Hourly vs. Commission: Disrupting the Recruiting Industry (David Windley)

Sean Weisbrot: You grew a company to 50 million in annual revenue and then sold it.

Sean Weisbrot: What was the hardest thing about the entire experience?

David Windley: Um, well, interesting. It was right around COVID when COVID hit.

David Windley: So, uh, we had a, a start and a stop.

David Windley: So we were talking to a couple companies, um, the winter.

David Windley: Of 2020 was, you know, January, February, um, and in March we were about to close a deal.

David Windley: And then, uh, you know, COVID hit for all of us.

David Windley: Um, and, and then, you know, that was just a matter of survival, quite frankly.

David Windley: Um, and if it wasn't for the PPP loan, I think that's what it was called. Um.

David Windley: You know, we got through, there was a bad, bad couple months, April through August.

David Windley: Uh, you know, the bottom just came out of the hiring market.

David Windley: Uh, we were a recruiting company, um, but we started to see things come back in August.

David Windley: So that was probably the scariest part. We almost, you know, went away.

David Windley: Um, and then we commence discussions with one company, um, which ended up being Caldwell, um, in, uh, December.

David Windley: And close the deal. So it, it almost ne never happened.

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Sean Weisbrot: So COVID basically stopped people from hiring, and so your services weren't needed at that time?

David Windley: Yeah, we dropped, um, in one month or two months.

David Windley: So it was dip dip. Um, we dropped. 75% of the business.

David Windley: Um, I put people on furlough, which was, uh, ended up being a good move instead of laying 'em off completely.

David Windley: Um, so just said, Hey, I don't have work for you for now.

David Windley: And, and you know, 'cause we didn't know, right? Everyone didn't know what was gonna happen. Um.

David Windley: Uh, and then yes, I was able to start bringing people back come August.

David Windley: And so, um, and then if you remember, recruiting business went crazy, especially for tech, hiring all the tech companies.

David Windley: And so we rode that wave up. Um, and like I said, we peaked at about $50 million, uh, in revenue.

David Windley: So, um, yeah, we, so the COVID ended up being good for us because I think a lot of companies did go out of business in our, in our space.

David Windley: Um. During that period of time and we were able to pick up a lot of the business coming out of it.

Sean Weisbrot: So post COVID, the business did stronger revenue growth than than pre COVID.

David Windley: Yeah, we were, we were growing at 30% a year.

David Windley: CAGR was, you know, we started less than a million, like I said, and, and grew it, you know, from 2014 through the teens.

David Windley: And that's why, you know, the Caldwell and others looked to acquire us.

David Windley: Um, and then COVID hit Big D and then we had to kind of rebuild it, but we rebuilt it quickly, um, and then surpassed, uh, where we were.

David Windley: Yeah.

Sean Weisbrot: During COVID, I was building a startup and I had to pivot because we were originally building an end user messaging platform with a unique business model because all of the other platforms didn't really have a a business model really, and so we had a unique spin on it.

Sean Weisbrot: COVID caused us to have to go into enterprise collaboration because we already had the chat infrastructure in the backend, so we just had to rebuild the, the front end, although it took like, you know, a year and a half, two years to do.

Sean Weisbrot: But we had the arch, the core architecture to support that.

Sean Weisbrot: And it was only after we pivoted to try to compete with Slack that investors started to care about us.

Sean Weisbrot: Yeah, it was the very, very beginning of COVID that I recognized people were gonna be working remotely, that I said, Hey guys, I'm sorry, but we have to kill it.

Sean Weisbrot: We have to put pivot to this other thing. We don't really know anything about it.

Sean Weisbrot: Our team has no experience in web development. We were, you know, building mobile apps and, you know, once we kind of spent time and energy retooling and we've gotten to a better footing and, and position for that, um.

Sean Weisbrot: And it's a far more interesting use case than what we were originally doing.

Sean Weisbrot: So COVID was helpful for us as well.

David Windley: It was a wild time, a lot of, lot of scrambling and, you know, innovation comes outta, you know, necessity.

