention; the important thing is a man’s willingness to throw himself whole-heartedly into the job.” This statement remains as true today as the day it was written.

What, then, is the answer? Given the assumption that the selection process and the initial training must both be as excellent as possible, what else can be done to prevent “keeping the wrong people too long?”

I believe that rigid adherence to a system of progressive and quantifiable steps of elimination will help any organization. The earlier an individual who lacks the necessary ingredients for success can be identified and eliminated, the more we can concentrate our time and money on those who deserve it and the greater our profits.

Following are some ideas to consider accomplishing just that:

Screening Interest

Perhaps the key factor involved in success in our business is a willingness to learn. Regardless of talent or even background, this business must be learned by serious study. The reason the “born salesman” is so seldom successful in search and recruiting is the long learning curve involved; a glib consultant unwilling to work hard to learn tends to be a “shooting star” of short duration.

Specific questions should be asked about this when checking references. However, beyond this, there is a simple way of testing for this vital quality. Give the prospective consultant a book on this industry to read, and see how enthusiastically he or she dives into it. A person determined to succeed will absorb the book rapidly, read some chapters twice, and come back with questions. A future failure will probably read very little.

There are several excellent books out on this industry now, the most recent being Larry Nobles’ well-written comprehensive work, “Search and Placement! A Handbook for Success” (www.larrynobles.com). Its obvious use is as a training manual and reference guide for every consultant. However, it will be found to be an effective “screening tool” for new people as well.

Don’t just “let the consultant read the book.” Give it to them, dated, signed, and inscribed (“To Bob, A future superstar”) by the manager. A serious person will highlight and underline it. See what happens. That’s how you determine Charles B. Roth’s previously-mentioned “most important thing” at an early stage.

Pre-Hiring

A well-respected individual with a major franchise organization recommends having the potential consultant make 25 to 50 calls (for example: Marketing calls) to a pre-determined list of prospects before hiring. This individual says he is not concerned with the results; he is concerned with how rapidly the potential consultant hits the phone and the amount of time spent between calls. Too much reluctance eliminates the candidate from contention.

While I have never personally utilized this method, it seems well worth considering as an early eliminator.

First Two Weeks

1. In the early stages of training, a series of daily written tests will help identify those who will be ultimately unsuccessful in our business at a very early stage, despite a rigorous selection process. This method has allowed those firms utilizing it to eliminate 25 to 35% of those hired in the first week. Barring major personal traumas, poor scores always indicate either a lack of intelligence or a lack of commitment (they didn’t study). Either eliminates a prospective consultant from eventual success and from further employment.

2. A written structured evaluation should be conducted at two weeks. While it is not possible to predict with certainty a “winner” at this time, it is frequently possible to predict a “loser.” Habit patterns such as arriving late and leaving early, not studying training material, poor voice or speech patterns, inattentiveness during sales meetings or formal training, and many other problems are unlikely to change. For a sample two-week evaluation form visit the author’s website (www.stevefinkel.com) and see the article

“The Early Evaluation”.

First Month

1. Every firm should have a good daily planner. (Planners are available for sale through our firm). Especially in a new consultant, a consistent reluctance to fill out the daily planner indicates an unwillingness to take direction, to follow the system, and to pay the price necessary for success in our industry. Termination of the new employee is indicated.

2. The new employee must keep track of his numbers. The manager should have minimum acceptable numbers each week which have been written out before the new employee comes on board. If the minimum number of calls is consistently not achieved, the employee lacks commitment. Early termination is the answer.

3. Correct Role-Playing should be a mandatory and on-going part of every training program (see “From Knowing to Doing: How to Implement” on author’s website for complete information). If the new consultant does not do well in role-playing, he cannot do well “for real.” Consistently poor performance in role-playing with no sign of improvement is a clear indication of qualities which do not indicate future success.

First Quarter

1. Minimum acceptable billings should also be determined and written out before the new employee comes on board. This will obviously vary depending on the firm, as a clerical desk will produce billings more rapidly that a technical desk, for example. The manager must determine what is acceptable for his firm, must write out his minimum anticipated results, and must rigorously eliminate those who fail to achieve these results.

2. Formal reviews of the fledgling consultant must be done at 30, 60, and 90 days. The consultant must be told his strengths, his weaknesses, and what is expected of him in terms of hard numbers during the next 30-day period. These expectations must be written out by the manager and put in the consultant’s file (copy to the consultant optional). This step will stop the old “he hasn’t produced any billings, but he’s got a lot going on” feeling at 90, 120, and even 150 days, as the investment in an unprofitable consultant spirals. Consistent failure to achieve pre-determined quantifiable minimum objectives necessitates termination . . .and the earlier, the better.

These suggestions, with the emphasis upon early elimination, may appear to be harsh to some. They are not. The pre-determined minimum objectives must be realistic, attainable, and based on knowledge of what has been achieved by others. To do otherwise is counter-productive. Given the fairness of the goals, however, the owner-manager must base his decisions as to the continued employment of new consultants upon quantifiable results at early stages of development.

As the market improves and recruiting firms add to their staff, many lessons of the past will have been forgotten by experienced managers or never learned to begin with by newer ones. There is no better lesson than learning how to make appropriate and logical decisions on new people with your firm.

Any improvement in the selection of consultants and in our initial training program will obviously benefit us; however, only by rigid adherence to a planned program of early termination predicated upon realistic minimum numbers can we truly develop our firmsand our profit margins to the maximum!

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Without A Vision, Your Firm Will Perish

by on May 1, 2004


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For many small business owners, their businesses don’t support their lives; they consume their lives. From my point of view, a business should be more than just a glorified job; it should be a way to get more of what you really want out of your life. There are 2 ways to do that. One is to create a company that can operate without you and that frees up your time to do the things that you want. The other is to create a business within which you can achieve the satisfaction and sense of fulfillment that you want. In order to do either, you must first pre-meditate the steps you need to take to create a rewarding and profitable business.

Your 3 Year Vision as a motivator

According to research on employee satisfaction, the number one thing that employees desire from a company is a clear vision for the future. If the extent of your vision is just to “close more deals” you will probably find that, over time, this is not a compelling target for either you or your employees. A clear vision helps you and your staff to stay motivated and focused when key people quit, clients are disloyal or revenue is not consistent.

