How to hire employees: Employee referral vs. external hiring

November 11, 2019

As your business begins to expand, you may need to hire new employees whether referrals or external.

Is it better to hire acquaintances you already know, or people who are qualified but are external? Both options have their advantages and disadvantages.

The majority of people who get hired by business owners are already known by the owner or are referred by another trusted contact, rather than by a recruiter or from answering an ad. There’s nothing wrong with internal hiring, but you could be missing out on some excellent candidates if you don’t consider hiring someone with whom you have no prior acquaintance or referral.

 

The case for employee referrals

When someone you know personally or professionally refers a job candidate to you, you may feel a certain level of comfort in hiring an employee referral. You may already know, or think you know, that the candidate is qualified. With this initial trust already established, you can spend more time getting to know them as a person and may be more open to tailoring the job to fit the candidate.

Of course, there is more risk involved when hiring an external candidate. It takes time before you can be certain they are competent, reliable, and honest. In fact, it may turn out that they have none of those characteristics, and as a result, your business progress has been slowed or obstructed. But there are benefits to hiring outside of your circle of acquaintances, too.

 

The case for external hiring

Although there’s a greater degree of comfort in hiring an employee referral, that candidate may not be the best fit. By focusing only on internal hiring, you may miss an opportunity to hire someone who is better qualified and helps your business grow more than a familiar candidate would.

External candidates—even if they have better qualifications—are put at a disadvantage because they are unfamiliar. However, hiring them may be the best option for your business. To pursue the possible advantages, the first step you should take is to learn to break down the barrier between employee referrals and external candidates during the interview process.

A formal interview is seldom comfortable for the interviewer or the interviewee, especially if the candidate is not an acquaintance. For example, when interviewing external candidates, you’re more likely to stick to the script, matching the resume against the list of criteria for the job, and possibly not exposing other qualities they have to offer that could be beneficial to the company. Here are some suggestions for making it easier and more fruitful.

  • Ask the candidate to submit a sample of their work in advance to give your discussion a starting point. 
  • Create a comfortable atmosphere for the interview, allowing it to be a discussion rather than a Q&A session. 
  • Meet off-site. A coffee shop (or your employee lunchroom) is a neutral locale and less imposing than an office or conference room. That doesn’t mean you should dumb-down the interview, but a few sips of coffee can fill awkward silences. 
  • If time doesn’t permit you to leave the office, take the candidate on a tour first. Point out different areas they might be working in, and take time to explain what your company does and answer their questions. 
  • Show the candidate some completed projects or products and ask their opinion. 
  • If the candidate seems promising, and time permits (and it doesn’t present a conflict), ask if they would be willing to work on a project to gauge their abilities. If not, discuss a project issue and how they might go about solving a particular problem. 
  • Schedule brief get-to-know-you interviews with other key people or groups in the company. Group interviews can help gauge the compatibility of people who would ultimately be working together. 

Though you may still end up hiring someone who was referred by a colleague, by pursuing the option of hiring an external candidate, you will have put yourself in a better position to find the right person for the job. 

 

There's more to learn. Continue reading at usbank.com/business-banking.

Learn about U.S. Bank

Related content

Allowance basics for parents and kids

30-day adulting challenge: Financial wellness tasks to complete in a month

High-yield bond issuance: 5 traits lawyers should look for in a service provider

Year-end financial checklist

Trends in economics, immigration and mobility policy

Putting home ownership within reach for a diverse workforce

Administrator accountability: 5 questions to evaluate outsourcing risks

Easier onboarding: What to look for in an administrator

3 tips to maintain flexibility in supply chain management

Insource or outsource? 10 considerations

4 questions you should ask about your custodian

Refining your search for an insurance custodian

Service provider due diligence and selection best practices

Webinar: CRE technology trends

Complying with changes in fund regulations

Business risk management for owners of small companies

Evaluating interest rate risk creating risk management strategy

Webinar: CSM corporation re-thinks AP

Webinar: AP automation for commercial real estate

Addressing financial uncertainty in international business

5 winning strategies for managing liquidity in volatile times

The surprising truth about corporate cards

The future of financial leadership: More strategy, fewer spreadsheets

Employee benefit plan management: trustee vs. custodian

Choosing your M&A escrow partner

Tapping into indirect compensation to recruit foreign talent

Why other lenders may be reaching out to your employees

High-cost housing and down payment options in relocation

Why retail merchandise returns will be a differentiator in 2022

Work flexibility crucial as municipalities return to office

Overcoming the 3 key challenges of a lump sum relocation program

Crypto + Relo: Mobility industry impacts

For today's relocating home buyers, time and money are everything

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Empowering team members

10 tips on how to run a successful family business

Business tips and advice for Black entrepreneurs

Talent acquisition 101: Building a small business dream team

How to test new business ideas

The role of ethics in the hiring process

8 ways to increase employee engagement

The costs of hiring a new employee

How to reward employees and teams who perform well

How to hire employees: Employee referral vs. external hiring

Give a prepaid rewards card for employee recognition

Checklist: Increase lead generation with website optimization

Is your restaurant Google-friendly?

3 simple brand awareness tips for your business

How a small business owner is making the workplace work for women

5 principles for avoiding ethics pitfalls on social media

5 tips for helping employees raise ethics concerns

The growing importance of a strong corporate culture

7 uncommon recruiting strategies that you may not have tried yet

Business credit card 101

Meet your business credit card support team

How to apply for a business credit card

How jumbo loans can help home buyers and your builder business

Break free from cash flow management constraints

5 tips for managing your business cash flow

Improve online presence your business

How Shampoo’ed is transforming hair and inspiring entrepreneurs

The San Francisco bridal shop that’s been making memories for 30 years

How Al’s Breakfast is bringing people together

In a digital world, Liberty Puzzles embraces true connection

Celebrity Cake Studio’s two decades of growth and success

How a travel clothing retailer is staying true to its brand values

How to build a content team

Use this one simple email marketing tip to increase your reach

How (and why) to get your business supplier diversity certification

How I did it: Joined a board of directors

5 tips for being a great board member

Tips for navigating a medical hardship when you’re unable to work

Tips to overcome three common savings hurdles

5 tips to use your credit card wisely and steer clear of debt

Travel for less: Smart (not cheap) ways to spend less on your next trip

Real world advice: How parents are teaching their kids about money

How to stop living paycheck to paycheck post-pay increase

Practical money tips we've learned from our dads

6 ways to spring clean your finances and save money year-round

How to cut mindless spending: real tips from real people

How to increase your savings

5 tips to use your credit card wisely and steer clear of debt

Managing the impacts of appraisal gaps in a hot housing market

How to spot a credit repair scam

5 unique ways to take your credit card benefits further

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.