You Can't Recruit Your Way Out of a Talent/Diversity Problem

The US is seeing one of tightest labor markets in history. With unemployment rates at an all time low (3.6% and under 2% in some cities) companies are paying billions of dollars ($143B spent on recruiting in 2018) to find new talent only to discover that much of what they are looking for, doesn’t exist. Despite the spending, companies still cite finding key talent as one of the top business concerns for executives. The talent shortage is real.

Companies are also focusing on diversity and working to increase previously under-represented demographics, whether it be by gender, ethnicity, race, or otherwise. They find the talent pool in these demographics is especially tight. Diversity focused recruiting firms have sprung up to answer the need, but results still lag.

Supply and Demand

Interestingly, the US is suffering another similar shortage that I think proves analogous to the talent shortage. A real-estate shortage. Vacancy rates in homes is only 1.7%, meaning only 1.7% of homes that exist are for sale at any given time. That is tight.

Finding a house to buy is harder than ever. The national average time on market (from listing to close) is approximately 68 days. In some cities it’s half that. The typical time to close from first offer is around 30-35 days. Meaning a house that goes up for sale might have an accepted offer in less than one week! That doesn’t give you much time to look around and compare. And that is if you are looking for ANY kind of house. When you start laying on qualifications (4br, close to your work, decent yard, finished basement, good schools, etc.) the search gets even harder. In desirable cities where the housing shortage is most challenging, people are making offers for properties they have never even seen.

Short Term Fix - Long Term Costs

Renting a place to live is often the first step we take in buying a home. Whether it be an apartment, condo, or smaller home, renting can be cheaper. Sometimes. When houses for sale get tight, the rental market heats up as well. As a result, renting a two bedroom apartment in some cities costs as much as a mortgage on a 3br house. Making it even harder for renters to save up to buy a house. Worse still is individuals don’t enjoy the relief a tax deduction that home loan interests or equity that you can cash in on later that ownership provides. What many people are finding out, is you can’t rent your way out of a house-buying crisis without sacrificing a lot of money or sometime settling for less than you really need.

The same goes for talent. When the talent market shrinks, talent gets more expensive and harder to find. As a short term fix, companies turn to temporary labor like contractors, temps, and staffing agencies. While companies might save themselves the 20-25% burden of taxes, benefits, and other elements of a full-time hire, the pay rates of contractors continues to rise 30-40% higher than FTE salary, more than making up the difference. And if you are using a staffing firm, they are adding a large margin on top of that. In some case 80-100% mark up on the actual talent. Plus, you don’t enjoy the same long term benefits from contractors as you would full-time employees. So companies, too, are realizing you can’t rent your way out of a talent shortage without sacrificing a lot of money or settling for a little less than you need.

The Diversity Problem

Companies are finally focusing on diversity in their workforce. Many have created hiring initiatives or recruiting metrics that are focused on bringing in more diversity candidates. There are two problems with this particular strategy when it comes to using it to solve the diversity gap in your company:

  1. It’s potentially illegal

  2. Underdeveloped minority talent


Though having a goal is not necessarily illegal, HOW you execute toward that goal certainly can be. Approaching the diversity problem head on by restricting hiring, recruiting, promotion, or even internally communicating something seemingly innocuous as “we need to hire more people of color” is illegal. You CANNOT base a hiring/promotion decision on the basis of race, age, ethnicity, gender, national origin, religion, or sexual orientation (in some states). Discriminating AGAINST someone because they are white, male, or younger is still illegal. Your diversity hiring targets CAN get you in trouble. At the very least, it is a slippery slope with potential legal and other consequences.

Underdeveloped Minority Talent

Most diversity targets are based on national averages, but they don’t go deep enough to fully represent the root of the talent diversity problem. As an example, the base demographics by ethnicity in the US breaks down like this:

White (non-hispanic) = 61%

Hispanic = 18%

Black/African American = 13%

Asian = 6%

Other = 2%

These numbers imply that having diverse representation in a team of 20 people means you should have 12 whites, 3-4 hispanics, 2-3 black/African-Americans, 1 asian, and maybe someone of mixed races or from another group.

Most companies stop here when creating their diversity targets. But using this general data to create targets is like saying of 1,000,000 houses in a metro area there are 17,000 houses available to purchase (1.7%) which seems like plenty to choose from. When you start laying on qualifications things become very different. If you want a 4 bedroom home with a 3 car garage, at least .25 of an acre, within 30 minutes of your job, facing south or west, with modern finishes, in a certain area of town…you just dwindled your selection pool to possibly less than 50 to look at…and keep in mind, you’re not the only one looking for those qualifications.

The same thing goes for talent, the more qualifications you place on the desired candidate, the smaller your selection pool becomes…rapidly

Simply using college degree as a candidate requirement can drastically change your potential diversity targets. Here is the how the US breaks down by race with 4-yr college degrees:

% of White adults with a 4 yr degree or better = 30%

Hispanic = 11%

Black/African-American = 17%

Asian = 50%

This means, in a pool of 100 general candidates the number of qualified candidates with a 4 year degrees by race looks more like this.

