Recruiting agencies are mixed ROI for small startups largely due to cost, incentives, and variance in quality:
- Agencies typically cost 20-30% of a new hire’s first-year salary - This is a lot to spend for a small startup.
- Agencies can waste your time - Most agencies don’t care where they place someone, so they usually “shop candidates” across many opportunities, making them harder to close.
- Incentives are misaligned -Many agencies get paid based on a percentage of first-year salary, so they may be incentivized to convince the candidate to negotiate your offer up or to take an offer from a larger company that can pay more cash. Most agencies are only held accountable for short-term performance and aren’t aligned with placing a long-term fit.
- Quality can vary, especially for engineering roles - Most top engineers don’t want to work with agencies, and the ones that do are sent out to as many companies as possible. Some agencies may fill your funnel with low-quality leads as there’s no incentive against submitting lots of candidates in the hopes one of them makes it through your process.
You may consider using an agency when hiring for roles where you aren’t an expert and don’t have a strong network. E.g., at Gem, we tried several agencies in the early days but didn’t see any success until we were larger with a Director of Marketing search. In these cases, I’d make sure to find an agency specializing in the specific role you’re looking to hire that has a deep network of qualified candidates. Even then, I’d encourage you to focus on your network first!
As a side note: agencies are very valuable for executive hiring, but that’s not as relevant when building out your founding team.
How to pick an agency
Start by asking your network for a few intros. You’ll want to pick an agency that references well from another founder you trust.
Schedule kick-off calls with each agency:
- [5-10 mins] Give them an overview of your company and the role you’re looking to fill
- Ask them what advice they have based on your company’s stage and the role you’re looking to fill. The best agencies will teach you something new.
- [15 mins] Ask them a few questions to dig into searches they’ve worked on in the past
- Tell me about a search that took longer than six months.
- What happened? Why was it slower than expected?
- How did you handle it?
- How did you eventually close the candidate?
- Tell me about the most recent full-stack candidate you’ve placed at a startup.
- Have you recruited for a startup at our stage?
- How was it different than working with later-stage companies?
- Were you successful, and what contributed to that success?
- Tell me about a search you never placed.
- What made it tough to fill?
- Write down the companies they worked with for these searches so that you can back-channel.
- [5-10 mins] Ask them to pitch your company back to you in a few minutes or less. They’ll be the first touchpoint with every candidate they send you, and will likely be involved, so you’ll want to be confident that they can represent your company well. You can also schedule a follow-up conversation if they aren’t ready to pitch on your first call.
- Do a few back-channel references. You should have a good list from number 2.
Outside of references and digging into questions, tiebreak based on who you enjoy talking to the most. If you enjoyed interacting with them, hopefully, your candidates will as well.
Top Startup Agency List
Looking for leads on which Agencies partner with startups? Here’s an Airtable database of Top Startup Agencies that I crowd-sourced across two LinkedIn posts (post 1, post 2, in case you want to see the endorsements yourself)
You can filter down the list to agencies that specialize in what you need:
- Stage — “Small Startups” vs “Growth Startups”, etc.
- Function/role — GTM, Sales, Design, G&A, People, etc.