Growth is a priority for most recruitment businesses. But does growth have to mean finding an entirely new market?
In a recent Recruitment Smarts Live session, Louise was joined by Vincent Seddon, Customer Success Director at Simplicity, to explore how recruitment agencies can diversify without abandoning the specialist expertise that made them successful in the first place.
The message was clear: before looking for the next niche, look harder at the opportunities within the business you already have.
Start with what you’re already good at
Recruitment businesses can easily equate diversification with doing something completely different: entering a new sector, launching a new desk or pursuing an entirely different type of client.
Vincent suggested starting much closer to home.
“I would encourage business owners, especially recruitment agency owners, to start from the inside out. What is it that’s made you brilliant already?”
A specialist recruitment business may have spent years developing three particularly valuable assets: knowledge, relationships and trust.
Moving into a completely unfamiliar market can mean rebuilding all three from scratch. Instead, agencies should consider how they can use those existing strengths to solve more problems for the clients and candidates they already understand.
That could mean expanding geographically, recruiting for adjacent roles or introducing a different service such as temporary or contract recruitment.
As Vincent put it:
“Do more of what you’re good at, but do it slightly differently.”
Don’t diversify simply because you can
An opportunity existing doesn’t necessarily mean it’s an opportunity worth pursuing.
Before launching something new, agencies should ask whether they have the expertise and resources to deliver it successfully.
Does it fit with the reputation you’ve already built? Do you have the right skills within the business? Can your infrastructure support it? And, importantly, is there genuine commercial demand?
Diversification should build upon the strengths of the existing business rather than distract from them.
That also means making sure you’ve properly explored your existing niche first. Could there still be clients, candidates, roles or services within that market that you’re overlooking?
Moving between perm, temp and contract
One route to diversification is expanding the type of recruitment you offer.
For a permanent recruitment agency, adding temp or contract can introduce recurring revenue rather than effectively beginning each month needing to generate a new set of placements.
For a temp or contract agency, permanent recruitment can provide additional fee income alongside its existing recurring revenue.
There can also be implications for the longer-term value of a recruitment business.
But changing models isn’t simply a sales decision. The operational requirements can be very different.
Vincent warned:
“The biggest mistake that we see specifically within the business that we operate from a finance perspective is when businesses treat contract recruitment as simply perm recruitment with weekly invoices. It isn’t.”
Contract recruitment can introduce payroll requirements, debtor exposure, credit risk, compliance, regulation and potentially substantial funding requirements.
Before pursuing the additional revenue, agencies therefore need to establish whether their infrastructure can scale at the same speed as their sales.
International expansion: follow the opportunity
Taking an established niche overseas can be another logical way to grow without abandoning what you’re known for.
Technology has made it far easier for recruiters to build international relationships, but many of the practical considerations remain decidedly local. Legislation, taxation, payment practices, currencies and employment structures all vary between markets.
The starting point shouldn’t simply be identifying a large overseas market and deciding to open an office there.
A stronger case might be that you already have clients operating in that market, an established candidate community or repeated requests for international placements.
In other words, let existing demand help identify where expansion makes sense.
Vincent also recommended looking at the partners and relationships you already have. Existing clients may be able to help you enter another geography, while specialist partners can help remove some of the financial and operational barriers involved.
Remember: growth consumes cash
Winning a major new client or contract feels like an obvious success. But rapid growth can create an equally significant cash-flow challenge.
This is particularly important when moving into temporary or contract recruitment, where workers may need paying well before the client settles its invoice.
Vincent summed up the issue neatly:
“Growth consumes cash before it creates cash.”
A recruitment agency could win the biggest contract in its history and, at exactly the same time, create the biggest working-capital requirement in its history.
That’s why funding capacity needs to form part of the growth conversation from the outset.
Agencies should model what their cash flow would look like after the proposed growth, rather than concentrating solely on the revenue the opportunity could generate.
Five questions to ask before diversifying
For recruitment owners considering their next stage of growth, Vincent suggested starting by looking internally rather than immediately searching for the next external opportunity.
Ask yourself:
- Where can we scale what we’re already doing?
- What are clients repeatedly asking us for that we’re currently saying no to?
- Where do we already have an unfair advantage?
- Have we fully explored the opportunities within our existing niche?
- Do we have the operational and financial capacity to support the growth we’re considering?
The objective isn’t diversification for its own sake. It’s finding sustainable ways to grow the expertise, relationships and reputation you’ve already worked hard to establish.
As Vincent explained, your niche is part of your identity. You don’t necessarily need to leave it behind to build a bigger business.
Sometimes the best growth opportunity is simply finding more ways to capitalise on what you’re already famous for.
Find out more
Simplicity provides recruitment finance and back-office support to recruitment agencies, helping businesses manage funding, credit risk and operational requirements as they grow.
If you’re considering expanding your existing niche, moving into temp or contract recruitment or exploring opportunities overseas, visit the Simplicity website to speak to the team.
