Wednesday, 6 January 2016

On Sourcing And Loss Ratios

I originally published this on Medium almost 2 years ago, but thought I should publish it here too (with some editing). Some reflections on sourcing (recruiting wise) and startup investment.
I read a post from legendary VC Fred Wilson called "Loss Ratios in Early Stage VC” a while ago, which I came across after reading another one from Mark Suster: Why VCs Should Stop Trying To Be Perfect. I found them both relevant to my then professional activity, Technical Recruiting.
Coming back to Fred Wilson’s, the author highlights the necessity of having a relatively high ratio of investments that do not produce any ROI. So I immediately thought about the correlation between Sourcing candidates (as in reaching out to passive candidates as opposed to those who apply directly to a live vacancy) and VC Investing.
It is well know among Sourcers and Recruiters that you want to focus on Quality over Quantity. However, having a low ratio of candidates who get rejected early in the process is not necessarily a good sign. Loss ratios in sourcing, like in VC investing, can really be a good indicator of a Sourcer or Recruiter’s performance. We all know that all the candidates we contact will not be hired. Additionally, interviewers will be able to determine if the candidate is a match for the role she/he is interviewing for. So you have to take risks by choosing to put a candidate through the hiring process.
Having candidates failing at any stage can be demoralising (and even more at later stages), especially if you hold your hopes too high. In all honesty, I must admit that I was sometimes trying to have the least amount of candidates in my pipeline to avoid that frustration… And I realise it now more than two years ago.
If Sourcing is a core focus in your role, do you agree that you need to have a significant loss ratio?
I'm no longer a Recruiter, but still keep a keen interest in that field. By no means I claim to have a broad knowledge of investing, so comments and suggestions are more than welcome.