Is it easier to set up in recruitment today?

Jo Faragher

Despite predictions from some quarters that the recruitment industry would slip into a coma thanks to the advent of job boards, LinkedIn and social media, it is in fact vibrant and growing, surpassing pre-recession levels of business.

According to the Recruitment and Employment Confederation, the industry turned over some £31.5bn in 2014/15, a 9.7% increase on 2013/14. Furthermore, the number of people working in recruitment has gone up by 7.1%, to just over 100,000, and new agencies are setting up all the time.

But if you’re a consultant looking to branch out on your own, what’s the climate like out there? In the past, recruitment has been notorious for its low barriers to entry for entrepreneurs, who claim that all they need is a telephone and a good contacts book – is this still the case?

“The barriers to entry for recruitment are still low,” says Simon Conington, founder of BPS World, which offers recruitment process outsourcing services. “But now you have to set more of a community to attract candidates, and you need to become more of an expert in your market. So if you imagine recruitment as a river – 15 or 20 years ago the water was murky and you had to identify where the ‘fish’ were. These days, the river is clear but it’s about how you attract the fish.”

Lee Biggins, founder of CV database CV-Library, agrees. “A major challenge faced by all recruiters is the shift to candidate power. We now find ourselves operating in a climate where candidates hold more control, giving them an advantage that just wasn’t previously there. It is vital, therefore, that recruiters provide value to their clients by thoroughly understanding the market and utilising the right tools to give them access to the most talented candidates. This will enable them to act quickly in an environment which is constantly changing.”

Conington adds that few recruiters who set up in business now will succeed as generalists. Clients now look to agencies to source specialist skills and will often hunt out boutique agencies that do a couple of niche markets well. His business operates within a number of defined areas – namely business and professional services, technology and engineering – but can take over employers’ entire recruitment agendas within those sectors. He calls this business model “inch-wide, mile-deep”.

When Angela Middleton, founder of youth employment agency MiddletonMurray, set up her business in 2003, she says she “went in with no preconceptions”. Businesses doing the same now need to be more strategic about what they’re trying to achieve, she believes. “I think now, businesses can’t fly by the seat of their pants. They need to think about key performance indicators, how they’re going to measure the performance of their business. And now we all have access to the same tools such as LinkedIn and job boards, you have to do something to stand out.”

Technology has undoubtedly made a positive impact on new recruitment businesses’ ability to grow. “There are now more platforms to search and source candidates from and fill vacancies, such as cloud-based CRM systems, job boards, job posting systems and sites such as LinkedIn,” says Andy Hinxman, director of technology services provider Keybridge IT Solutions. “The use of cloud applications and services allow you to have all your important documents available on the go. You are no longer chained to your desk.” New businesses can ‘rent’ software or server space on a pay-as-you go basis, furthermore, meaning they don’t have to invest heavily in technology infrastructure when they’re just trying to get off the ground.

At the same time, though, technology has thrown up a few challenges. “Technology alone is not a fast track to recruitment success,” explains Toby Conibear, European development director for Bond Adapt. “Social media has taken precedence over the past few years, and many recruiters are now relying on it for effective communication with potential candidates. What is critical is that these new tools are used appropriately, where required and that the entire recruitment process is not moulded around them.” He adds that the further along the hiring process a candidate gets, the greater the need for a more personal, face-to-face interaction.

Access to technology also means that many employers have decided to source and recruit more candidates in-house, and the recession saw swathes of organizations beginning to recruit directly as much as possible, often dealing with agencies only for hard-to-source skills or some senior roles. Richard Colgan, CEO of HR recruitment company Oakleaf Partnership, says that “our biggest competition these days is direct sourcing; LinkedIn has changed the paradigm”. To counteract this, his business has broadened out what it offers so clients get real value from their recruitment service.

“Post-recession, you can’t just be a CV factory anymore, you have to add a much broader service and innovate with your pricing,” he adds. “This means doing a lot more ‘pro bono’. So for example we offer mentoring, the Oakleaf Academy for high potential candidates, coaching and the like. Those people will be hiring at some point too, so this all creates good will.”

Some of the most drastic changes to occur over the past decade or so have occurred within the regulatory environment. Agencies must now contend with far stricter rules around the status of temporary workers thanks to the Agency Workers Regulations, and proposed changes to IR35 legislation could see agencies or their clients having to take on greater liability for workers’ tax and national insurance contributions. All of this compliance requires an investment of time, and increasingly a financial one too. Adds Colgan: “I think the biggest challenges we have is the level of regulation we have now, particularly if you’re in the temp business.”

In terms of start-up finance, the landscape has changed “immeasurably”, according to David Thornhill, managing director of outsourced back office and financial solutions firm Simplicity. “Today, tighter controls and the reluctance among banks to provide much-needed financial support to both existing and high-growth potential start-up businesses has forced business owners to seek out alternative funding options.” Often, he adds, the only options on offer from banks are either short-term loans or overdrafts, neither of which support genuine long-term ambitions. Companies such as Simplicity can, however, help new businesses with payroll support, cashflow management and back-office services while they generate revenue.

Today, as with decades ago, getting this sort of support is crucial. “Cash flow is vital to every start-up business, especially during the first few weeks of trading when your new company often faces different, competing pressures,” says Amy Stephenson, who founded her agency Human Recruitment in 2013. “Before launching my business I spent a lot of time working out the financial implications of what could or might happen to the company.”

Ultimately though, recruitment is still one of the best sectors for its entrepreneurial spirit and appetite for new business. “During the recession, many recruiters were pretty much hanging on to their jobs with dear life,” adds Thornhill. “But as the green shoots of recovery began to bloom, so too did the ambitions of many consultants.”

To succeed, the key is differentiation. With so much pressure on employers to deliver value for money on recruitment, they will seek out suppliers that can offer something that others can’t. For some, this will be the hardest challenge, Conibear concludes: “There is far more competition in the world of recruitment than there was 10 years ago and being able to set your business apart is critical.”