A clear vision is also your strongest management tool. If your people understand and are inspired by your company’s vision, they will be self-motivated. Apple’s employees are out to change the world through innovation. Fed ex employees are inspired to deliver fast, reliable service. With this kind of drive, they are not difficult to manage or motivate.

Your well-defined vision provides a sense of direction for you and your staff, a target for the future. Having a dream to strive for is what motivates professional athletes to achieve greatness and this clarity of purpose will work the same way in your firm. It is also a basis for decision making, planning and business development activities.

Define your 3-year vision

I believe it was Brian Tracy who once said that, “people tend to overestimate what they can do in one year and underestimate what they can do in 5 years”. Why have I chosen 3 years as a target for defining your vision? Because it takes about that amount of time to see real, sustained transformation and to “arrive” at your target. This assumes that you are building the business of your dreams. Whether you are looking to build a large firm or a high billing solo operation, a three-year target works well.

Your three year vision is a clearly defined set of goals that describe what your business will look like, act like and smell like when it’s “complete.” It is a very clear outline of what your business has to do in order to give you the rewards and satisfaction that you most desire as the owner. Your business is a means to an end and the three-year vision is a tool for measuring your progress along the road. A business without a vision is like a ship without a rudder.

In the owner’s mastery program that I lead, I ask the program members to start this process by answering the following question; “If we were speaking 3 years from today, and you were looking back over the previous 36 months, what would have to have happened in your business in order for you to be totally satisfied with your progress”?

Additionally, your vision ought to answer the following questions:

1. What does our “finished product” look like?

2. How will we know when we get there?

3. When will we get there?

Other factors to consider

Below are some characteristics that you may want to ponder when you are starting to define your vision for the future:

Basic characteristics:

Services offered: Retained, contingent, contract, hourly, reference checking, hourly research, candidate career coaching.

Company size: (sales, profits, employees)

Company growth (sales, profits)

Geographic scope

Markets served

Basis of competition (price, quality, service)

Unique characteristics:

Unique services

Unique marketing

Unique presence (look, sound, feel)

Unique operations (4 – day work week etc.)

Other unique characteristics

Most owners start their own business because they want more control over their lives, to have a high income potential and to chart their own course. Unfortunately, many end up creating a business that controls them rather than a business that they control. As the owner of a recruiting business, you are in a unique position to be able to decide what kind of income you want to produce and what kind of business environment you want to create. By taking some time to define your target, you will make the process much more successful and rewarding.

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2004 – What Now?

by on Jan. 1, 2004


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Well, here we go! The news to coin a phrase is all over town. The combination of three straight years of tax cuts, intelligent Federal Reserve policy and the natural resilience of the American economy have yielded the inevitable result. Even the ultra-cautious Alan Greenspan has called the recovery “astonishing.” 8.2% third-quarter growth, corporate profits up 30%, business spending roaring along, consumer confidence soaring, stock market going gangbusters, manufacturing up, declining unemployment rates…. It is an almost-totally upbeat picture. The Recession that began in 2000 to be further weakened by September 11th and corporate scandals is fading fast to be replaced by the coming Boom…

Rock ‘n’ Roll?

So what now? Given the likelihood of a massive recovery, is it not time to “party like it’s ’99″? Add to staff, open more offices, “mine the Internet,” go to conferences, buy new computers and software, expand into temps and contract, lease new space, maybe franchise or go public, borrow money to double our bets and get rich? Heck, no! And if you do so, you may have missed the bankruptcy train in our industry so far, but you may find that it’s still not too late to get on board. Because while the Boom you expect is definitely coming, you’re still going to have to wait a while. Here’s why…

A Natural Drag

The words “lagging indicator” seem to have been coined for our industry. Why is this? It is because in the aftermath of a Recession, companies are still “fighting the last war”. They are still focused on the painful results of expanding too fast and loose cost controls which cost them so much when the Recession first hit. It may warm our hearts to hear of an 11.3% increase in business spending, or of an 18.4% increase in IT spending in the 3rd quarter of 2003. However, the reason companies will spend on fixed one-time costs is so they can get more efficiencies, increase productivity, and not have to spend on on-going variable costs such as more staff. At some point, of course, they will have to, and it will filter to our industry. But not quite yet.

Companies, of course, are hiring to some degree. In even a slow economy, many of us get by or do well. And 2004 will see substantial improvement. But the short-term leading edge indicator of a pick-up in hiring will not be our industry. Rather, it will be the Internet hucksters who will con your clients into thinking they can avoid paying your fees. With almost no exceptions, every book, every “trainer,” every software program, every e-recruiter or web sourcing product that pretends to benefit you via the Internet is available first-and-foremost to your client’s HR department to undercut you.

Will this work for your clients? No! The unemployed, unhappy and unqualified denizens of the Internet are standard-issue off-the-rack K-mart suits; our clients require custom-tailored made-to-measure merchandise not available in the discount-house public square of the Internet. Nor do personnel people have the sales talent to actually “recruit,” regardless of efforts from some to teach them. The poor results they achieve will cause them to realize this, and your business will prosper. But it is a good reason why there will be a delay … and why you should not compete with your clients for the same mundane candidates to be readily found on the Web.

Finally, the speed of a job market recovery is closely related to how far it has fallen. A high unemployment rate means a fast resurgence because there really is not “slack” to absorb increasing business. The early ’80′s Recession had a fast job recovery in part because of a 10.8% unemployment rate at its peak. However, it was 35 months after the end of the 1991-1992 Recession before rates went back to Pre-recession levels. How high was unemployment in that Recession? 7.8%. And this one? Our highest unemployment rate? 6.4%, and it was only six months ago. The “formal” recession ended 25 months ago. Will our industry be in a boom market, roaring along? Absolutely! But it’s still going to take a little while.

An Unnatural Drag

Beyond the delay on the return of our industry to high growth, we have a one-time additional factor. The Presidential election.

Let’s say that you actively desired to harm the economy as much as possible. What would you do?

Well, first of all, you would increase taxes dramatically on all taxpayers. You would reduce deductions for capital equipment for businesses, especially small business, and raise taxes on them. You’d institute a protectionist philosophy, roll back free trade, and implement a “new era of regulation on American business.” A higher minimum wage would help, as would staffing the NLRB (National Labor Relations Board) and Department of Labor with those with a strong anti-business bias. You would start huge government-sponsored social programs. And of course, if you could dismantle a good part of the War on Terror and raise chances of more attacks on Americans at home and abroad, that might have a major effect. Yes. That would do it.

