The costly mistake of a bad hire and how to spot them in your team

Most of us, if we’re honest, can admit that we’ve made mistakes when hiring additions to our team before. It’s no weakness to admit we got it wrong with the benefit of hindsight. But it is a weakness not to correct it.

It’s why the likes of Laszlo Bock, ex SVP of People at Google, strongly recommends that firms ‘hire slow and fire fast’ (See his book ‘Work Rules’ for more detail).

And with estimations of the cost to businesses of getting a hire wrong being as much as ‘15x his or her salary’ (as tabled by Verne Harnish in his critically acclaimed book ‘Scaling Up: Mastering the Rockefeller Habits 2.0’), it’s a crucial thing for scaling businesses to get right a lot more times than they get wrong.

Quantifying the impact of a bad hire

No-one sets out to deliberately hire someone who is unsuitable for either the role, or the team/culture, but it happens frequently.

Whilst estimations like that from Verne Harnish (above) may seem excessive, when you consider both the direct and indirect cost impact areas, we can be somewhat surprised by how one bad decision can cost us hugely. And not just in terms of cash, but progress, productivity, outputs and culture too.

Consider this: we hire a Developer who it turns out wasn’t as skilled technically as we thought. And worse, they’re not particularly interested in working in collaboration with others, preferring instead to focus more on their own agenda. We decide after 6-months that we need to exit and replace them.

The direct costs we’ve already incurred as a result of this include:

  • The cost to hire them in the first place (agency fees, advertising, time invested in assessments and interviews, etc).
  • The cost to train them (resources, courses and time).
  • The cost of their salary and other remuneration in the period before we exited them.
  • The directly attributable losses due to their lack of productivity/outputs (delays, poor customer service, etc).
  • The cost to replace them.

For a mid-level Developer earning £35,000 pa, this can easily amount to over a £55,000 direct loss in 6-months alone, broken down as:

  • £5,500 to hire them (including time invested).
  • £2,500 to train them (including time invested).
  • £21,000 in remuneration (including pension and NI).
  • £21,000 in lost output (assuming a 2:1 output to cost ratio).
  • £5,500 to replace them.

And that’s before we get to the indirect costs of a bad hire, which can often eclipse the direct ones, and are more difficult to put right. These include:

  • The loss in output/productivity in the wider team caused by the Developer creating delays and sub-standard work that have to be corrected/addressed by the wider team.
  • The loss in effort in the wider team as their morale reduces (why should they strive to exceed what’s expected of them if this new Developer isn’t?).
  • The amount of Management time invested in fixing new problems that are created.
  • The risk of losing your best people due to the issues they’re facing (this risk grows the longer you wait to take action against a bad hire – hire slow, fire fast).

Signs that you may have already made a bad hire

For every ten hires, we may get nine right, and one wrong giving us a bad to good hire ratio of 1:10. (In our experience, this ratio is worse for most Tech sale-ups due to the lack of choice we face and the higher degree of urgency associated with hiring activity).

If we don’t address the bad hire as quickly as possible (either via feedback and development, or via showing them the exit), the negative impact this one person can have will become significantly disproportionate to the benefits of the nine good hires, as the cultural and motivational impacts from poor performance/team fit spread like a virus to the wider team. This so easily becomes a chronic problem of which it will take huge amounts of time and effort to repair.

Some signs that you may already have bad hires in your team include:

  • You’re finding the need to overly lean on process and bureaucracy (rules) to keep people delivering on time and in full.
  • Those who were once your best people seem to have lost their mojo, and the standard of their work (and the effort they’re making) is slipping.
  • Whilst encouraging challenge, you’re finding it increasingly difficult to just get people to engage and do what needs to be done.
  • The natural feeling of consistent positivity, determination and team-work you once had seems to be becoming a thing of the past (culture loss can often be attributed to getting your hiring wrong).
  • In the worst case scenario, your best people are leaving.

If any of these are true, it’s worth taking a step back and identifying the person/people who are the root cause of the issue, and deciding how you’re going to address this.

The statement ‘short-term pain, long-term gain’ is incredibly applicable here. It’s better to let five poor to average people leave than one good person, as that one good person can easily make or break your business when you consider the effect they can have on their colleagues and on your business capability/outcomes.

Avoiding a bad hire

Of course, the best way to mitigate an issue is to stop it happening in the first place. That’s why the world’s leading Tech firms invest huge amounts of time, money and resources in ensuring they hire only people that are RIGHT for them.

You’ll find more on this subject in our blog titled ‘5 tips to avoid making a bad hiring decision’.