I was walking my dog recently and as I ambled down the residential streets of my neighbourhood I noticed a number of realtors’ For Sale or Just Sold signs posted on various properties I passed. And it occurred to me that on the surface, real estate and recruitment had a few things in common.
Three Things in Common
In both real estate and recruitment there are two parties involved in every deal. In real estate deals, there’s a person listing the property and the person buying the property. In recruitment there’s a company that wants to hire someone and there’s a person who wants that job.
If someone is listing their property through a realtor, they’ll pay that realtor a commission based on a percentage of the value of the deal. Likewise, if a company works with a recruiter to find them someone, they’ll pay a fee / commission based on a percentage of the salary of the person they hire.
The other thing that real estate and recruitment have in common is that there are virtually no entry barriers into either profession (the realtor license requirement notwithstanding).
Selling Your House Isn’t Cheap But…
I’m sure there are exceptions, but my feeling is that virtually every house sold in the GTA is sold through a real estate agent. Which means that every person selling their house is opting to pay a very large commission (the average is around $40,000 in the GTA) to sell what is nowadays a hot commodity in short demand. And this is a retail transaction. The people shelling out the $40,000 or more are not spending before tax corporate dollars – this is real net-net personal money.
Regardless of how you or I might feel about the value-add the realtor selling your house brings to the table, the point is that everyone feels that the end result is worth the price.
Searching for VPs of Finance
In recruitment, and especially my particular wheelhouse, which is CFOs for small and medium size enterprises, this is not the case at all. For every search that an executive search firm undertakes, there are twenty (or more) searches conducted by SMEs without the benefit of professional advice or assistance.
Which is a little baffling to me. I can easily make the argument that finding the right VP Finance for an owner-managed business has a much greater impact on that owner-manager’s wealth prospects than finding the right buyer for their house.
Justifying the Realtor’s Commission
For argument’s sake, let’s take an owner-manager who wants to sell their home in Lytton Park. The owner-manager hires a top notch realtor who has the reputation of being able to extract as much value as possible from every home she sells. Similar houses in Lytton Park have recently sold for around $3,000,000 but the realtor thinks she can create a bit of a feeding frenzy around this particular house and promises to get the owner-manager $3,250,000 for his property.
And so she does. And the owner-manager ends up paying a commission of $162,500 (5% of $3,250,000) to the realtor. Assuming the owner-manager could have sold his house privately for $3,000,000, he’s $87,500 ahead of the game (the $250,000 of additional value courtesy of the realtor less the commission).
Justifying the Recruiter’s Fee
Now, let’s say that the owner-manager needs to recruit a VP Finance for his $60mm valve manufacturing company and he wants to pay around $200,000. If he hires his new VP Finance on his own, he’s got about a 25% chance of hiring someone really good, a 50% chance of hiring someone ranging between pretty good and so-so, and a 25% chance of a bad hire.
If however, the owner-manager elects to work with an executive recruiter (like me, for instance), he has close to a 100% chance of making an optimal hire. If one were to try to put a value of a great VP Finance versus a mediocre VP Finance, I would guess that it’s worth anywhere from $50,000 to $200,000 a year to an organization of that size to have the right person in that particular chair. And of course, a great VP Finance is a gift that keeps on giving. Whatever incremental additional value they get from their CFO, the owner-manager to count on getting that value each and every year.
The Gift that Keeps on Giving
All for a fee of roughly $50,000. Even if his new VP Finance only returns $50,000 of additional incremental value a year, over a five year period the owner-manager is ahead of the game by $200,000. And that’s being very conservative. In many cases, a great VP Finance can help an owner-manager take their company to a whole new level. And the value of that, to quote the MasterCard commercials, is priceless.