That of course is the precise exact publicly-stated economic plan for both opposition front-runners as this is written. It is always possible that both will stumble, and be supplanted by more-responsible, less blatantly anti-business contenders. But it seems unlikely.

One may discount the effect of this, thinking the current administration is a likely winner. And that is, of course, true. But when a nominee emerges, he will receive what Richard Nixon called “media steroids,” i.e., the adulation of a supportive major media, and the race will tighten.

The possibility the outside chance that a candidate who could do such harm to the economy might be elected will have a chilling effect on American business. Just as things really begin to take off in the second quarter of 2004 will come the cold rain of possible tax hikes, protectionism, regulation… Who can blame any major or mid-sized business for reducing expenditures and hiring plans in fear of a media-promoted candidate who promises these growth-destroying policies? A temporary slowdown in the third quarter as companies consider the results of an administration change is a possibility.

Will our industry return in boom times? Incontrovertibly. And we will all prosper. But not until after November.

So What Do We Do?

The market as it relates to our industry will be improving this year, of course, but only gradually. Over-exuberance is ill-advised, and will depress you significantly when claims of a burgeoning market do not translate into automatic increased production for you.

There are a number of steps, both from a management and a “desk” perspective that should be followed in a rapidly-dwindling Recession while waiting for the REAL Boom. They are as follows:

1) Focus on Quality Searches

As the economy continues to improve, you will be picking up more search assignments. Be careful. A trap awaits. Their quality will, on the average, be less than during the Recession. Why? Because there is less immediacy in a search based on addition-to-staff rather than replacement. In a non-boom market, such searches move more slowly, and there is a greater tendency to look at other sources and more candidates.

Equally to the point, a search-short consultant may jump at an additional search without appropriate consideration.

As the economy improves, selectivity of searches surprisingly will be far more important if your production is also to improve.

2) Real Recruiting

Honest genuine non-Internet recruiting has a massive advantage in the early and middle stages of a Recovery it is wonderfully effective! Why? Because the build-up of dissatisfaction from people who would have changed positions had the economy been better maximizes your results.

Innumerable polls and studies now indicate a high degree of discontent in the job market, with as many as 61% of employees stating that they will “definitely look for a new position when the economy improves.” Will they? No. Fear of change and procrastination will take over, and there is no way the best- qualified will put their credentials in the public square of the Internet for all to see, or even take time to screen newspaper ads or job boards. “Job-hunting” is a scary business for most people.

But will real recruiting move them? Absolutely! Those with excellent real Recruiting skills will take full advantage.

3) Expansion?

Well, maybe, but carefully. If you’re a manager, it will take another full quarter of serious growth for companies to really start hiring. A delay in adding to your staff until the second quarter (April-June) of next year makes a lot of sense.

Getting into other facets of “staffing” does not make sense. Short-term, you’ll see growth in temps and contract, as companies will be reluctant to add to permanent staff until after the election. By the time you get competent at it, however, the growth will have faded, and permanent search and placement will be ascendant. Don’t try to go for the “new hot market.” By the time you get established, it won’t be. If you’re in permanent search and placement, stay right where you are. Good times ahead!

4) Don’t Overspend

As the market improves, you will besieged with claims of how you should “get on board” and “prepare for the Boom.”

How? By competing with your customers for the same candidates on the Internet, buying more software, more computers, more techno-whiz bangs, more conferences…. This is not what you need!

The reality is that your firm is almost certainly in the best position right now to enjoy a resurgent economy. Major changes at this point will do nothing but distract you. All you need is a better market …. and it is on it’s way! Stay focused on good work habits. See article “Maximizing Output on the Verge of Victory” (www.stevefinkel.com) for more on this. And it makes sense to strengthen the real recruiting skills of your firm by means of repeatable, reviewable training products not available to HR people. But you are right where you need to be.

You’ve outlasted most of the competition. You’ve developed good habit patterns. Your market will gradually improve this year. And post-November with an even break comes the real Boom!

You’ll deserve it .

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Is Change An Option?