David Windley: Right. And so a, a lot of, a lot of people, us included, sounds like you too had to, had to pivot and get creative during that time.

Sean Weisbrot: I actually started the podcast like August of 2020. So I started talking to to business owners and investors like a few months after the US started responding to COVID.

Sean Weisbrot: 'cause I was outside the US at the time. Still am.

Sean Weisbrot: Um, and so I got to see the perspectives of people in Asia, in Europe and the us how they were responding to COVID and, you know, their business and, and things like that.

Sean Weisbrot: So that was, uh, very interesting, you know, to be able to have those insights.

Sean Weisbrot: Because I was in Asia and I was stuck, you know, Vietnam had locked the borders, so I couldn't leave.

Sean Weisbrot: And I was like, if I leave, where am I gonna go? I have nowhere I can go.

Sean Weisbrot: Vietnam was probably one of the safest places at the time, so.

Sean Weisbrot: You end up selling the business. Why did you sell this business if it was making so much money?

David Windley: Well, I think, you know, uh, first of all, when I got into the business, um, I was an advisor to, uh, two, the two founders, um, and really thought about a new model in the recruiting space.

David Windley: Uh, new as far as most of search business is commission based and, um.

David Windley: We decided to come at it more like a professional services business, you know, like a consulting business, McKenzie, or you know, any of the big consulting firms, right?

David Windley: Time and materials. It is a service, but I just perplexed me.

David Windley: Why we, it was still based on commissions, right? Based off of the, the person you hired, salary, you know, and, and I had 28 years in corporate as a consumer of the executive search business.

David Windley: And so, um, we decided to, you know, I talked to them about changing the model. Let's approach it differently.

David Windley: Um, all my tech companies that I worked for, we hired internal.

David Windley: Staff even at executive recruiting because it was just a more efficient, better model.

David Windley: And so the idea was, well, why don't we do what, you know, I was at Microsoft, Yahoo, um, you know, we had big internal recruiting teams.

David Windley: Why don't we create that kind of, you know, world class recruiting engine and then give our services to these small and medium companies that really couldn't afford to build, you know, the type of recruiting engine that Microsoft and and Yahoo could have.

David Windley: That was the idea. And so that's, then I came on to be president to execute that idea.

David Windley: So I was, um, you know, what's the right word? Accidental entrepreneur, I guess. Right? I was more board advisor.

David Windley: Um, but then once I got into it, we really were able to build a company.

David Windley: Um, and you know, I think, uh, like a lot of people that build things, you know, you have a choice.

David Windley: You could be a lifestyle business and, you know, just kind of be your business or you build it to a point to have an exit at some point.

David Windley: And, and so I think, uh, when we started getting offers, you know, the exit, uh, seemed, seemed, seemed good.

David Windley: The other thing is, uh, we could, we stayed on with the company.

David Windley: You know, I was about building things and so I still had the opportunity to stay on.

David Windley: Uh, they had a three year hold on me, right?

David Windley: Like most acquisitions when you buy management and the people, um, you know, so I had optionality, right?

David Windley: If I could continue to build this organization, but at some point, uh, retire, um, you know, I'm 62. And so that's another thing is that, you know, I wasn't gonna do this.

David Windley: Do that forever. So at some point, you know, I was gonna retire.

David Windley: So yes, that, that's kind of the long-winded answer. Uh, but the context of, uh, yeah, why we ended up selling.

Sean Weisbrot: So I want to go into the post acquisition, but first I'm curious about the business model.

Sean Weisbrot: You said that it was commission based, which I've, I've made all of my money from what was not, I mean, originally.

David Windley: The industry is, yes, exactly. Yes.

Sean Weisbrot: I made all of my money from commissions and they were large commissions.

Sean Weisbrot: So why, why change that into a service-based model?

David Windley: Perfect. Perfect. So this is, if you think about what's better for the consumer.

David Windley: Our model was better, right? And and, and what you've pointed out is my theory of why there hasn't been as much change in this industry as in others because it's such a good model for the hydro and struggles for the corn ferries.

David Windley: Charting 33 and a third percent per search, right? Think about it.

