Risks of a Recruiting Start-Up Company
Recruiting agencies can be very profitable and easy to establish. The recruiting industry is relatively unregulated and does not require any special licensing or permits in most states. However, you still need to check with your specific state. Recruiting agencies are fairly easy to operate and there is a host of qualified headhunters shopping the job market all the time. Since this is a service business, there is no inventory, retail space or vendor accounts to worry about.
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Competition
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The largest risk of starting a recruiting agency is the competition. There are hundreds of recruiting firms in most major metropolitan areas. This number will be reduced greatly when you narrow this list down to your specialty area. However, the completion is very stiff. New start-ups will have to compete with national firms like Administaff, Kforce, Robert Half and the Lucas Group.
Financing
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Recruiting firms consume a large amount of capital within the first six months of operation. Recruiting firms require office space, operational funds and money to pay base salaries until the recruiters start earning their bonuses. It takes a new recruiter a minimum of six months to secure job orders, locate a number of qualified candidates and finalize the first placement. This is a long process. However, once the first placement is made, the production pipeline should be full, with more placements in the final stages. However, many new recruiting firms do not survive the money drain of the first six months.
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Location
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Recruiting firms are more successful around large metropolitan areas. Large companies hire more people than small companies and can afford to pay a recruiter's fees. Starting a recruiting firm in a small town with limited clientele or in a town with a poor economy will doom the firm from the start. This adds several months onto the six months' start-up requirement.
Staff
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Recruiting firms depend on experienced staff to make their firm successful. Most people who enter the recruiting profession do not make it past the six-month mark. New recruiters generally come from industry positions within the specialty area in which they recruit. For example, many accountants leave the accounting profession to recruit for accounting recruitment firms. The turnover for new recruiters can be very high. It is difficult to cycle through so many different employees, train them and pay them their start-up base salary.
Specialty
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Many recruiting firms choose to become generalists and not specialists. In one of the most competitive industries, it is imperative to specialize in an area you know. For example, an accountant that starts a recruiting firm should specialize in accounting and finance professionals. Some of the best specialty areas are finance, engineering, legal, human resources, sales, health care, information technology and administrative support.
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