by on Dec. 1, 2003


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Recruiters everywhere are on the brink of a great period in our industry. The New Year is just a few weeks away and this recruiter is more excited about the business than ever before. I have seen several periods of economic recession and recovery in the last three decades. This one offers more opportunity to thrive and create wealth than previous periods. The markets are climbing, companies are starving for talent, and recruiters are hungry for success. The only element missing in most “desks” is the change essential to exploiting the circumstances. If you were highly successful in the last recruiting “boom,” you are now faced with the re-invention of your market, process and attitude. My exposure to thousands of recruiters has brought me to the belief that we love creating placements but despise change. This is a normal human condition, but a causative factor in the demise of many goods recruiters in the last eighteen months. The old saying, “if it ain’t broke, don’t fix it” is commonly used when we are succeeding. It is a deadly rationale to avoid the difficulties of change when we are not as successful.I have spoken with many people who are fully aware that their markets are either dead or dying. They are understandably frustrated by a lack of results in these markets. They are also desperately seeking answers to the question, “how do I get more business when nobody is hiring?” The answer often does not exist because they ask the wrong question. The means to create wealth for these folks lies in answering the question, “What market should I develop today?” This requires change and the courage to do so.Healthy markets exist. Markets where clients are hiring, willing to pay full fees and seeking the aide of skilled recruiters. Do your due diligence to identify them. Seek out the easily available marketplace intelligence. This can be found at its most fundamental level in the current economic outlooks and research provided through the Federal Reserve banking system. It is also published in several accurate and easily obtainable documents from the GPO at www.gpo.gov.Starting with the knowledge that certain industries are rising in sales and projecting growth, call into those industries by acquiring the industrial intelligence (company listing and contact information). This intelligence is published by several commercial vendors. It is also available at your local library. You know that place – it is the one with all the books that smells funny and we hated to visit in college. The folks at these institutions will bend over backwards to help anyone sincerely interested in exploiting their resources.Once you are armed with company names and contact numbers in promising markets, get on the phone and do further diligence. You need not sell on the first calls. It is my practice to establish a sense of mutual understanding by asking questions rather than pitching candidates or broadcasting the ten top reasons why “you should work with me.” The insights you can gather from the collective contacts you make in these calls will also reinforce your belief in the fertility of the industry where the demand recruiting services should exist. If you discern that it does, after several dozen calls or more, then circle back to your initial contacts and further develop a relationship and identify where grade “A” recruiting opportunities exist. If your due diligence refutes the promises of you initial research, you should take another industry into consideration. I suggest you go back through the process I previously outlined.Another means of identifying a good market selection is to ask those people you already know from previously developed markets, where they are likely to look for more secure employment opportunities. The industries where they know their talents and skill are translatable and in demand. I have found that this is a great technique due to the accuracy of input. Their paychecks also depend on finding a better industry in which to work, pay their mortgages and feed their families. This approach also avails you of the advantages of a reasonably attractive database of existing candidates once you develop that alternative industry. It is not, however, a stand alone tactic and should be used in tandem with the more strategic process outlined above.It would be unfair to leave these suggestions with you and not address the greatest reason why this approach can fail. It is also often the reason why some recruiters are failing at present in reasonably healthy markets. Do you practice a professional recruiting process? Is it an integral element in your service? The economy we face is growing into a robust state, but it will nevertheless be totally unforgiving of the recruiter who focuses on the end game alone. Transactional practices such as “hawking” a super-duper candidate served the goals of many recruiters during the past period(s) of affluence. They are doubtlessly devastating today. The emerging decision-makers today seek effective trust bonds and value-added relationships with recruiters. It is no longer enough to be a preferred provider of great candidates. You must develop a solid base of clients who perceive you as a trusted advisor. This can not be based on transactional practices such as the one-breath presentations scripted by many recruiters. The answer to success in creating this prerequisite relationship starts with learning a detailed recruiting process. Mastering its subtleties and selling its advantages to client contacts on an insightful and value-added basis. This process begins far before the identification of a good job order and continues in solid continuity after the candidate starts work with your client. There is no longer a crack in the fabric of recruiting success that will allow any recruiter to escape the challenge of this change.The challenges we face today are many and can be daunting because they demand radical changes in markets, practices and perspectives. I like to rely on the wisdom of wiser people like Jack Welch, the icon of success at G.E. and elsewhere – “Change before you have to.” For some it is a game of “catch-up.” For others, this is the best time to commit to these non-negotiable changes and take immediate action! For everyone, this recruiter as well, change is not bad it is just essential.Just to document the fact that this recruiter practices what I preach; since the Spring of ’02, I have changed markets, sold a successful recruiting business to my staff and relocated recently to the sunny gulf side of Florida. I started another recruiting practices business in Florida. A lot of folks have asked me, “Why Florida?” Beyond the fact that I have always admired the recruiters in this state and the associations here, I also tell most folks that I want my salt in the water, not on the streets! I will be here for a long while and invoicing clients forever. Please let me know how I can be of service to you.

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The Myth Of A “Book Of Business”

by on Dec. 1, 2003


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This is a phrase I hear constantly when talking with companies about their hiring needs. Everyone seems to be looking for that magic account executive or perm recruiter that can bring accounts, turn a switch and voila… Billing! Unfortunately, Cinderella gets the better of how this story ends.I agree with the value of hiring industry-experienced professionals. The right hire, with the right experience can be very successful. The concern is the shift, largely because of the economy, from companies hiring people with potential to people with accounts. Business is so challenging in today’s economy, staffing companies have pressure to hire people and get immediate results. If you are hiring someone ONLY because you believe they will bring accounts and business “to the table” you are making a critical business error.Bringing a book of business just doesn’t happen. Unless you hire someone who runs their own company and can transfer all the billings they have to your books, new hires are not going to bring a book of business. They may bring contacts, but this is not a guarantee they are going to be able to use those contacts with you, nor does it mean business is going to fall out of the sky.The biggest downfall in these situations is that hiring companies set unrealistic expectations because they feel an Account Executive or Permanent Placement Recruiter will ramp up quicker because of the mythical “book of business.” It can be a smart move to hire talented industry experienced people, but it is very dangerous to set expectations that will be unattainable. I often hear my clients say, “I need to hire experienced people because I don’t have time to train.” Well if you don’t have time to train, you are setting yourself up for a big pitfall. I’ve got news for you. Everyone needs training. If you hire people into your company without proper training, no matter how much experience they have, there will be trouble. Just because someone has experience in our industry, it doesn’t mean they don’t need to be trained. It oftentimes means they have to be RE-trained! That, my friends takes even more time than training!The hiring process over the last 12-18 months has been compromised because the pressure on everyone to perform. Hiring the right people is one of the critical roles management/ownership has. If you feel you are hiring someone just because of the promise of accounts, don’t hire! Interview the individual, not their accounts. The companies that have the strongest teams will endure the tough times and grow exponentially when the market turns. The way to get a strong team is by hiring focused, motivated, driven professionals, train them, and give them the support to thrive. If they have industry experience, great! Just don’t sacrifice all the basic qualities that make successful staffing professionals for a promise of a book of business that may not ever materialize.When interviewing, make sure you are focusing on the individual. Understand how they think and what makes them tick. Put more emphasis on performance and behavior not experience. If a Perm Recruiter has billed 300k in the past, it doesn’t automatically make them a superstar. Understand how they got there. We sometimes overvalue the result and assume because a Perm Recruiter billed 300k at our competition they will do it for us. I am not saying they won’t, but I am saying it doesn’t guarantee they will. Know who you are hiring and why. The way to ensure hiring success is behavioral, performance based interviewing and, regardless of what they have done in the past, set realistic to the market expectations. Good luck with your staffing and build your team for success!

