Recruiting outside talent is like hunting for your car keys while you’re holding them in your hand. You feel silly when you realize you’ve had them all along. And if you're a business leader, you might feel the same way if you tallied up how much time, money, and potential you’ve lost in the search for external recruits.
The average mid-market business fills more than twice as many positions externally as internally, according to SHRM’s Human Capital Benchmarking Database. These companies miss out on the not-so-obvious benefits of recruiting internally.
But in order to hire less from without and make more successful promotions from within, you have to rethink how you develop talent. Here are two things I've tried at my company that have made a big difference.
Normally, if you want to hire a sales director with 10 years of experience, you compete with other companies for the same candidates. But even a seemingly perfect hire is likely to perform worse than an internal hire who didn’t match your criteria. A study by Wharton School Professor Matthew Bidwell found that external hires at an investment bank were paid 18% more than employees promoted to equivalent roles. Worse still, they had a 61% higher rate of "involuntary exit" (getting fired) and a 21% higher rate of "voluntary exit."
Despite having more experience and education, the external hires fared significantly worse in performance reviews during their first two years. Bidwell argues that "hires and workers who are simultaneously promoted and transferred must learn new specific skills before they can perform as well as the other internal movers, who already have those skills." In other words, training takes a longer than we think. Meanwhile, external hires can’t pull their own weight as effectively or as soon. And the costs add up.
Sure, your business may bring employees through the door, but it doesn’t necessarily retain them. And you can’t promote internally if you're hemorrhaging talent. One of the best ways to keep employees is simply to help them pursue their own career goals.
The Bureau of Labor Statistics found that average employee tenure in 2014 was 4.6 years, but some industries and locations fare better or worse relative to one another. For instance, The Seattle Times reports that the average tenure of a developer in Silicon Valley is nine months, whereas in Seattle, it's closer to two years. Lavish perks don’t prevent churn. If wine tastings, free house cleanings, and $10,000 office décor budgets were the secret to retention, then tech companies wouldn’t struggle when it comes to employee tenure.
To retain people, invest in their career vision. In a program my company, NakedWines.com, runs, employees receive personal budgets for career development, and I work with each of them to build a custom career development plan.
For example, one of our top sales advisors, who we’ll call Mike, wants to learn coding. It has nothing to do with his job role. Still, I encouraged him to shadow our development team to see whether front-end or back-end coding would be a better fit. Soon, he’ll sign up for lessons with Code Academy or Treehouse, compliments of NakedWines.com. As long as Mike hits his performance goals, we’ll keep funding his dream.
You might find this nutty. Plenty of companies pay for job-relevant professional development, but why we would pay an employee to train outside his role? Well, when Mike becomes a coder, he’ll either work in development at NakedWines.com, or he’ll leave for another company and spread positive word-of-mouth for us. Maybe he'll even refer a talented replacement.
We win either way—there's just a wider range of wins. In the meantime, Mike achieves his personal goals and kicks butt for our company, which encourages him to stay put. Stifling these sorts of goals is the surest way to disengage and lose people like Mike. And remember: You can’t promote internally if you can't first figure out how to keep people.
At NakedWines.com, I also facilitate a program called "Shark Tank." Similar to the TV show, our employees can pitch new ideas to management. The executive team narrows the field to the top ideas and ends up funding one winner. The winners get a budget and the resources they need to execute the idea. Thus, our in-house "Shark Tank" creates new opportunities with the potential to transform the company.
Of course, the program by no means guarantees winners a promotion, but it helps you pinpoint those with high potential and gives them a chance to show what they've got. It cultivates future leaders and creative problem-solvers so you don't have to go out and search blindly for those people outside your walls, usually by using arbitrary criteria and clumsy recruitment tools. Instead, we've tried to provide entrepreneurial outlet within the company for people who might otherwise leave it in order to find that.
Not only can these efforts spare you from making expensive, disappointing external hires, it can also help you develop and retain your internal talent—whether or not you choose to promote them. That gives your employees greater agency and autonomy to shape their own careers, and it motivates precisely the high-performing people who are otherwise the first to leave in order to find fulfillment.
You can either develop the leaders you need long before you need them, or you can keep losing the keys in your own hand.