Settling for Your 2nd-Choice Candidate — The Most Expensive Mistake In Recruiting

This “think piece” is designed to call attention to the tremendous costs resulting from losing your first-choice candidate.

“Settling for” a second-choice candidate means that you’re not hiring the best.

But few know it may mean suffering a 20 percent performance drop off. This performance loss is better understood when the percent is converted into dollars. For example, a 20 percent drop off from a top salesperson who would make $500,000 in sales is a whopping $100,000 loss each year. That $100,000 loss makes worrying about the average cost per hire of $4,129 seem almost silly (the CPH recruiting metric, surprisingly, gets more attention).

If you want to calculate the performance drop-off for an average job at your company, start with the yearly average revenue per employee dollar amount, and reduce it by 20 percent, and then you know the costs of “settling” for a No. 2 (at Apple, a 20 percent performance drop off would mean $392,000 per hire).

The Numerous Measurable Benefits From Hiring the #1 Candidate

There are many performance areas that are positively impacted when you don’t have to “settle for No. 2.” These many benefits that make the No. 1 candidate a superior choice include:

• Superior on-the-job performance differential — based on my research, the typical differential advantage for No. 1 can range from 15 percent up to 33 percent. And, when an innovator is the No. 1 candidate and No. 2 is not, the performance differential is in triple digits. These performance and capability losses over hundreds of hires at your firm means the loss of millions. If the lost No. 1 candidate was seeking a revenue-generating position, the dollar loss will be immediately visible.
• Increase chances for a new leader — many times leadership potential is a key differential between No. 1 and No. 2 candidates. Assume that the loss of the top candidate will mean fewer future leaders for the firm. In addition, a No. 2 new hire will likely have a lower career trajectory with shorter retention and fewer promotions.
• They will support your culture — many times cultural fit is also a key differentiator between the top two candidates. Hiring the No. 1 candidate means that they will likely strengthen and reinforce your corporate culture for years.
• They get up to speed faster — because they have superior qualifications, the top candidate will likely get up to speed and reach their expected productivity levels much faster. In addition, they are likely to make fewer errors and to cause fewer negative customer impacts.
• Increased team learning — the No. 1 candidate likely has advanced knowledge, new ideas, and best practices that they can share. If they are hired, the rest of the team will benefit by directly learning from them if they serve as a role model.
• Freeing up a manager’s time — when the No. 2 is the new hire, they will likely require more training, coaching, and a great deal of the manager’s time. In contrast, the No. 1 candidate will likely be a self-starter with initiative and drive.
• They will attract others — hiring a truly exceptional No. 1 candidate who is well known throughout the industry will help draw other top talent to your firm, something a No. 2 could never do.
• No. 1 is lost to your competitor — in many cases the “lost” No. 1 candidate will go to a competitor (you can find out on LinkedIn). Your firm will lose while a competitor gains.
• Negative consequences if No. 2 finds out — that they weren’t the first choice. Be prepared for offer turndowns, early turnover, or simply a loss in motivation. 

If recruiting leaders want to be strategic, they must ask themselves this question for each key job: “What will the dollar loss and the percent drop off in on-the-job performance be if we have to settle for our second-choice candidate?”

Given the Costs, the Top 10 Actions to Ensure That You Land Your No. 1 Candidate

As a recruiting leader, even at a medium-size company, once you realize that settling for the No. 2 candidate is literally costing you tens of millions of dollars each year in lower new-hire performance, your first action should be to share those quantified impacts with executives and hiring managers. Then take proactive steps to ensure that only in rare cases do you lose your No. 1 candidate. Additional action steps should include:

• Begin calculating the performance drop off — if you have ever hired both the No. 1 and the No. 2 candidates simultaneously for a job whose performance is quantified (like in sales), go back and calculate the percentage of performance differential during their first year between the first- and second-ranked hires. Or, if you ever hired “silver medalists” later on, calculate the performance differential between them and the original No. 1 new hire. When you do these calculations, in my experience the average is around 20 percent and the minimum performance differential for professional jobs is 15 percent. If you don’t have time to calculate your own, use the percentage differential in qualifications between the top two candidates as an indicator of the performance differential. Executives typically like sports analogies. Use professional sports as a benchmark. For example, last year the ERA of the best major-league pitchers showed that the No. 2 performed 25 percent and 33 percent lower. In the NBA, re: points per game, the No. 2 scorer performed a full 22 percent below the top scorer. In the non-human category, second-ranked horses win 39 percent fewer races then top-ranked horses. In any case, work with the COO’s and the CFO’s offices to refine your numbers and to make them credible.
• Show managers the real cost of settling for “butts in chairs” — you can’t expect managers to act differently until they understand how losing a No. 1 candidate directly hurts their business results. So, work with the CFO’s office to help quantify the performance loss to a team when a manager settles for a No. 2 or lower candidate. Find a way to remind them of this loss whenever they open a requisition. Also, improve their motivation by using LinkedIn to show each hiring manager where their No. 1 candidate ended up, and how successful they were. Show hiring managers that most of these losses could have been prevented if they acted differently during the hiring process.
• Identify where top candidates drop out — identify your “number ones” that dropped out of your recruiting process before an offer was made. Note on a recruiting step process map where each one dropped out. Obviously, want to strengthen how you treat your number one’s during those critical dropout steps.
• Identify why top candidates dropped out — once you have identified the No. 1 candidates who dropped out early over the last year, call or survey at least a sample of your No. 1 dropouts. Ask them to rank their top three reasons for dropping out. Use this information to reduce those primary causes.
• Verify the real reasons why top finalists said no to your offer — because they don’t want to burn bridges. Often finalists are not 100 percent honest on the day that they provide their reasons for turning down your offer. Consider hiring a third-party survey firm to subtly draw out the real reasons why they rejected your offer (after at least a two-month wait). If your response rate is low, make the survey anonymous. Obviously, use these rejection reasons to improve your selling process, your offers, and your offer process.
• Speed up your hiring process — almost universally the primary reason why firms lose their No. 1 candidate is because of their painfully slow hiring decisions. Top candidates have multiple choices. They will inevitably take a “bird in hand” offer rather than waiting for yours. Many top candidates may be gone within 10 days. You can bet that “you’ve already lost your top pick” if it takes more than a month to hire someone.”
• Shift to a data-driven process — because the competition for top talent is so intense, both your selling and offer processes should be as data-driven as possible. Start by asking top candidates to list their job-acceptance criteria (what they need before they can say yes) and any deal-breaker factors. Sculpt your selling plan and your offer to meet them. Also, in order to avoid deal-breaking lowball offers, make sure that whoever creates your offers understands the tremendous cost of losing a top performer. Finally, rather than shocking them suddenly with an unacceptable offer, work with them continually throughout the final interview process to ensure that any offer formally presented to them meets their “yes factors” and does not contain any deal breakers.
• Improve the candidate experience — start out by making sure that everyone involved in the hiring process understands that top candidates often have egos, so they need to be treated right. For example, don’t keep secrets. Let them know that they are a top pick. Also, because they are likely already working, respect their time and try to initially use video interviews and complete all on-site interviews in one day. Also ask them what information they need and who they need to meet with before they can make their decision. Finally, ask them their decision timeline and learn to work within it.
• Make tracking No. 1 candidate losses a standard practice — make it a standard practice to track the percentage of No. 1 candidates that were not hired and the estimated dollar loss to the firm. Also, use candidate and finalist feedback to continually improve your hiring and offer process. In order to increase internal competition, send a report to every manager that ranks from top to bottom the percentage of No. 1 candidate losses for each manager in their business unit. Also, send a copy to every recruiter.
• When your No. 1 is also an innovator, treat them as special — because the performance value produced by an innovator may be 10 to 25 times higher than average hire. Calculate and widely report the costs of losing one to a competitor. When you have a No. 1 candidate who is clearly an innovator, tailor your candidate experience so that they feel welcomed and needed.

Final Thoughts

When you look up “settling for” in the Cambridge dictionary, you find that “accepting less than the best” is part of their definition. Some in business label a second-place person as a “first place loser.” I don’t view them as losers. But if you are looking for exceptionally performing hires, avoid settling for No. 2 at almost any cost. (Incidentally, if you find that your No. 2 hires are not underperformers, you need to re-examine your candidate assessment and ranking process.)

It is precisely because their performance differential is in double digits that it’s critical that firms put in a Herculean and focused effort to keep No. 1s from dropping out and from rejecting your offer. The most effective way for dramatically cutting your loss rate requires shifting to a data-driven marketing approach designed specifically to prevent No. 1 candidates from dropping out and for preparing an offer that few No. 1 finalists can refuse.