What is the business model of recruiters (e.g., CPI, Henkel)? What's stopping me from establishing my own shop?

The only "IP" headhunters have is their email listserv. What else do they do? 30-minute intro calls with candidates to make sure they're presentable? Connect candidates with our firm's EAs for final round scheduling?


"Congrats! The team was extremely impressed by your performance and would like to invite you for a final round interview. I have CC'ed their EAs who will book your accommodations."


I heard that headhunters charge 30% of year 1 salary (e.g., $75k per person placed). What's to stop me from setting up my own shop? Email blasting all IB and consulting 1st years (fck it, college seniors too), setting up intro calls, and then selling my network of "2,000 top analysts" to PE firms, charging 25% commission, instead of 30%? Yeah, sure, maybe TPG wouldn't bite, but a LMM PE firm? The fact that sh*t tier headhunters like Opus exists suggests to me some PE firms don't mind going for shittier recruiters. 


Is your firm happy with the headhunter you use? Because ours screws up stuff all time time—sending out incorrect information, accidentally sending out case studies... etc. 


Am I missing something?  

 

You mean four of us. I think there could be a real value add in terms of better screening of candidates before hand-off to the PE firm. A HH firm that hires ex-bankers/investors to do the screening. Automate all the email bullshit and listserv. Could easily be a 5-man shop running this. I think the barrier to entry is the relationship / track-record, otherwise it's all commoditized.

 

That was my thinking... I just wanted a sense check, because I feel like I must be missing something. And look, even if the model doesn't work here, there might be other, non-PE industries this could work for. 

As for the other point, I'd love to have you on the team. However, I'd like to keep it lean for now. Just me, and my 3 ultra hot sorority friends. Sorry. 

 

I'm assuming by "looked at" you're referring to an investment point of view. I 100% would not invest in one of these firms either. We actually switch headhunters every few years, because we're never happy with them. 

As for the relationship with buyside firms, I almost feel like it's a question of the chicken and the egg. Nobody, not even the shittiest PE firm, is going to go for a HH without a network of candidates. It seems to me like step #1 is reaching out to candidates (can be completely automated). The intro call, unfortunately cannot be automated. From there, getting my friends at other PE firms to influence the decision to switch to my HH firm, which charges a mere 20% instead of 30% or whatever it may be.

Seems like it could be a fun side gig. And hey, I only need to place like 3 candidates to make $150k... less: server costs and salaries.  

 
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Unless you're going really far down the food chain, competing on price probably isn't going to get you anywhere. The partners are constantly schmoozing the HR folks, who have almost sole discretion over which head hunters to use at many firms. And they don't care that much about price as long as it's market and they are getting good hires. 

I assume this business model has to work though - shitty firms like Pinpoint Partners manage to stay around so something has to be working with the "spam all potential candidates and try to fill any position from any firm" type of approach. 

 

That's a valid point, and it occurred to me too that price might not be a big deal to PE firms. The difference between paying $75k for CPI and $30k for my service is probably pennies to a PE firm. Honestly, that's pretty problematic towards my business model. 

Then again, if Pinpoint Partners (I have never heard of them) can stay afloat (and hire 50+ people), then I'm guessing my lean team of myself, 3 hot sorority girls, and 1 software engineer might be able to make it work too... 

Good food for thought. 

 

Think about how many shitty headhunters there are that you constantly ignore, the barrier to entry is getting actual good mandates from reputable firms and leveraging that to gain more which is hard when every good firm has an incumbent headhunter that they're comfortable with for years and the headhunters schmooze them with thousands of dollars like datasite people

Seems like CPI is just gaining more and more market share

 

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