David Windley: You're an executive, you're working at Microsoft, Yahoo, whatever. You're making a good salary.

David Windley: That executive search guy hired three of your colleagues and basically their commission's the same as yours.

David Windley: I mean, it, it's crazy. It's crazy. And so, yes, that's why the search industry has been reticent to change.

David Windley: It's a great model for them. Right. Um, but for the consumer, and like I said, the bigger companies could try and avoid a lot of that because we could hire.

David Windley: Ex executive search people to come in and work at Microsoft, right?

David Windley: We paid them a good salary back then in the early two thousands, I'd say we'd pay a good executive search person, 200, 200 k, you know, probably now it's more than that, but let's, you know, back then, you know, they did one search, okay?

David Windley: Two searches for sure. They paid for themselves, right? And, and so it was, it's a just a more effective, efficient model.

David Windley: Cost effective for the consumer. Now the smaller companies couldn't afford to hire in executive search caliber people to do their work and their internal teams, they may have only had four or five recruiters at all.

David Windley: Right? And so that's, that was the opportunity in the market was, you know, the Googles, the Apples, the yahoos that Microsoft had, these world class internal recruiting teams.

David Windley: Um, so they can. Avoid, you know, a lot of those commissions, you know, um, but the small and mid-size guys didn't.

David Windley: So that's why we did it, was we saw a market opportunity and it did work out.

David Windley: Um, you know, we had, instead of like exec search firms, you could live off of one or two good clients and make a good living.

David Windley: The theory was we would, we would, uh, take advantage of the portfolio effect. You know, we would have many.

David Windley: Smaller customers. The good thing about that is then you're not reliant on one customer being 40% of your business and all of a sudden they stop recruiting and then you're, and, and it did work out.

David Windley: I, you know, over those 10 years, our, our largest customer, uh, never got over 10% of our total revenue.

David Windley: And so we would run like. 180, 200 customers live at a time. Right.

David Windley: It was kind of, and so we, it, it was a, it was kind of the mutual fund approach.

David Windley: Um, and so the line was more smooth, right? Like you have the portfolio, 500 stocks.

David Windley: We had a portfolio of companies versus investing in just say, 10 companies. That gave us a lot of business.

Sean Weisbrot: So how. If you only had 200 clients, how were you able to generate 50 million in revenue from them, if not taking commissions with this service model?

David Windley: Yeah, you, you charge, we would charge about 125, $115 an hour for recruiting.

David Windley: About 75, $80 an hour for sourcing. Right.

Sean Weisbrot: So how much would it end up costing them for a successful hire?

David Windley: We had some clients that were million dollar, um.

David Windley: Clients and the co couple that were well above that.

David Windley: So you know, if they hired 20 of our people over a six month period or over the full year.

David Windley: Yeah. So yeah, it adds up and then you start adding up the clients.

David Windley: Yeah.

Sean Weisbrot: Okay. Interesting. Because typically these per hour kind of service businesses struggle to, to.

Sean Weisbrot: Reach past 10 million. And so generally they will have to have like tiered packages.

Sean Weisbrot: These like mega add-ons, things like that. Um, so you just threw more people, I guess, at it.

David Windley: Yeah, we, we, we stuck with it with the core model, but you're absolutely right and that, you know, you think about growing even larger, you add-on services and that, and in fact, that's where the company I'm currently, uh, leading came about is while at IQ talent, you know, the professional services recruiting company we're talking about, um, we started developing software, uh, for our sources and recruiters internally.

David Windley: But saw an opportunity that, that could be a product or service that we could, you know, give directly to our customers.

David Windley: Uh, so basically, you know, as a recruiter and sourcer, we were using all these AI technologies, and this is before generative ai.

David Windley: This is, you know, old, old fashioned ai, if you will. Mm-hmm.

David Windley: Uh, predictive and just search and things like that. And, uh, there were tools out there.

David Windley: So my team used all of them. Um, but what we started to create was an application interface that really had all of those tools being used so that the user, it was simple.

David Windley: You didn't have to know and use all those tools.