White = 18 (30% of 61%)

Hispanics = 2

Black/African-American = 2.2

Asian = 3

With this qualification, for every 2 hispanics or African-Americans with a 4 year degree, there are 18 whites, a ratio of 9 to 1. TRIPLE the general population ratio of 3:1 And that is just one qualification. Layer on industry experience, city demographics, and specialty knowledge and the ratios get wildly disparate.

This is why you cannot solve the nation’s corporate diversity challenge through recruiting or hiring targets. the deck has been stacked. There could quite possibly be 9 qualified white candidates for every 1 qualified hispanic or black/African-American candidate. And to be clear, I am not saying white people are more qualified, but there are likely many more white people who meet your qualifications. That is a systems issue years in the making.

Investing for Long Term Results

The simple answer of saying “we’ll just revise our targets” only compounds and extends the problem. Yes, you could defend your new targets legally, but if the entire reason you are doing this is to simply avoid legal trouble, then your thinking is terribly narrow and not focused on growth. The benefits of a diverse workforce is more than a legal shield. Companies with more diversity are 33% more likely to outgrow, have less turnover, have a positive company reputation, and out innovate compared to their competitors. Diversity and inclusion (besides the ethical goal of being more just) is about revenue and profit. If you care about either of those, then diversity and inclusion better be on your radar.

If the problem is an under-represented pool of qualified candidates, then we we need to back up a step from recruiting and look to development. How do we we develop a more diverse workforce? Well, just like the housing market, you can’t fix a home ownership problem by renting your way out of it. You have to develop new talent, but how.

College Access?

With colleges tuition rising nearly 8 times faster than annual income, college access isn’t really the answer for under-represented (and often under privileged) populations. It helps, but it’s not the solution. Their are several downsides of only persuing this approach:

  1. It takes at least 4 years to see the outcome

  2. A 4yr degree started today does not accurately represent the skills needed 4 yrs from now

  3. Increased student loan debt that is already growing

  4. Subject to discriminatory admission processes

But it IS something that can help down the road, if we can get the rise in tuition handled. But that really isn’t under the control of most companies.

Internships and Apprenticeships?

Internships have more potential than colleges at addressing the talent and diversity gaps. It provides real-time skill building in a real-time environment. It can also be focused on under-represented populations to specifically address the diversity gap. The challenges to internships are still difficult to overcome but not as much as the runaway train of college tuition. A few things that need to happen for internships/apprenticeships to catch up to the need are:

  1. Increased funding for public internship programs (most are private or gov’t funded non-profits)

  2. Increased company participation. Whether paid or unpaid, internships need structure and executive support.

The benefits of internships/apprenticeships go beyond just building a skilled workforce, it can also capitalize on reduced labor costs (even paid interns/apprentices are often cheaper than FTEs), increases leadership ability of existing staff (mentors and subject matter experts learn facilitation and coaching skills), enhanced brand reputation, and reduced recruiting costs.

Another benefit from internships/apprenticeships is it’s more like a lease-buy option. You get the benefit of the developing talent without simply losing it when the internship/apprenticeship is over. You have the option to offer these wonderfully and relevantly skilled individuals from diverse backgrounds a full time position.

In-house development/mentoring

Rather than outsourcing your development to outside programs, you could build your own talent. Hire people for their perspective and desire to grow and then listen to them and grow them. Removing qualifications that create disparate impact (college degree, industry experience, etc.) might get you the fastest results in solving the diversity issue as the employment diversity will change as soon as you hire them, but they will need immediate development. It’s like buying any house with the plan to immediately renovate or rebuild. Often, you need qualified people in their roles NOW so the downsides to this are:

  1. Longer development timeline to productivity

  2. Pulls existing resources away for training purposes

  3. Requires large investment in training and development

  4. Possible persistent skill gaps

In house development is something all companies should be doing at one level or another, but starting with completely inexperienced talent is not viable for all roles or most companies. A full-scale development program such as this only works well for very established companies who can afford the time it might take to get entry level talent up to speed. And as a word of caution, as you develop these folks, make sure you adjust their salaries accordingly. If you don’t they will rapidly take their new experience and your development efforts to somewhere that will pay them fair market value for it. It would suck to put all that time, energy, and money investing in someone who bolts simply because you won’t pony up the dough their new skills deserve.

A Combined Approach is Best

Combining some of these models, as well as leveraging your own talent, is the best approach to solve your talent and diversity struggles for the best ROI. College is something that most companies can’t affect so we can leave that solution aside. To come up with the solution that fits your company best requires a mixture of short and long-term focus if you really want to solve it. So here are a few tips as you begin.

Figure out what you really care about.

