360 or Factory: Which is the best model for you?

In this article, I’ll compare the 360 and Factory models of recruitment, looking at the pros and cons of both to help you decide which model is best for you.

But why does this matter?

The data clearly shows that scaling a recruitment company is hard and full of risk. About three-quarters of recruitment companies have fewer than 10 employees and over half of them remain as solopreneurs or partnerships.

In businesses of that size, the owner usually works hard in the day-to-day activities of their company with no clarity on how they can change this situation.

Added to that, nobody wants to buy these companies. So how do owners achieve the early financial security they set out to achieve?

The stakes are very high indeed.

Choose the right model and create a profitable company that allows you (and your family) to have the freedom and lifestyle you want and become financially secure whilst still young enough to enjoy it.

Get it wrong and the opposite will happen.

So, let’s start with the 360 approach.

The 360 Model

A 360 recruiter is expected to do everything: win new clients, nurture established clients and find and place candidates. Here’s a summary of the most common activities that a 360 recruiter needs to master to succeed.

Few people become experts in all these activities because they demand different skills and personality traits. For example, client care requires a long-term nurturing personality, whereas placing candidates requires speed and a short-term focus with more emphasis placed upon closing a deal.

Another factor is many 360 recruiters have gaps in their skills, usually in their ability to win high-value clients or even vacancy scrape to find work (these are two very different activities).

In truth, anyone good at all the 360 activities tends to start their own recruitment business. If you’re a business owner, I bet you’re a good 360.

According to Companies House, there were 6000 new recruitment companies registered in the UK in 2021.

This has recently been exacerbated by the new work-from-home culture we’ve all embraced. Imagine being a capable 360 recruiter, working mainly on your own. Then it dawns on you, your employer is taking around 60% of the revenue you generate.

Little wonder so many people are going out on their own these days, taking a chunk of their employer’s revenue streams.

Pros and Cons of the 360 Model

The 360 model has been around for years and works well in larger agencies with strong brands (so winning new clients is easier) and large budgets (finding candidates is easier).

But for the smaller recruitment agencies who this article is aimed at and who don’t have a widely known brand or deep pockets to attract top candidates, it’s a different story.

On the upside, the 360 model can be very efficient because there are fewer communication lines. The same person who wins the client picks up the vacancies and finds the candidates.

360 recruiters are generally easier to manage and require less support because they do it all themselves. Providing they hit their targets, and if you decide to do so, they can be left to their own devices. You only need to intervene if their results start to slip.

When it comes to the cons of a 360 model, it’s a different story.

We know 360’s are hard to hire and even harder to train because of the wide range of skills required. The good ones are also hard to keep happy and retain. If they go a chunk of your revenue will go with them because they have strong relationships with some of their clients.

As you look at the effective 360 recruiters in your team you could be looking at a future competitor just like you are to your old boss.

If you put people in a role that they aren’t fully capable of doing, you are making your company intrinsically inefficient – it simply won’t function as well as it could. In the worst case, it could cause your business to experience severe difficulties.

Finally, 360 recruiters make their money from placements, so that’s where their attention is focused. No bad thing you may say, and it’s true that somebody in the firm should concentrate on putting a bum on a seat because that’s how you prosper and grow. But not everybody.

A very common consequence of this focus is yo-yo growth.

1.??????Get a vacancy

2.??????Stop any BD so you can work hard to place a candidate

3.??????Close the deal

4.??????Back to looking around for another vacancy.

In today’s vacancy-rich market, that’s OK, but when the market cools, it takes time to bring on more roles; hence your revenues fluctuate – good months then not so good months.

The Factory Model

When Henry Ford built cars using skilled 360 engineers, he realised he couldn’t get enough of them to make all the cars he needed to meet demand. So, he adopted a production line model that he'd seen in a meat processing factory in Chicago.

It massively increased productivity. He was producing cars for a fraction of the cost and in a fraction of the time. By 1927 half the cars on the planet were made in Ford factories. The rest of the car industry soon followed suit.