David Windley: You just interfaced with our application layer and all these tools were in the background doing the work. Um.

David Windley: So that was a great internal tool for my recruiters and sourcers.

David Windley: And the idea was, hey, we can open up the interface directly to customers and they could use it.

David Windley: And so you're right. When you think you're growing a professional services business like that, then at some point you have to start adding other things.

David Windley: So we started building it internally. Um, and then, you know, the downturn hit in recruiting and right.

David Windley: It's interesting, right at 20, mid 2022, uh, and then generative AI gets announced to the world basically.

David Windley: I mean, it was there, but to, to the lay person generative AI was introduced.

David Windley: Um, and um, so, uh, I convinced the a Caldwell folks that it made sense.

David Windley: It was a win-win for everyone involved to let me spin out the software company.

David Windley: Because we were investing in a software startup within a professional services company, and it's a drain on the p and l, right?

David Windley: And so it was good for them to make their p and l look better.

David Windley: It also allowed the startup to be a true startup, to get investment if needed, et cetera, et cetera.

David Windley: And also just grow as a, as a startup. So that's what happened. And that's Hoot Recruit.

David Windley: Now that's the company that I'm leading. Um, so we're a startup that, um.

David Windley: Basically what we're doing is creating an AI agent for the recruiting process.

David Windley: At this early stage, we've got the AI agent working as a candidate sourcer.

David Windley: So the top of the funnel, part of the recruiting process.

David Windley: Over time, uh, we would like to, you know, add more, uh, to the total recruiting process, but that's where we are today.

Sean Weisbrot: It's interesting because I guess when the acquisition happened, you were thinking, okay, I'm gonna just do my job, wait a few years and retire.

Sean Weisbrot: And before that time passed, now you find yourself leading another startup and I guess you, you've been able to get the extra bonus that was tied to those handcuffs, but you don't have those handcuffs anymore because you, I guess you have a new contract as the founder of maybe not.

David Windley: Yeah, no.

David Windley: Totally split.

David Windley: Yes. So part, part of the deal of spinning out is that the new company really had to be totally separate.

David Windley: Uh, otherwise, uh, Caldwell would have to report up as a subsidiary into their books.

David Windley: So, uh, that I think was a great, great, uh, uh, in, in making sure that this is a separate company.

David Windley: So, uh, Caldwell is passively, uh, has equity at 20%.

David Windley: Um, you know, above that threshold, they, they would, there'd be concern about undue, you know, control or influence.

David Windley: They have no board seat, they have no influence. So we truly are separate.

David Windley: And at the same time, I had to separate completely from Caldwell.

David Windley: Um, otherwise if I was on both sides, then they would say there was some influence.

David Windley: So yeah, it's a totally separate, um, startup now.

Sean Weisbrot: But have they given you money to run the business?

David Windley: No, they did give me all the ip, 'cause again, when we built this, we were inside the company, so technically it was their ip.

David Windley: Right. But that was part of the deal. The spin out is we get all the ip, um, they maintain 20%.

Sean Weisbrot: Are they giving you any other support?

Sean Weisbrot: I know you said they don't have a board seat, but are they giving you advice?

Sean Weisbrot: Are they connecting you with your investors or clients for this?

David Windley: No, we're totally separate. Um, you know, and again, I was running IQ talent where we were building this, so it was, Caldwell is the parent company and they pretty much run a separate executive search type business.

David Windley: So, um, yeah, for, for what we're doing at Hoot Recruit, you know, the contacts would be sort of my contacts.

David Windley: People at who recruit more than Caldwell per se anyways.

Sean Weisbrot: What's the benefit of having an agent to do this work?

David Windley: Yes. I mean it big productivity gains at this point. Right?

David Windley: At this point, it's mainly about the productivity gains.

David Windley: As AI gets better and better, um, I think there will be a time where you can say the AI will be as good and maybe even better in quality.

David Windley: Right now it's mainly the productivity gain, and we've designed our application to make sure the human is still in the loop.

David Windley: So the recruiter or the user, uh, because of for qualitative checks, right?

David Windley: And judgment calls. Uh, we believe that's the best state of design for, for AI applications and AI agents today.

