The Real Cost of Hiring the Wrong Employee
I'll never forget the first time I had to fire someone.
I was a middle manager at a start-up in Minneapolis, ramping up a graphics, marketing, and writing department. I usually had a keen eye for talent. I'd interview candidates by asking a few softball questions and then slowly working my way up to more technical queries.
One interviewee (let's call her Sue) seemed ultra professional. She had a good track record at a previous company working as a Photoshop expert and designing flyers and brochure. Her portfolio screamed "talented artist" and she had a direct, no-frills approach. I ended up hiring her on the spot, a gut reaction.
Then the trouble started.
As anyone in management can tell you, you normally find out an employee is going to fail on the job from everyone around you first. "Sue just doesn't understand what we do," they told me at the time. "She knows Photoshop but she can't seem to learn any of the other programs."
Where I Went Wrong
Of course, I went through all of the typical steps in the dismissal process, but our final discussion proved incredibly painful--for both of us. I liked Sue, but the cost of hiring, training, and replacing her was quite high. Unfortunately, she just couldn't do the job. She stormed out of our last meeting with a red face and a rather unkind gesture.
Looking back, I realized part of the issue was that I was not great at "onboarding" people--a process that starts long before someone fills out a W9. (For a long time, I thought onboarding consisted entirely of filling out paperwork. Oops. It's worth noting that I was only a young pup myself in business at the time.) Today, a more data-driven approach can help a start-up avoid some of the costs of making such a big mistake.
Real Cost of a Bad Hire
According to a blog post by a well-known recruiter named Jorgen Sundberg, the real cost of onboarding is $240,000 per employee. That's some serious sticker shock. Sundberg now runs Link Humans, a content marketing company.
He notes that the total cost of recruiting the wrong employee includes hiring, total compensation, eventual severance pay, and other factors like legal fees and totals more like $840,000 when you factor in all of these costs. (This is based on hiring a mid-level manager who works 2.5 years and is then terminated and replaced.)
In other words, how you hire couldn't be more important. And it's not just your task.
"Recruiting isn't just a function of recruiters, it also includes hiring managers and often times, their teams" says Jeff Freeland, the CEO of the Santa Clara, California-based recruiting start-up Jobularity.
"This cost is often hard to measure or is missed," he says. "How much does it cost for, say, a network security manager to set aside a four hour window for him and three members of his team in order to conduct interviews?"
Freeland says it might be 16 hours in aggregate for those team members. Worse, the costs for recruiting tools are going up. He says LinkedIn Recruiter, for example, can cost well over $10,000.
"Small business just doesn't have enough time, energy, or resources to react quickly enough to the demands of their customers. As a result, quick decisions are made on critical hires, which results in the poor fit," he says.
Is there a better way? I like the Jobularity approach and wish there had been something like this back when I was a hiring manager. Freeland told me the idea is to create a holistic view of a candidate using video introductions, profiles of their interests and talents, and--most importantly--a ranking system that is more data driven than most recruiting tools.
Could more data have prevented that terrible day when I had to fire an under-performing employee--and maybe prevented hiring her in the first place? I'd like to think so. Jobularity is still in beta though, and so the company doesn't yet have much data on its own success in matching candidates to jobs.
So what are your horror stories? Do you hire on gut feelings, or a different approach? Post in comments!