So how does this work in recruitment?

How a Factory Model Works

All the 360 activities need to be done, but we split specific duties out into different people’s roles. They also use a range of tools which speed up and deskill these activities.

People become experts in fewer skills, but they’re the skills they need to carry out their duties. The tools make their job easier and because you’re looking for a narrower range of skills, it’s easier to hire.

Plus, if somebody leaves, they only take a function with them, not a whole revenue stream.

This means people are much less likely to set up on their own because they can only do some of the 360 activities they need to be a success.

Let’s redraw those 360 activities now.

1. Lead Generation

Winning new clients starts with using a simple tool called an Ideal Client Profile (ICP). Using LinkedIn, the boards, or the CVs of candidates, it’s very easy to identify suitable prospects to target. My PA does this for me.

Another tool, an AIDA Connection Campaign, makes starting a relationship with prospects easier. Within small companies, this is carried out by the owner with support from the Marketing officer. This reduces the risk factor because the owner won’t leave taking the ability to win new clients with them.

In larger companies, this will be the duty of the Pod Leader; we’ll come to that a little later in the article.

2. Prospect Conversion

This is where the relationship with the prospect is built until it’s strong enough for them to give you a vacancy or add your company to their PSL. This conversion of a prospect into a client ends with a sales pitch.

One powerful conversion tool is to productised your company’s services. This makes them easier to sell and more secure because whilst service providers can leave and take their client relationships with them, the product stays with the company. If that’s what clients buy, they are less likely to leave.

Other tools make the conversion process easier such as a proven formula to follow, compelling content, events, and a 3-Tier contact regime to keep in touch with the prospects.

The same person who started the dialogue with the prospect will also be responsible for cultivating the relationship and pitching for the business. Again, this is more secure than having one of your recruiters do it.

3. Extreme Client Care

Client care is perhaps the most important stage because it creates long-term and profitable client relationships.

Client care is defined as:

What you do with clients when there aren’t any vacancies to work on

Target driven 360s often neglect it because they are constantly seeking out vacancies to work on.

If your people treat their clients 95% like their friends (more about what you can give, not what you can take) and you're obsessed with high service levels you’ll gradually position yourself as the number one supplier in a large section of your client estate.

Client care for high-value clients is carried out by the owner/pod leader and is the responsibility of the recruiters (monitored closely by the pod leader) for lower value clients.

It can also include vacancy scraping when work runs low.

Again, the tool we use here is a version of the 3-tier contact regime used in the Conversion stage.

4. Placement

These activities are where the money comes from. It’s the act of filling vacancies by submitting CVs, liaising with hiring managers, giving feedback, and closing deals.

Your recruiters would undertake these activities.

5. Resourcing

Resourcing is made up of two separate levels: -

Level 1 – Finding: Using LinkedIn, the job boards and the company’s own ATS to find candidates who match the skills and experience for the requirement. This role can be sent offshore if required.

Level 2 – Qualifying: At this level the candidate is qualified, usually by speaking to them and perhaps following up on references. This is better done onshore.

It’s possible to roll level 1 and level 2 resourcing into one onshore role or keep them separate but merge level 2 with the placement role .

Now let’s look at implementing the Factory.

Implementation using Factory Pods

A Pod is a team of recruiters who all carry out specific activities within the Factory and starts with one person (the founder) who does them all.

As they gradually hire people, the activities are moved around until the pod reaches maturity, at which point you can freeze it (for Cash-Cow-Lifestyle companies) or form a new pod (for Scale-4-Sale companies).

Let’s look at an example pod with some typical activities included.

Here the owner is the pod leader and still has a GP target. They are also responsible for winning and caring for high-value clients.

They’ve hired two consultants focused on placement activities but have some client care and level 2 resourcing activities.

Finally, the pod has two offshore level 1 resourcers supporting all three revenue earners.

