Making the decision to leave the security of agency employment and start your own firm is a tough call…
But even once you’ve decided to take the plunge, it’s only the beginning.
Next you need to work out how to build your business, with many different paths on offer.
From experience working with recruiters at all experience levels, from high-achieving consultants to executive managers, we share some of the pros and cons of different launch vehicle options.
#1 – ‘New brand’ joint venture
What is it?
Starting a new brand as an off-shoot of an existing business, building out a new division as a separate entity.
- Back office & resources – under this model, the ‘parent’ company often makes its existing resources available to the start-up, such as back office, marketing, finance, HR etc.
- Office & team environment – starting up can be lonely! A joint venture often means working in an existing office, with a team around you to provide some atmosphere and social interaction.
- Investment – depending on the agreement, the parent company will usually provide the founder with a salary and potentially some additional budget to grow their start-up team.
- Minority shareholding – under many models, the parent company will own the majority of the equity in the business, leaving the ‘founder’ as a minority owner.
- Limited advisory – while having the experience of the parent company as a resource can be a valuable asset, it can also be a limiting factor, depending on who that company is owned by and how successful it has been. Reducing advisory to the experience of a single-business founder with modest commercial success can ultimately hinder the growth of the JV.
- Lack of autonomy – the trade-off for the boost of early resource-sharing often comes in the form of substantially reduced autonomy, limiting how the founder can pay themselves, which technology they can use, how they manage cash flow and reinvestment in the venture, and (crucially) how they ultimately exit the business.
#2 – Portfolio model
What is it?
Building an agency (usually with investment) as part of a portfolio owned by a parent company invested in multiple recruitment businesses.
- Back office & resources – similar to the JV model, most portfolio setups provide new launches with resources across back office, marketing, HR and finance.
- Start-up expertise – successful portfolios will offer founders access to a wealth of knowledge around business setup and growth, based on previous and concurrent ventures. Founders may also benefit from direct mentorship from experienced former recruitment business owners.
- Investment – the majority of portfolio setups will include a degree of cash investment, often helping the new agency to scale headcount faster than organic growth would permit.
- Limitation of founder earnings – some portfolio models will place strict controls on how much founders can pay themselves through the new ventures, placing focus on the ultimate pay-out of exiting to an acquiror if/when the business is sold.
- Service charges – models can also include high fixed recurring fees paid to the parent company for provision of shared resources, in addition to taking a large equity stake.
- Minority shareholding – as with JV models, the portfolio investor is likely to be the majority shareholder in the new venture, potentially controlling all key parameters around sale of the business to a future buyer – timing, price and deal structure.
#3 – DIY
What is it?
Build your business independently, assembling all of the pieces and managing (as well as paying for) all of the suppliers.
- Control & autonomy – under this model, you have no additional shareholders dictating or restricting how you operate your company, and can work with total freedom.
- Productivity loss – running every area of a start-up manually has a significant impact on a founder’s ability to grow their companies, forcing them to spend large amounts of time in areas in which they are not experts and which do not directly drive growth (whether IT support and troubleshooting, marketing, legal, financial, compliance or any of a long list of non-core – but vital – functions).
- Lack of advisory – founders without an experienced team in their corner can face a slow and bumpy road of trial and error, making costly mistakes as they attempt to scale their companies.
- Financial risk – without an investor or platform, the full financial burden rests on the new business, which can fail if there are cash flow issues.
- Hidden hurdles – many areas of company management are new to first-time founders, with a complex set of unforeseen challenges spanning technology, data, legal, compliance, financial and personnel management derailing plans.
#4 – RecruitHub platform
What is it?
An integrated start-up accelerator platform, including technology, marketing, finance & back office, investment and advisory.
- Full control – founders on the RecruitHub platform have no additional directors or board members influencing how they run their companies.
- Access to investment – RecruitHub can provide new ventures with seed capital, founder salaries and access to larger growth investment for scale.
- Maximised founder impact – founders can focus all of their time and energy on growing their business and driving their income, supported by an integrated platform with a single point of contact for all business support.
- Zero start-up or fixed costs – RecruitHub’s model means founders only pay as their business makes money, eliminating any start-up or fixed recurring costs, and significantly de-risking the financial risk of launch.
- Advisory – new business owners are mentored by experienced professionals across finance, strategy, technology and marketing, with access to a network of other recruitment founders across a range of sectors and geographies.
- Best for tech-lovers – RecruitHub is built on the latest sales and sourcing automation technology – the best-performing start-ups on our platform are run by founders who are excited by time-saving tools and build strategic workflows to maximise their traction and growth.