An anatomy of start-up Career Central, a matchmaker for companies and business school graduates. Includes CEO Jeffrey Hyman's business plan, financial strategy and prospects for success.
Anatomy of a start-up
Can a powerful database replace the 'black art' of personnel recruiting?
| EXECUTIVE SUMMARY
THE COMPANY: Career Central, in Palo Alto, Calif.
THE CONCEPT: Eliminate the recruiting-industry middleman. Use database technology to help companies find M.B.A.'s more cheaply than they could using headhunters and more efficiently than they could using want ads. Then do the same with other types of other personnel, such as software engineers.
PROJECTIONS: Losses of $2.5 million in 1998 on $4 million in revenues. Profits of $12 million in 2000 on $35 million in revenues.
HURDLES: Attracting enough M.B.A.'s to sustain an adequate candidate pool. Delivering enough well-matched hires to prove system's value. Establishing a name just as on-line recruiters of all kinds are proliferating. |
Jeffrey Hyman was not happy. It was 1995, he was soon to receive his M.B.A. from Northwestern University's Kellogg School of Management, and he craved employment at a young high-tech company. Problem was, on-campus recruiting featured the usual fare of manufacturing and consulting Goliaths. "Four hundred companies came to campus," Hyman recalls, "and I didn't want to work for any of them."
After several months of cold calls, costly flights to the Bay Area, and missed classes, Hyman finally landed a job at software maker Intuit--"by pure luck," he says. But the process had been an ordeal. Once at Intuit, moreover, Hyman discovered there was a flip side to the same problem: Intuit didn't have the resources to mount a serious presence on business-school campuses. That made hiring top-notch M.B.A.'s difficult.
The problem gnawed at him: How could M.B.A.'s and the companies that needed to hire them be brought together? "This is an enormously inefficient market," Hyman remembers thinking. "The recruiting industry has not changed for 100 years. Technology has not been applied."
And who better than he, mused Hyman, to apply it?
The market
In one sense, Hyman's timing could scarcely have been better. The amount of money spent on headhunters in North America has been growing at an annual clip of 17%, jumping from $3.5 billion in 1993 to $6.5 billion in 1997 (and vastly outpacing employment growth), according to Kennedy Information LLC, publisher of Executive Recruiter News. With businesses struggling to find skilled workers--and increasingly recognizing the real cost of a bad hire--recruiters have become valued problem solvers.
Yet the industry continues to be highly atomized. Of the 4,330 executive-search firms in North America, Kennedy reports, fewer than 15% generate revenues of more than $2 million. The 10 largest search firms (including market leaders Korn/Ferry International, SpencerStuart, and Heidrick & Struggles) constitute barely 11% of the market. Plus, to hear Hyman tell it, a headhunter in 1998 carries on in much the same way a headhunter in 1948 did--which in the most basic sense is true. Head-hunting still tends to involve a Rolodex, a phone, and the task of jawboning someone into working for someone else.
Highest on the industry's food chain are the retained-search firms, which typically charge one-third of a position's first-year salary. Theirs is a full-service menu: background checking, wooing of candidates, and consultative screening for that elusive "right fit" are all included in the prix fixe. The average retained recruiter performs 16 searches a year.
Next come the contingency-search firms. In contrast to their more exalted brethren, who focus on positions that pay upwards of $100,000 a year, contingency recruiters feast mainly on the below-$100,000 crowd. They charge a commission of 20% to 30% but, as their name suggests, receive zippo if none of the candidates they serve up get the nod.
The next level on the executive-recruiting food chain is a long way down (and not even included in the $6.5-billion assessment of the search industry): newspaper classifieds. Employers pour another $6 billion down this funnel every year--enough to mean the difference between red and black ink for many newspapers. This approach to recruiting is far cheaper than using headhunters, of course, but it's also far more scattershot. While employers end up with a thick stack of rÉsumÉs to pick through, relatively few candidates are likely to meet their specifications.
Now enter the Internet. Scanning the estimated 225,000 sites that list job openings, one could be forgiven for thinking that the entire recruiting industry had migrated on-line. Well-trafficked sites such as the Monster Board, CareerMosaic, HeadHunter.net, Jobtrak, and Online Career Center offer giant searchable databases of rÉsumÉs and job openings. (According to John Sumser, publisher of Electronic Recruiting News, revenues from on-line employment classifieds will total $450 million this year, accounting for half of all Internet advertising revenues.) Yet Hyman notes that many of those sites resemble little more than electronic versions of the classifieds section.
Hyman's M.B.A.-style analysis left him with this conclusion: the industry was a bifurcated one, with high-priced recruiters on the one hand and cheap print and on-line advertising on the other. "It was clear," he says, "there was nothing in between."
The concept
To exploit that gap, Hyman officially launched Career Central (nÉe MBA Central) in June 1996. Its mission: to bring together M.B.A.-holding job candidates and the companies seeking them. Deceptively simple in conception, Hyman's business model identifies not one, not two, but three sets of customers.