A pod such as this one where the owner has a reduced GP target of ￡150k (because they now have management duties too) and the consultants have a GP target of more than ￡120k, could generate between ￡150k to ￡200k pre-tax profit.

Pros and Cons of the Factory Model

Whilst a recruitment company based on the Factory model undertakes the same activities as one organised around 360s, the pros and cons are very different.

It’s easier to hire staff

It's easier because you’re seeking people with a smaller range of skills. For the same reason, it’s also easier to train your people from scratch and for people to become super-efficient at their jobs.

Less is definitely more when it comes to skill mastery!

There are more roles in the Factory so each employee has a clear career path and associated personal development plan. Give each role three levels and you can map out somebody’s career for years in advance. This is not as easy for 360 recruiters.

It’s safe for the owner

Safer because no one person has end-to-end responsibility for a revenue stream. Everybody has a set of activities they do to support other people in the team and if they leave, that function goes with them, but the revenue stream stays.

This is even more the case if the company’s services are productised – a product can never leave the company that owns it!

Most people hate winning new clients.

Plus few are great at it, so take this off them, allowing them to concentrate on activities they like and are good at. That is why Factory model businesses have a lower churn rate of employees.

Growth is easier

This if for several reasons. Lower staff turnover means people can become experts and hyper-productive. When people do leave, revenue is less likely to go with them.

Final Pro

If you want to create a Scale-4-Sale recruitment company, you simply set up more than one pod, making each pod leader a minor shareholder of the business.

My first recruitment company grew from zero to ￡40m turnover in a decade. It had only 7 pods!

On the minus side

A Factory needs to be managed properly using accurate data and a set management framework (more on this in a future article). This ensures the parts of the Factory work together efficiently. So, some people (sometimes the owner too) will need to be trained in how to manage, and accept their GP targets will be reduced appropriately.

Since people are not doing a full 360 role, they can’t be paid in the same way. Which can cause some friction. You may pay out more commission and bonuses, but these are more than offset by the increased profitability of the pod.

Finally, it can take time to convert from a 360 into a Factory model and some people may never convert, so you may need to run 360 and Factory models alongside each other.

This is surprisingly easy and means that your existing people can choose their style of working but any new people are Factory workers only.

Summary

For me the Factory Model is the safest and most certain way to build a business that gives the income, freedom, and financial independence most recruitment company owners seek.

Sure, it takes some getting used to but whether you want to build a Cash-Cow-Lifestyle company that generates enough excess profit for you to invest or build a Scale-4-Sale business, the Factory Model works best.

Of course, you can run both models side-by-side, which is an extra management burden, but it’s the easiest way I know to transform.

Where to start building your own factory

If you’re interested in building a Factory of your own, the first thing is to do a small audit of your current team across the 5 groups of activities listed above.

Identify who is good at what activity.

You should also take this opportunity to assign a ‘Level of Importance’ score to each person – on a scale of 1-10, how much would it hurt your business if they left.

Use what you discover to design your pod and begin thinking of ways to secure the most crucial members of your team. I suggest you look at a share option scheme, but that’s for another article.

Finally, if you don’t already do it, you can begin to experiment with offshore level 1 recruiters. You can try this out on a few requirements before you commit to it in a big way. Somebody like Adrian Mansfield has a try and buy service, which makes this easy.

Finally, for each person make sure you have the metrics in place to measure whether they are doing a good job? I hate to mention KPIs, but that’s what you need for every person in the Factory.

With the right KPIs, you and your team can both know when they’re doing a good job and if not have the date to diagnose and fix the problem.

There you have it, a high-level overview of the Factory. It’s a lot to take in isn’t it?

If you’re anything like me, a big new idea tends to lead to more questions. So I would ask, what aspect of the Factory would you like me to write about in future?

Please, leave a comment or drop me a message to let me know because I want as many recruitment owners as possible to have a business they enjoy running and makes them financially secure.