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Survivability

by on Oct. 1, 2003


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As I complete my twenty-second year in the business of executive recruitment I pause to give thanks and focus on the future with unbridled enthusiasm and optimism. Why am I so psyched? Because I’m a part of the most meaningful, impactful profession on the planet and am surrounded by such wonderful colleagues.I thank The Fordyce Letter and Paul Hawkinson, not to suck up, because I have no reason to do that. I’m thankful for being exposed to inspiring and relevant industry opinion and motivational theories. From the year I was trained by Steve Finkel, (1982) to the consistent expos?s of Terry Petra and the more recent views of Scott Love, I value all of the messages and positive energy tremendously. Once again this month, I picked up the unique and creative ideas of Frank Risalvato to add a page to my own website (www.pinnaclesource.com) and advertise for my own “industry insider.”Now it’s time to plow ahead into my 23rd year and accomplish ever-greater goals. I’m encouraged by the fact that despite being grounded in a depressed specialty IT in a beaten down geography Colorado I have survived. My billings for the year are down slightly, but not for lack of effort. As a matter of fact, I’ve successfully filled more searches YTD in ’03 through 8 months then I did in ’02. Unfortunately, my average fee is down. However, as I’ll explain, I think that may be good news.More importantly as I enter this month for the first time this year I believe I have a full load of Class A searches, a few nice receivables and several happy clients. I’m also confident that by keeping my fees low, to “match” the market, and by offering creative fee approaches; several of these customers are going to be repeat buyers in 2004.My Three StrategiesHow have I done it? First, by working my butt off. Second by staying as hopeful and positive as possible despite the doom and gloomers trying to attack and zap my sanity and emotional strength. Again that’s where TFL and its pundits have been my saviors. But I also employed three strategies that have enabled me to pay the bills, pay myself (although not as much as I’d like) and keep the dream alive.Number one; I’ve kept my overhead down. This has been a huge challenge for me because I’m a big spender by nature and I had built in too many excesses throughout a long, profitable career. But it’s been absolutely necessary! I’ve trimmed everything from payroll, to travel and entertainment, to office space and even telecomm/internet services. I’ve survived with one tremendous assistant who does a little bit of everything (just right) to support me. Being solo as a recruiter has forced me to find business and fill searches on my own. Call it productivity or efficiency, or whatever; it can be done!Number two; I’ve offered very flexible, creative fees to both new and old clients. My novel approach includes a “pay for performance” fee plan whereby the longer my placed candidates stay with their (new) employers, the more I earn. This has worked particularly well with sales-related placements. I also have deals, ongoing as I write, that if and when my placed sales reps sell, I get a percentage (albeit a small one) of their commissions.These approaches have made for smaller invoices and scary receivables totals. But I keep getting paid, incrementally, and my clients and candidates are satisfied. That is a nice platform to build future business from.Number three; I’ve never stopped marketing! Even when I thought I had enough searches, I kept looking, and calling, for one more. I’ve used new lists, old lists, candidates, clients, venture capitalists, neighbors and friends as networking parties. My findings are that the more candid, and confident I am about the intrinsic value of what I offer the better my results. As Scott Love points out, if you don’t believe in the ROI of your capabilities and your services you cannot expect anyone else to.Look back at some of your “old” placements and ask yourself what impact some of those top candidates (that no one else could have or ever would have surfaced except you!) have had on their companies. Fees of twenty, thirty thousand dollars or more seem trivial when viewed next to the leadership and results so many of our placed candidates contribute. Take that feeling and consistently communicate that value. Package it into your next cold or warm call and don’t relent. Know that you can affect a prospective client with a service that 99.9% of the other salesperson out there can’t touch. And dial again, because you never know when someone in need will be on the other end.My Three WishesMy first wish is that I inspire just one reader. If just one of you in the trenches, that can so often feel like the pits, gets motivated to swing for the fences one more time, I’ll be happy. Don’t expect immediate results, but keep hacking. Second, I wish for an even better 2004 for our profession, the economy at large, the less fortunate, and me. Third, I wish for a 50th wedding anniversary (in 2040) with my wife, Sherri, who puts up with all of my craziness in business, and in life.

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Times They Are A-Changin?

by on Oct. 1, 2003


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Would you believe forty years have fleeted by since we first heard these haunting lyrics of Bobby Dylan?

Come gather ’round peopleWherever you roamAnd admit that the watersAround you have grownAnd accept it that soonYou’ll be drenched to the bone.If your time to youIs worth savin’Then you better start swimmin’Or you’ll sink like a stoneFor the times they are a-changin’

Peter Drucker, a respected and seasoned observer of global events, has studied how the world has been changing and offered his opinion. “No one born after the turn of the 20th century has ever known anything but a world uprooting its foundation, overturning its values and toppling its idols.” In a speech given last August entitled “Sleepwalking through the Apocalypse,” William Van Dushen Wishard of WorldTrends Research agreed with Peter Drucker’s view and added: “Basically the story of the 20th century was about a world where the historic, social arrangements, spiritual underpinnings and psychological moorings that had anchored nations for centuries, have been in a transition of epochal proportions. The underpinnings of life as we’ve known it are shifting.”This is pretty heady, heavy stuff for a beautiful October day in New England. Let’s lighten it a bit by recounting the story of Lugubrious Larry and Happy Harry, seven year old, twin sons of a very worried and distraught mother. Larry was a born pessimist who always saw the dire side of things; Harry was the eternal optimist who saw the best in everything. So concerned was the mother that she sought the counsel of the world famous, child psychologist, Doctor Leigh Onda Couch. The good doctor had a solution for Larry’s lugubrious pessimism and Harry’s elated optimism. He would see the boys and cure them in one session.On the appointed day, Doctor Couch put Larry in a room with every toy and game imaginable, ice cream, candy and all sorts of goodies. At the same time, he confined Harry to a room filled with nothing but horse manure. He promised the mother: “After two hours in those rooms, Larry would lose his lugubriousness and Harry would see that everything isn’t always rosy.” After the two hours the mother and doctor opened the door of Larry’s room and to their amazement found Larry sulking in the corner and sobbing: “I was afraid to play with the toys because I might break them and if I ate the candy and ice cream, I would get a tummy ache.”Both the mother and doctor were disappointed but at the same time they were convinced that they would find Harry in a very somber state. When they opened the door they were shocked to see Harry throwing the manure in all directions. He was taking turns laughing and singing and was having a lot of fun. You’d think it was Christmas, he was so happy. Doctor Leigh Onda Couch challenged Harry with: “How can you be so happy in this terrible room”. “Gee, doctor, with all this manure, there has to be a pony here someplace!”Sure, “times, they are a-changin’”. We see this every day in the workplace, in our businesses, and in the arena of diversity recruiting. So often we focus on the negative aspects of diversity in the workplace but this month we’ll take a lengthy look at a few bright spots, some positive and innovative things that are happening in corporate America. We’ll try to emulate Happy Harry in his quest for the pony.Let’s start in Brockton, Massachusetts, once the shoe-manufacturing center of the universe and the hometown of legendary boxing champions Rocky Marciano and Marvin Hagler. Brockton and some of the surrounding towns are highly diverse communities. The Brockton Credit Union, a leading area employer, has reached out to the minority communities in many ways: working with civic and faith-based organizations, spearheading outreach programs to assist high school dropouts, and, conducting practical financial management seminars for high school students and minority employees of local companies. The Fifth Annual Credit for Life Fair was held on April 30, 2003 at Massasoit Community College. This daylong interactive program taught high school students how to use credit cards, the importance of establishing a responsible credit history, and basic financial management skills. In the five-year history of this program, hundreds of young Americans have learned the importance of managing their money and safeguarding their credit.Companies demonstrate concerned citizenship by encouraging their employees to develop partnerships with community organizations. These partnerships and alliances connect the companies with local dealers and suppliers, with community-based and professional organizations, religious groups, schools, colleges, local governments, and the media. These partnerships provide immense benefits to the community. Here are a few examples:

  • Through organizations such as Minority Interchange, New York Life employees participate in developmental and community activities that benefit both the employees and the company.
  • Schering-Plough supports programs for minority students in science and business at several colleges and universities.
  • The Diversity Leadership Academy of Atlanta’s Community Leadership Fellows Program is a five-day program spread over five months for leaders from all sectors of the metropolitan Atlanta Community. “These leaders are Atlanta’s best and brightest,” states Douglas N. Daft, Coca Cola CEO. “We are pleased to partner in such a worthwhile endeavor. We committed to funding the program for four years because we want it to have significant and lasting impact on our community.”
  • General Motors Minority Dealers Association offered scholarships to minority students across the country through a scholarship program created by members of General Motors Minority Dealers Association.

There are many meaningful ways that corporate citizens can help out in the community and at the same time be catalysts for recruiting new employees. Some of the programs I’ve witnessed at various companies throughout the years include:

  • Junior executives in the Boston area teaches at a prep school for inner-city kids and prepare high school students for their SATs
  • Coaching Little League baseball teams; organizing, managing, and coaching in basketball leagues
  • Companies that assist diversity entrepreneurs to start businesses and grant low interest loans to give financial support to minority-owned businesses
  • Organizations that fund programs to promote home ownership in ethnic communities
  • Supplying education materials and sponsoring educational events and speakers; offering ESL courses to employees and their families; planning and staffing remedial reading centers for children; offering tutoring programs to inner city high school students
  • Companies that encourage employees to go after awards from diversity and other organizations, e.g., Black Engineer of the Year, Women of Color in Technology; SHRM, Hispanic Journalists, NOBCCHE, (this makes community members take notice and want to be affiliated with the company)
  • Providing workshops to community groups on cultural awareness and respect for cultural differences
  • Sponsoring programs that build low-income housing, e.g., Habitat for Humanity International, and encouraging their employees to volunteer for the construction teams
  • Sponsoring ethnic festivals and neighborhood activities, e.g., carnivals, picnics, sporting teams and leagues
  • Providing tickets to professional sporting events to neighborhood children; organizing and chaperoning museum trips for children
  • Participating in food distribution programs and staffing meal serving centers for the poor; volunteering at homeless shelters and neighborhood health centers; funding and providing volunteer staff for neighborhood dental clinics
  • Sponsoring meetings of various diversity groups at company sites
  • Providing “job campaign workshops” for college and high school students, and for religious and community groups; sponsoring “Saturday College” for the diversity communities on resume writing, interviewing, job campaigning, etc; teaching INROADSes
  • Sponsoring internship programs for low income community members; partnering with junior colleges and employers on a high-growth job training programs

Until its sale in 2002, Community Newsdealers was the home delivery subsidiary of The Boston Globe. CNI, a $100 million company, had a workforce of 1000 direct employees (30% diversity) and 2600 contract employees (68% diversity). CNI had an extraordinary record of diversity successes, cultural competency, and significant involvement in the ethnic communities of Boston. The former CEO, Lou Brambilla, was the spark plug and leader of CNI’s efforts and remarkable achievements. He and his team started from scratch, learned from their mistakes, stuck with it, and made it happen.Lou’s formula for success in the community is pretty straightforward and leaves no room for doubt: “We have to be part of the community and really mean it. We have to respect the community to be respected by the community. We had to earn their trust by doing what we said we were going to do, by being honest and consistent, and by always being there. Once we had their respect and trust, the community would do back flips for us. We offered English language classes for new people; we gave cultural awareness classes to the traditional workers. We had to embrace diversity, honestly and totally.”I asked Lou what lessons he and his management team learned in their efforts to welcome, accept and encourage inclusion in their workplace. His answer is a blueprint for success and deserves to be quoted in detail:”There is no silver bullet: No two companies will find the same solutions to the challenges that transition to a diverse workplace may provide. There is no panacea. We do believe that companies that remain pro-active on issues will be much better positioned to avoid trouble spots. Ours was a reactive organization, so we learned that lesson the hard way.Become partners in the search for a better life: This is especially important for immigrant populations, but it’s also true for your company. We are all looking for ways to become more successful. When we provide a person from a different culture a better way of life, everyone prospers.Everyone has to get on board: Focus on your traditional workers. Make sure they know that this can be a win-win situation. A better way of life, better opportunities, increased compensation, better benefits, etc., are products of a company being able to develop a unified workforce for common goals. Accepting and encouraging diversity is just “good business.”Find ways to knock down the language barriers: Sponsor language classes for ESL and English speaking employees; make sure that materials are available in multiple languages; promote ESL employees to act as intermediaries; encourage your English speaking employees to learn foreign phrases, etc. Nothing will span the gap between cultures more immediately than two people being able to say good morning in a language they both understand.Recognize cultures at odds: It’s not just a white vs. color issue. It’s not just an American vs. another culture issue. As your workforce becomes more diverse, you will have to recognize and deal with all cultures. Since each culture has very unique beliefs and practices, make sure that you are providing a workplace that encourages them to understand each other and the traditional culture.Some are from Venus; others are from Mars: As the popular book says, men and women are different. This is especially true within the new cultures in your workplace. In many societies, the idea of a woman supervising a man would simply be out of the question. Don’t forget that the distaff side of your workforce, regardless of their nationality, will need your backing to be effective. Those with cultural apprehension of accepting a woman’s role in your business must be schooled in “how it is” in our diverse workforce environment.Comparative intelligence perception: Our experience tells us that you will have to teach the fact that just because people are different, it doesn’t follow that they are less intelligent. When a supervisor instructs a subordinate and the subordinate doesn’t seem to understand what is meant by the order, there is a problem of communication, not intelligence. Did you ever notice that you raise your voice when a person from another culture asks you to repeat a statement? The odds are that the other person is neither deaf nor unintelligent but that you have not communicated effectively.You can change behavior but probably can’t change beliefs: Sad to say many of the attempts you make to change the way people feel will be unsuccessful. A percentage of employees will soften their attitudes, and many will actually become your champions in the workplace, but there’s always a few that can’t be convinced. Don’t feel frustrated by not being able to change people’s minds. Rather, concentrate your efforts on changing their behavior.Zero Tolerance: In a business setting, you have the right to demand performance from your employees based on the policies of the organization. Acts that stand in the way of accepting diversity cannot be tolerated, regardless of an employee’s personal prejudices. Demand 100% compliance with company policy. Implement and actively exercise a “Zero Tolerance” policy when it comes to subverting company attempts to provide a welcoming atmosphere for diverse cultures.Accept the fact that the way the job gets done may change: The saying “different strokes for different folks” is really a fact in a workplace of diverse cultures. In America, we want the job done now; we have a sense of urgency for the present task. People from the new cultures in the workplace may not share that sense of urgency. Be aware and respect differences. Meet your new employees half way on the sense of urgency issue; focus of getting the job done.Re-write the book: Bring people from each of your diverse cultures to the table. Let them give you direct and honest feedback on your policies and programs. To be successful in recruiting, retaining and serving a diverse workforce you must be willing to re-write the book on everything you do. Training may take longer, orientations take on a new importance, and recruitment programs need new target audiences. Every phase of your operation needs to be re-inspected and perhaps re-designed. Get input from the employees who will make your programs successful.You are not a missionary: This is not a charitable venture. Accepting and encouraging diversity in the workplace is mandatory to make your business objectives achievable. It is rewarding to help make people successful but the effort must be shared. Resist the temptation to be a one-way benefactor. There should be a business reason why you’re participating with new organizations, new civic groups, and new markets. There should be no stigma attached to a quid pro quo when it comes to investing your business time and money into speculative marketplaces.Lead by example: We stuck by our guns, and made sure all our employees knew we were totally committed to encouraging diversity. No exceptions. No excuses. It started at the top and was expected at all levels of the organization. When management makes that kind of a stand, backed by a Zero Tolerance policy, things just seem to fall into place.Recognize your strengths and weaknesses: Diversity in the workplace is perhaps the most important topic of the last decade in American business. Everyone faces similar problems and concerns in a diverse workplace. There has been an explosion of professional resources to help you identify and solve these problems. Do what you can with your own talents. Everyone in the organization is a stakeholder in the workplace so include everyone in the planning and implementation of your programs and initiatives. When necessary reach out for qualified help. Setting a solid foundation means you’re on your way to a diverse and inclusive workplace. It is simply good business sense.”