Is it for optics or do you really believe that diversity is important? I’m not here to cast judgement, but knowing this answer can save your HR/Talent/People Ops leaders a bunch of time and energy. It will also help you find the right HR/Talent/People Ops leader to hire. If you would rather spend money recruiting and renting talent than developing, hire a leader with that focus. If you prefer return on investment over operational expense…hire someone who comes from a talent development background and is looking to help you build.

Do you care about talent ROI and are you willing to wait for a better payout?

If you are a start up who is mostly interested in optics and you’re looking for a 3 year exit, then by all means, pay recruiters and staffing agencies to find you the candidates you need. Keeping in mind that, while the short term benefits might be there, you will likely pay much more doing it this way. This reduces your ROI (cost/benefit) to nearly 1:1 or perhaps even has you upside down from a cost/benefit perspective.

Analyze your existing talent.

Where are your talent/diversity gaps? Where will they be in 6 months? Do you have some highly skilled people who WANT to mentor? Getting an accurate picture of your talent is often harder than it seems. If you don’t have a platform like Ohos to show your talent distributions along all relevant competencies, it can take a lot of time. However, it can be worth the effort. The return is greater if you can leverage your existing talent and place development efforts where they are most needed.

Create a Mentor/Facilitator Network

Believe it or not, you probably have a lot of people who would eagerly coach, mentor, and train new and inexperienced employees without costing you much at all. However, they are likely NOT your star performers. Most star performers are interested in their OWN accomplishments, not spending their time on things that don’t advance them personally. Look for your number 2-3 in a competency for mentors or facilitators…or even people in the middle of the pack. They have the knowledge you and the new employees need and might be able to more easily connect with them as well. Star players rarely make good coaches (ala. Michael Jordan, Magic Johnson, or Wayne Gretzky.)

Get your facilitator/mentor network together, get them some training on facilitation (maybe $1500-$2k total for a class of 20) and help them design the courses with an instructional designer (Maybe $2k per 2-hour session designed.) For under $10k, you could have 4 expert facilitators with contextual knowledge, and 4 courses you are able to reuse and reuse and reuse. There isn’t an external trainer that can offer you anything like that deal (and I used to be an external trainer.) It will take time but this approach is much more scalable than any of the others and pays off BIG time in the long run.

Partner with Internship/Apprenticeship Programs

More and more internship and integrated talent development models are popping up that specifically address diversity gaps as well as skill gaps. Rather than requiring an almost ubiquitous (but hardly skill relevant) 4 year college degree, partner with organizations like (here in Denver/Boulder) or high schools that have Work Study programs like Arrupe Jesuit. Each of these programs focuses on underrepresented populations and works with employers to place candidates in meaningful and skill building work study programs or apprenticeships. There are likely more programs like this in your area. Do a search for “apprenticeships” or “work study” and your city name - you’ll find an organization eager to work with you to build the talent and diversity you seek.

Develop Your Talent

If you care about longevity at all, developing your existing talent by providing learning, rotation, and new opportunities is the absolute best ROI you can get. Employee engagement stays high when people are feeling growth, retention stays high for people who see a future or feel they are being developed for something more, and productivity goes up as a result of increased skills. You don’t need a ton of cash to develop your employees (see Facilitator Network above) but you do need to structure it. It won’t happen accidentally.

Fall in Love With the Process

When people are looking to get healthier, it is about the process. You won’t lose 10% body fat in a week regardless of what you do. It took years to get you to where you are, getting to a better place will take time. So don’t obsess about the the short term numbers so much. Yes, track your outcomes, but also track your adherence to a process. CRMs like Salesforce are activity monitoring for sales. ATSs can be activity monitors for your process if you set them up correctly. The reason there are so many activity and diet tracking apps is they help people focus on the process, not the outcome. Staring at the scale won’t make the number go down and staring at your hiring metrics won’t make your company more diverse.

Be an Incubator of Talent

When I asked one of my favorite and most influential bosses (Thank you, Evan!) to help me create an application video for a new job (outside of my current company, mind you) his response was a perfect example of leadership. It has stuck with me and I love it now as much as I did then.

“I have always considered myself an incubator of talent,” he said.

If you want to grow, develop, and retain your talent for as long as possible, this is the best way to do it. Yes, they will leave at some point - everyone does - even founders eventually. To get the most from them while they are there, start by shifting your focus. Rather than renting talent and focusing on what you get from them, invest in them and focus on what you are giving. Incubate. Help them grow. Urge them out of the nest when they are ready, and watch them fly when they have the confidence. If you want your company to be better off after you find the right people, make sure your people are better off than when you found them as well.

If you are an employer who is known for incubating diverse talent, recruiting will be much easier, cheaper, and faster. And with a more diverse and inclusive talent pool, your bottom line will be bigger, healthier, and more sustainable. In a crowded market, the people who play the long game and invest in the benefits of development will be the winners, not the people who are playing the short game spending hand over fist to rent talent.

And as always…I could be wrong.

Dave NeedhamComment