David Windley: But as it gets better, there may be a time where you can just.

David Windley: Let the AI agent run through the whole process without, without a human. I don't believe we're there yet.

David Windley: Um, but the way we're approaching this is as the AI gets better, we can also change the application's functionality, right.

David Windley: To take advantage of it. Um, so right now it's, it's huge productivity gains for the recruiters.

David Windley: So if you think about the candidate sourcing process, you get a job spec. I'm looking for.

David Windley: A principal engineer with machine learning experience in, in the Nashville area, right.

David Windley: Um, okay, let's go look at a bunch of resumes, try and find those people.

David Windley: You know, as a sourcer you have to source through the AI can do that like that now, right?

David Windley: And so it just saves a lot of time and productivity at the top of the funnel and the AI is very good.

David Windley: At doing that, right. Looking through something, matching, summarizing, giving you the information.

David Windley: And then we still leave it for the recruiter to look at, say, the short list of people that the AI surfaced up and make the ultimate call.

David Windley: Yep. That's a good candidate. Eh? No, not, not quite. Yes. It's a good candidate. No, not quite.

David Windley: So that, that's, uh, what Hoot Recruit does, and then we also allow.

David Windley: The user to, uh, have engagement campaigns through our software.

David Windley: Again, the AI can customize messaging between here's the search spec, right? What's required for the job?

David Windley: Here's the profile. Let me put together a nice messaging that marries it together and send it out to that user to try and encourage them to become a candidate.

David Windley: So that's. Top of the funnel part of recruiting, right?

David Windley: Finding people that are matched to your, uh, search spec and then engaging them so that they can become a candidate, you know, once they are a candidate.

David Windley: You know, that's, then now it's part further part of the recruiting process.

David Windley: You're doing the interview assessments and so forth. Right now we're just doing that very top part of the camp, what we call the candidate sourcing, uh, part of recruiting, and so.

David Windley: You know, we, we talk about hoot recruit as a, a gentech candidate, sourcer.

Sean Weisbrot: It's important, I think that you having have kept the human in the loop because I've spoken to other people that are in the recruiting business and they've attempted to remove the human from the loop and then realized that it was a bad idea and but the human backend,

David Windley: yes. Yes.

Sean Weisbrot: I've, I've tried, obviously, this is a slightly different example, but I was working with several designers for designing things for my podcast, for example, different kinds of thumbnails and, and, uh, shorts, videos, and all these kinds of things.

Sean Weisbrot: And I had fired one of them because I felt like there was an AI tool I could do it better.

Sean Weisbrot: When I compared the results in terms of, uh, views and likes and just engagement on those videos and those designs between the AI and the human, I realized that the human still did a better job even though the AI was faster.

Sean Weisbrot: And could do a good job. The human was consistently providing better results all around, so I decided to go back to the human.

Sean Weisbrot: So I, I think companies are especially, uh, public companies or, and or big companies that have portraits of directors and shareholders that are vocal.

Sean Weisbrot: Probably all finding that while there's a rush to implement AI within the business operations, that they will very quickly go, whoops, I probably shouldn't have fired those 10,000 employees or those hundred employees, because the AI isn't really capable of doing those things better than a human.

David Windley: Yeah,

David Windley: not completely capable, but just like in your example, I would say your human user.

David Windley: Could use AI to do quick drafts and other things, right to, but ultimately, if they're in the position to make the final judgment, the final edits right on, on the creative, the final judgment of what's good, that's the best use case.

David Windley: And that's kind of the parallel of what we're doing in the recruiting space, right?

David Windley: Is making sure that the recruiter user is still the one that makes the ultimate decisions. The editing, the.

David Windley: The final judgment calls, but speeds up, you know, the, those other aspects that what this human would've done.

David Windley: So it's a productivity tool, mainly today when it gets better.

David Windley: Then maybe we could replace that person totally for that task, for that process.

David Windley: But today, I, I believe the best state of application using AI is to use it where it, it, it creates good productivity gains for the user in that business process.