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Maximizing Output On The Verge Of Victory!

by on Oct. 1, 2003


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Congratulations!If you’re in the Search and Placement business right now, your timing is terrific. Historically, our industry has always been one of L-O-N-G boom, followed by severe bust …. followed by another L-O-N-G boom! The greatest growth, however, is to be had in the immediate aftermath of a Recession when our market comes back, and the most understaffed industry is …. ours! Are we there yet? No. But we are getting close!Does this mean it is time to add to our staff? Not quite. But neither is it a time to just wait around until the market comes back. Rather, this is the moment to establish good work patterns to maximize results from our still-mediocre market, and to establish the habits that will allow you to take full advantage of the boom that is lurking out there.What patterns are we referring to? Check yourself against the following, and see how well you do.1) Early ArrivalDid you arrive in our office on time this morning? This means no later than 8:30! If not, you’d best not complain about our current market, nor are you setting yourself up to maximize a resurgent one.2) Daily PlannerWas your written planner fully filled-out? A brilliant but unplanned search consultant will be out-produced by a good well-planned one. Paul Hawkinson, editor of The Fordyce Letter, has written, “one of the things all top producers have in common is that they are well-planned.” Is that you?3) Five Calls before 9:30 A.M.Survey after survey has shown that most business sales are made before noon. No early time on the phone means wasting the most productive time. Even if you are not a “morning person,” grit your teeth and do it! To quote the author, “push the stupid buttons on the phone!”4) Early “Reward Program”You can psychologically addict yourself to hitting the phones early. Just give yourself a “reward” (cup of coffee, short walk around the office, whatever works) after five presentations. No five presentations, no reward! You will train yourself to an early start.5) Limit Non-Business CallsPersonal calls are business killers! They significantly interfere with your concentration, besides taking time away from work. No more than one a day, either incoming or outgoing. And no more that five minutes!6) Five New Prospective Account PresentationsEvery day in a less-than-boom market, you must search for new clients. Too few searches means working on what you do have. Lack of prospecting means it may be the wrong one.7) Thirty Extensive ConversationsThere is much more to “numbers and ratios” than “hash marks.” New people will need more calls to achieve this number, but will not have more of these extensive business discussions than will the experienced. But every day, thirty a day will keep the bill collector away, if your skills are right. 8) An Interview a DayYour first thought on planning your day for tomorrow must be “where will I get my interview?” Phone interviews count. A first contact between candidate and client is an interview. A daily push for an interview will yield you results in any market.9) New Sign on Your PhoneImproving your skills is a habit. An easy way to do this is to post a note on your phone every week reminding yourself to implement a new on-the-phone habit pattern.10) Stay Till 5 P.M …. At Least!A habit of “ducking out” early will get worse and worse over time. It will become a downward spiral. If you try to “beat the traffic,” in a slow market, the market will beat you!11) Skill Improvement Tonight?Andrew Carnegie wrote that, “Careers are made or marred after working hours.” At least three days a week, you should be reading a chapter in a business book, critiquing your own taped call, watching part of a business video, or striving to improve.12) Reading in the Office?Office time is for planning and implementing. Whether general newspaper, magazines, or industry newsletters, reading should be done after hours. Stay focused on production in the office.13) Office ConversationsWhether non-business discussions or pointless conversations started by non-productive people, this is a trap! Pleasantries are fine, but more than five minutes is too much.14) Stay Off the InternetInnumerable surveys have proved that most web shopping, surfing, porn and chat is done during business hours. If this is you, it will drain your results. This author was recently quoted in Investors Business Daily’s “Leaders and Success” section saying, “click your Internet connection off, so you are not tempted to use it. Turn it on only when you really need to, and then turn it back off!” What is recommended for Investors Business Daily readers is also recommended for you.15) “No Computer” DaySo you think your computer helps you to increase production? Maybe. But try this. At least one day a week, implement a “no computer day.” If you have everything computerized, just do hard copy printouts (known as paper) the day before, and roar through your day until planning time without turning it on. If you’re a manager, try this for your entire office. Expect to see your staff completing all planned calls early in the day. Why do you think that might be?How do you measure up on the 15 points? There is more to success in our business than staying effective and focused.Without solid skills, you will be out of luck. But good markets and bad, it is the place to start.Our industry and your production stand on the verge of explosive growth. Incontrovertibly, we are not there yet. But the time is drawing near. When the market returns, you won’t have the time to improve skills or focus on effective habit patterns. You’ll be too busy! And that’s the truth…Do your best now to improve in every way. Stick around. Great times are ahead!

