Recruitment in a Downturn
Modern recruitment tech isn't that old. First wave recruitment tech can mostly be categorized as job boards and job board aggregators. Second generation has included the social and reputation companies, like Linkedin (founded in 2002 but not used widely in recruiting until after 2007), Odesk (2003) and Glassdoor (founded in 2007 and acquired a few years ago for over 1bb). It also included the first generation of SaaS recruitment process software, Jobvite founded in 2006 and Workday (2005).
After the downturn in 2009, the sector was mostly left for dead. Investments dried up across the board, not just in recruitment tech, but recruitment tech bore the brunt with companies like BranchOut (being one of the more notable ones) raising a lot of VC money and turning it to ashes.
In 2012, recruitment tech exploded with the third generation of software, which can be characterized as second generation ATS' (Greenhouse/Lever both founded in 2012), first generation recruitment automation (Smashfly/Phenom People/Beamery) and first generation sourcing platforms (Hired founded in 2012).
Since then the list is deep, covering a far broader set of needs than the previous tightly clustered job board, ATS and reputation companies in the generations prior.
So, what happens to recruitment tech in a downturn? The third generation has not yet experienced a downturn and has grown up with Linkedin defining and gating the sector opening doors for smaller companies improving on more and more niche points of the recruitment funnel. We can look to the second generation for some clues as to what to expect when hiring slows and the economy contracts.
Things to consider during the 2009 downturn:
- While VC dollars went down, technology as a sector continued to hire in core areas such as engineering.
- Not all sectors were hit the same; given this was a housing bubble that precipitated the economic slowdown, housing related industries were hit the hardest.
- Not all roles / disciplines within a company had the same employment downturn, even amongst knowledge workers. Admin functions (like HR/Recruiting), Sales and Marketing were hit harder than engineering or product related disciplines.
- The downturn coincided with large investments in SaaS by companies, including areas such as sales automation (Salesforce), marketing automation (Marketo IPO 2013) and recruitment tools (Linkedin IPO 2011).
From this limited set of data affecting an industry that is more diverse, expansive and integrated than the one pre-2009, what conclusions can we draw?
- Some pre-existing scale or traction is key to surviving a downturn due to lack of VC funding.
- Companies serving a broad set of industries or industries with high beta to the overall markets are in a good position to maintain or grow revenue through a downturn.
- Companies with software that automates some human functions or decreases the overall need for headcount are attractive in a downturn.
- Some hiring is persistent even in a downturn. Even while a company may conduct layoffs, they will continue to hire in other functions.
In addition to what we have discerned from the past, I expect the next recession to have the following impacts on People and Recruitment:
- Companies will use a downturn to transition to more remote teams - either full remote or in to low cost cities.
- The Recruiter/Sourcer paradigm will break and more companies will be looking to minimize their headcount in sourcing and expecting more output from their recruiters via tools and automation.
- Linkedin spend will decrease for the first time for many organizations, as they decrease headcountt and move to other less time intensive channels for hiring.
Overall, Im relatively bullish on Recruitment Tech as a sector through a downturn. While there were a lot of failures pre-2009, Linkedin proved that scale with a valuable service can survive, and I would say thrive through a downturn. Most types of recruitment technology software that has pre-existing traction I expect to perform well through a downturn:
- Sourcing Platforms: There may be some pressure to decrease spend for time intensive sourcing platforms like Linkedin, but I expect efficient sourcing tools like Hiretuel or assisted hiring platforms like Triplebyte will continue to be purchased with new customers joining after decreasing headcount in their recruitment functions. Moreover, sourcing platforms will have a decreased cost for user acquisition during a downturn, which was key to user adoption for Linkedin leading to its IPO.
- Recruitment Automation: The relative cost of recruitment automation for enterprises is less than one headcount. I'd expect most licenses to be renewed and accounts to grow through a downturn. In addition, more talent from operations or marketing may be available to better utilize such tools.
- Applicant Tracking Systems: ATS' are at this point core to even minimally scaled organizations and will continue to be purchased and renewed through a downturn.
- Reputation/Employer Brand: This is a nascent area of recruitment tech investment at the moment and given the long-tail, cost effective nature of recruiting via search or organic inbound sources I would expect spend levels to be maintained and overall the sector to grow.
- Freelance/Contingency services: These companies will do well in a downturn as companies look to augment their workforce to deliver product while maintaining a low headcount.
Where will recruitment tech be hit hardest? Anything serving a junior or inexperienced talent segment will be the first areas cut, as companies are able to look upmarket for the fewer roles they are hiring for. I also expect tools specifically built around sales, marketing, or admin recruitment to feel some immediate pain as those functions are the deepest cut in a downturn.