Irrational Exuberance!

Your hiring funnel.

August 1, 2018. Filed under managementhiring

Most companies believe they are constrained by funding, product market fit or hiring. Books have been written about each of those, and this will be a foray into hiring. In particular, it'll be a look at how to use the fundamental hiring diagnostic tool: the hiring funnel.

Funnel fundamentals

The hiring funnel consists of four major steps: identifying candidates, motivating them to apply, evaluating them for your company, and closing them on joining. Depending on your particular circumstances, any or all of these can be very challenging.

  • Identify. Candidates tend to come from three large large buckets: inbound, sourced and referrals. Slower growing and early companies tend to rely heavily on referrals, whereas fast growing companies tend to exhaust their supply of referrals and to rely more heavily on sourcing and inbound.
    • Inbound are candidates who apply to you directly. These comes from your jobs website, often administered using an applicant tracking system (ATS) like Greenhouse or Lever, or from job postings on LinkedIn and other job sites. Inbound tends to be high volume and low quality. The exception is for companies with powerful external brands, typically the culmination of strong product, reputation and outreach.
    • Sourced are folks who you proactively find and engage. The most common approaches are LinkedIn, visiting colleges, and networking at conferences and meetups.
    • Referrals are folks who someone at your company already knows, typically a previous coworker or friends who attended college together. This tends to be the primary source of hires for smaller companies. At most companies, referrals are the most efficient source of candidates, sporting the highest rate of interviews leading to job offers.
  • Motivate. Once you've identified candidates you want to consider joining with your company, you need to motivate them to come interview! Some companies prefer to view this phase as a filter to weed out folks who are insufficiently passionate about their work, but I've not found that approach very effective. Rather, that approach seems to mostly filter for folks willing to represent enthusiasm, as opposed to finding authentic passion. Rather, the formula that I've found most effective is pretty simple.
    • Spend time. Have folks the candidate would work with spend time with them. Grab coffee with them, talk about the projects they're working on, and get them excited about learning from each other.
    • Clearly define role. Tell the candidate about what they'd be doing, being both very honest and a bit optimistic. That is to say, always give an accurate description of the work, but try to find the best frame for describing the work.
  • Evaluate. Blessed with folks who want to consider working with you, the next phase is to ensure they'll be successful additions to your team. This phase is tricky because you're balancing quite a few objectives, some of which are in conflict.
    • Certainty. You want to be as confident as possible that the candidate will be a success in your company. Letting folks go can be hard on morale, and takes a great deal of time to do well.
    • Candidate experience. You want candidates' motivation to join your company to increase as they're evaluated, not decrease. One of the worst possible outcomes of your hiring funnel is that you identify folks you want to join your company, but they're no longer interested in being part of it.
    • Efficiency. You also want to minimize the amount of time invested by both your team and the candidate. How you think about this can lead to significant asymmetries, such as take home assignments that require significant candidate time but little in-house time for evaluation (well, in principle anyway, it seems like most folks find take homes assignments are quite slow to grade thoroughly).
  • Close. This is similar to the motivate phase, but now instead of asking them to commit a day, you're asking them to commit a couple years of their life. Many, many factors come to play, from compensation packages, to benefits, to making folks feel needed. Because this is the final step, doing well here is an especially important factor in your funnel efficiency.

When you want to start operationalizing your hiring process, the first step is to craft a process for how candidates will flow through this funnel.

Instrument & optimize

Once you have your funnel defined, the second step is to instrumenting it! This is the most important argument for adopting a formal applicant tracking system, which will provide metadata around your process.

Instrumentation is so important because it allows you to understand where to focus your efforts. Different companies excel at different aspects, and even the same company will become better and worse at different stages over time. The only way to operate a consistently good hiring funnel is to ground your attention and efforts in your funnel metrics.

Once you do have the metrics, put your effort where there is the most room to improve. The first step of this is quite literal, looking at the conversion rates across each phase and investing, but what's slightly less obvious is what the reasonable upper bounds for each section should be. To answer those questions, benchmarking against your peer companies is really the only way to get useful information. If you don't benchmark, you can find yourself investing beyond diminishing returns in motivating candidates to interview, close, etc.

Whenever you have a hiring challenge, start from your instrumented hiring funnel and work the problem systematically from there!

Extending the funnel

The funnel we describe above is the most common variant, but I've found that a couple small tweaks make it much more powerful.

An extended hiring funnel, including onboarding, impact and rentention.

Instead of ending your funnel at closing candidates, add four more phases:

  • Onboard. How long does it take folks to get up to speed? It's pretty tricky to measure this, but since you're trying to reason about the population rather than individuals, it's ok to be a bit messy. Pick a productivity metric, maybe commits per week, and see how long it takes for new hires to reach p40 productivity, and that's a sufficiently good measure for understanding how long it takes folks to ramp up.
  • Impact. How impactful are the folks that you're hiring? Again a tricky one to measure, but you're looking to understand trends, not individuals, so don't worry about identifying a perfect metrics. A reasonably good proxy here is looking at the performance rating distribution for folks based on time since hiring.
  • Promote. How long does it take folks to get promoted after their hired? This is a useful for understanding whether folks have access to opportunity within your organization.
  • Retain. Are the folk you hiring staying? Fortunately, this one is pretty easy to track, by looking at the folks who leave. It is however quite a lagging indicator, typically taking years for folks to leave, but I believe it's still an essential metric to track.

Not many companies extend their hiring funnel this way, but I think it's quite useful, reframing hiring from a transactional process into your organization's lifeblood. It's also true that many companies are very uncomfortable sharing this kind of information widely. That's fine, these are indeed quite sensitive numbers, just make sure someone is paying attention to them.