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A Piece Of The Action: The Only Perk That Works

by on Sep. 1, 2003


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If you’re nervous about losing your better-than-average-billers, you have good reason. Our statistics over the past 20 years show that 78% of all consultants who left their employers and remained in the recruiting field, started their own businesses. You may have even been one of them.Keeping your doors open is much harder when they’re revolving. The underlying problem is that better-billers have exactly the attributes that make them want to leave: Self-esteem, persistence and creativity. Couple this with motivation, experience and money (in that order), and they’re gone. The good ones are all entrepreneurs at heart.The usual list of perks (perquisites) includes insurance and retirement plans, profit-sharing and deferred compensation plans, club memberships, financial and legal counseling, vacations, interest-free loans, expense reimbursement and a company car.Unfortunately, in a small business, everybody must pull their own weight, so the recruiters are actually receiving nothing above their earnings. Since you can’t make one dollar do the work of two, perks become an optical illusion done with mirrors and lights. The only possible advantage to employees is the tax savings, but this is mul?tiplied geometrically when they own their own business.Simply stated, the perks don’t work. Neither does intimidation over the long pull.Oh yes. There’s always paying employees under the table in cash. Or paying wages to some destitute person in the consultant’s family to avoid taxable income. Or the IRS’s favorite, trying to treat the “consultant” or “account executive” as an independent contractor. Most people who do these soon learn that the common interest with the employee in reducing payroll taxes does not extend to a common interest in tax evasion. You are liable for every dime, and every dollar of penalty. Personally.There’s only one way to assure continuing loyalty (and much higher billings): Transferring a piece of the business to your key employees.We have always advocated incorporating. For transferring ownership, it is essential. Then you need a document called a buy-sell agreement. In his book Milking Your Business for All It’s Worth, John Gargan observes:

There are very few lawyers who know how to draft a proper buy-sell agreement. In 23 years of looking [at these], I have seen only two that made me say, “Now there’s a real craftsman. There’s someone who really knows how to write a proper document!” Unfortunately, most lawyers patch together a bunch of “boilerplate.”

This is your business we’re talking about. Make sure any buy-sell agreement that transfers, at least contains provisions for:

  1. Purchasing the stock upon resignation, disability, retirement or death.
  2. Valuing the stock.
  3. Insurance for purchasing the stock.
  4. Restricting transfer of the stock unless pursuant to the agreement.
  5. Disposing of the stock in the event of a common disaster.
  6. Arbitrating disputes without the expense and delay of litigation.
  7. Restricting unfair competition and use of trade secrets by the employees.

The two causes of most stock transfers are disability and death. Statistically, one out of ev?ery three owners will suffer a long-term disability or die before the age of 65. This means insur?ance is necessary for a major buy-out by an employee. A competent insurance agent should be contacted. Ask for the figures on an entity purchase plan. This is a buy-sell agreement between the corporation and each shareholder. The corporation is the owner and beneficiary of a policy on the life of each of the shareholders. The amount of the policy is updated periodically, so it equals the value of the shares each holds. Upon the death of any owner, the corporation purchases the shares from his or her estate. Then they are retired as “treasury stock.”As you can see, this leaves the remaining owner(s) with proportionately larger pieces of the whole enchilada. If you want your beneficiaries to continue the business with the surviving owners, just don’t insure your life in this way, and provide for it in the agreement.When policies are issued to the shareholders instead of the corporation, the device is called a cross-purchase plan. The tax consequences should govern which plan to use. This is where a competent accountant can help.Valuation, price and terms all need to be negotiated, both for the initial transfer and any “phase-in” of stock. Many tie them to production, often including a schedule of “cash-in” goals. If the recruiter meets or exceeds the goal, the additional shares are issued. A portion of the commission (sometimes including a contribution by the corporation) is retained in the draw account as the fund for the purchase.This avoids the possible argument by third parties that the transfer was without consideration. You can raise the commission, adjust the draw or otherwise play with the numbers to minimize the impact on the recruiter.How much ownership should you transfer? Anything up to 49% is fine. That way, you’ll always have the power to make the bottom-line decisions. You can elect a majority of directors, and thereby control board decisions, including who are appointed as officers to operate the business.Regardless of how you structure the ownership of shares, it’s certain the board won’t want to declare dividends. This is because they are taxed twice (once when they are issued, and again when they are received). You’d be better off just giving a bonus to the key employees. At least that way the corporation can deduct it.If you have over 25 employees (yes, temps qualify), and a payroll of at least $500,000 per year, check out a formal employee stock ownership plan (ESOP). Many financial advisors specialize in establishing and administering them.Instead of funding a profit sharing (or pension) plan with money, you use the shares of stock. Then, instead of reducing the cash flow, you actually increase it! The money that would have been spent on the profit sharing plan is still available, and the corporation gets the full tax deduction. If you now hold stock, you can have the corporation pay you the full market value, or you can transfer money already in the profit-sharing plan to the ESOP, so it can acquire more shares.It is also possible for the ESOP to borrow money from a bank, and pay back the loan with the annual contribution from the corporation. Most banks will lend up to 75% of the value of the stock. Similar vehicles exist using life insurance.Ultimately, the transfer of ownership is the only way to retain and automatically motivate the better-billers. The mirrors eventually break and the lights eventually burn out. Anything less than a piece of the action is against the law… the law of human nature.

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