You can do better than “get back to normal”.
If you’re a recruitment business owner who has started seeing some signs of recovery in your sector – and I sincerely hope you have – you’ll be thinking about bringing people back to work and getting productivity back to normal.
I’d like to suggest that you don’t.
Before activity and immediate decisions take over again, take a few minutes to ask yourself:
What did I discover about my people during lockdown?
What did I realise about our client relationships?
What did I learn about your systems and processes?
How do I rate myself as a leader now?
Lockdown should have taught you some valuable lessons that shouldn’t be swept aside. Because in extraordinary times we see things that are disguised by ordinary business.
Were there some staff who went flaky on you? And some who came through?
Did your client relationships turn out to be more fragile than you thought?
How could your processes be improved?
Now is a great opportunity to start redesigning your business, so that you don’t just go back to normal. For most micro-businesses I work with, the owner needs an external perspective to help them discover what’s possible and make realistic plans.
But what does a recruitment NED do?
I have a lot of conversations with recruitment business owners who want to know
“How does it work?”
“Could I benefit from a NED?”
“Does having a NED make my business more attractive?”
Often those business owners have baggage – ideas about the role of a NED based on client stories, listed company requirements. And in some cases, bad experiences.
I’m therefore going to start with what a recruitment NED in won’t do.
1. A NED will not do your job as a business owner or a director, for you.
They won’t manage your staff or implement new processes all the way through.
Nor should they. To do so would seriously undermine your position and you would miss valuable opportunities for development and staff engagement. You may also have noticed that changes imposed by an occasional visitor rarely take root.
If one of your challenges is that you don’t like managing staff, appointing a NED will not remove that. They can and should coach you to be a better manager, but not do it for you. Remember, as a business owner, NOTHING CHANGES UNTIL YOU CHANGE.
2. A NED will not be available 24/7
Of course, they should be ready to discuss things responsively, but they will usually have a small collection of clients they are working with on an ongoing basis. On the days they are working with you, you wouldn’t expect them to be doing work or conducting teleconferences with some other business, and that cuts both ways.
I would be very sceptical about anyone claiming to be a NED to more than, say 12 businesses, at once. It is simply not possible to spend meaningful time preparing, delivering and following up with 35 businesses regularly, and return calls!
3. Does a NED have to get equity?
No – and while they can be an investor, the value of their advice should be regarded as a separate issue. Many people have made substantial amounts of money in recruitment – via a trade sale or other “event” – who are now seeking further returns via investment in other businesses.
This may be a suitable arrangement for all parties, but a NED does not automatically get equity. Also, having made a lot of money does not automatically qualify them to advise your business. For example, their first-hand experience may be in a completely different sector. Beware, too, advisors who have only worked in one or two businesses. They will be unaware of the different sectors and stages of business development, and often don’t realise that what worked in one organisation is unsuitable for another.
Here’s an example: an ambitious business owner in the healthcare recruitment sector decided to engage with the former CEO of an IT recruitment business. This person had made a very successful business exit in the early 2000s and was confident that he could pass on his experiences to someone else. However, his advice was completely based on a) the analogue age, as he hadn’t been a hands-on recruiter for years, and; b) the high-margin, private sector markets he was used to. He had no idea of how to build a business where framework agreements and Master Vendor contracts are common and gave dangerously misleading advice.
The recruitment business owner assumed at first that it was his own inexperience that made him surprised by this person’s pronouncements and advice. His business declined due to unrealistic mark-ups that his “mentor” insisted he could get if he was just courageous enough. By the time they parted company, considerable damage had been done to the brand and the respect his team had for him.
4. Be cautious about NEDs who produces masses of broadcast content, or are selling a subscription-based/membership model. It is important to understand what their core business really is. If it is selling tickets to events, or books, or promoting membership of a group, then working closely and in detail with an individual business is likely to take second place. If NED advice is a “benefit of membership” then there is a risk that’s it’s a cookie-cutter approach used to sell you further services.
This relationship may be the single most important one to your professional success, so make sure it is a priority for the NED too.
So, what should you expect from a NED?
Regular and structured meetings, typically including a formal management meeting, should review performance in detail, plan and have actionable outcomes. This includes for the NED.
If you don’t already do this, a NED should be able to advise on what data needs to be reviewed/reported routinely. The meetings should be fixed well in advance so that minuted actions are carried out. Some of my clients tell me the knowledge that I am coming back next week is a real motivation to make sure they have completed important tasks which otherwise take second place to the urgent ones.
One of the biggest challenges that SME owners and directors in recruitment face is “getting their periscope up”. Few can get a reliable market view, and often they lack a sense of how their performance compares. Let’s be honest, we have probably all responded to data we don’t like by dismissing it as flawed research or even dishonest.
For example, one business owner had been keen to retain staff and recruit experienced hires. Rec2rec agencies had convinced her of the need to pay guarantees and much more generous packages- and this certainly made the Rec2rec’s life easier. As a result, the business ended up paying more than 65% of its net fee income directly out to consultants. As a NED I was able to sense check this immediately and saved some potentially damaging decisions.
In my view, a NED should always bring something to the table when you meet. It’s easy to sit in a board room and critique results, but far harder to come up with a reasoned solution or improvement, and help you implement it.
In addition, your NED should be coming up with matters you haven’t even considered. That doesn’t mean they will always be right for you, or a priority, but they should be your eyes and ears in the wider world. What specific expertise can they offer, for example in terms of obtaining funding, building overseas offerings or new service lines?
I took over as NED at a business where they had been engaged with a NED who had been doing advisory work- exclusively- since 1999, when he’d sold his business. This guy had done well for himself. I can remember margins that year around 50% on temporary workers, so lots of people did. The problem was, he hadn’t run a recruitment business in the digital age. He was probably quite divorced from reality back in 1999. So his advice, pretty much, was based around bashing telephones and KPIs that worked then. It’s easy to be dazzled by £millions.
If a NED has a vested interest in recommending a particular supplier, then it is reasonable to expect them to declare it in advance. Similarly, the conflict of interest issue between your business and others they may be working with should be addressed.
However, don’t assume that any company in the same recruitment sector is going to constitute a conflict of interest. For example, if that business has a £3million EBIT and yours is a start-up, you will be focusing on completely different issues in your NED interactions.
5. A Holistic view
Look closely at the actual experience of your potential NED. Don’t assume that a high profile guarantees that someone has run a substantial business. A good NED will have a view of sales, marketing, compliance, finance, HR, systems- and understand how they all knit together.
For this reason, someone who has been the MD – not Sales Director- of an independent business is likely to be better placed than someone who has worked only as a divisional MD of a listed company, where many processes are centralised.
Don’t be surprised if your NED is making recommendations – e.g. in terms of processes, infrastructure, marketing, hiring – that might seem way out of proportion to your business right now. Prudent investment is key, and lots of businesses get stuck at about 10 heads because they keep cutting corners, doing workarounds, and delaying spends until the magic day arrives. The magic day is when they are 100% comfortable with their finances and have loads in the bank.
The reality is, the magic day never comes. Entrepreneurs always want more. And if you keep taking all the profit out of the business, it won’t be able to grow.
So there you have it.
Some things to look out for and considerations if you choose to engage a NED.
And then there is this important factor – do you enjoy working with them?
Alison Humphries is a highly experienced MD and NED, with 35 years at the top of the recruitment sector. She advises directors and owners of recruitment businesses on how to maximise profitability, grow robust businesses and put in place the infrastructure for a profitable business sale. To talk to Alison about how you might work with her now or in future, email email@example.com or contact her via LinkedIn where you can read some of her clients’ recommendations.