David Windley: Um, eventually the dream of eliminating the, the, the, that human in that business process will happen and it will happen.

David Windley: Quicker in processes that are more deterministic, um, versus where you have judgment. Okay.

David Windley: I mean, those processes where you still need human judgment will be the last ones that the AI agents will take over.

Sean Weisbrot: I think recruiting is safe for a while for this because.

Sean Weisbrot: Like there was a lot of backlash in the last few years where people were saying, the AI is looking at my, my resume and then tossing it because I am not from Harvard or I am not, you know, a white male.

Sean Weisbrot: Like you could tell it tell, it can tell from my name that I'm a black female, and so it just discarded me.

David Windley: Yeah. The probability that you are, yes, exactly. That's the way it works. Yeah.

Sean Weisbrot: So in order for companies to truly have the ability to surface, the best people to hire.

Sean Weisbrot: They have to ignore what they look like, which is, I know a huge problem in the US And if an AI algorithm is developed by a white male in his forties, it's probably gonna wanna surface white men in their forties for those jobs.

Sean Weisbrot: I don't know, maybe, maybe not. But there, there will be some bias and so.

Sean Weisbrot: The AI has to be able to focus on the value a person brings, not what they look like or what their name is, so that the human can do their job properly and get the best people.

Sean Weisbrot: So I, I believe you are safe for a while.

David Windley: Yes. Yes. I, I, you still need, uh, human recruiters in the loop.

David Windley: Uh, for at least the rest of my business career.

Sean Weisbrot: And you, you were talking earlier about these, uh, people hired by these larger companies getting paid a few hundred thousand dollars a year, and if they get two people hired, then they've done their job.

Sean Weisbrot: I feel like that's great. Like, I'd be happy with, you know, three, $400,000 a year job to recruit two people.

Sean Weisbrot: That's,

David Windley: well, obviously we want them to hire more than two.

David Windley: I'm just saying the economics was that they paid for themselves and so Yes. So they.

David Windley: And they pay for themselves way more over it than, than just the two hires.

David Windley: 'cause they typically do way more than that.

Sean Weisbrot: In, in all of this, all, all of the work you've done in your life, what's the most important thing that you've learned?

David Windley: Wow. That's, that's like a big metaphysical question.

David Windley: Um, well I think there's a couple things that are, are pertinent to, to organizations, whether they're big or small.

David Windley: Um, you know, from a leadership perspective, you know, the types of people you hire, whether you're in a big company or a small company, um, character matters.

David Windley: Um, and, and especially at the bigger companies because, you know, when you're hiring executives at one of these big companies.

David Windley: Someone's gonna be competent at all the things you need, right?

David Windley: Where you're hiring a CMO, you're hiring a chief, technically you're hiring a sales leader.

David Windley: They're gonna be good at what they do.

David Windley: And the differentiator between who's really gonna be great for your team and your organization versus not are usually the character issues, right?

David Windley: Is, is this someone you can trust? Do they have integrity? Are they a team player? Are they.

David Windley: Working for the benefit of the total organization first and secondarily for themselves?

David Windley: Or do they prioritize what's good for them first versus the team, right? Those sort of character.

David Windley: Some call 'em soft issues. To me, they're not soft, right?

David Windley: Those are the things that really make or break right? Someone being great for your organization or not.

David Windley: Um, and then the other thing I would say is culture of your organization is important.

David Windley: Um, you can have rules and policies, right? Um, but you can't legislate what I'm doing all the time as a person in your organization, as an employee.

David Windley: And that's where culture comes in, right? Culture are those.

David Windley: Unwritten oftentimes, but known norms, acceptable behaviors, right, that this organization accepts or doesn't accept.

David Windley: And that really governs your behavior when no one's looking.

David Windley: And so culture, I think is very important for companies to think about. What is your culture? What?

David Windley: What are those norms? Um. Let's be clear, every organization of a certain size has a culture.

David Windley: Whether you've, um, purposefully tried to create it in a way, but in absence of actively trying to create a culture, culture does happen, right?

David Windley: Um, over time it's just, it's just human interaction and the behaviors that get accepted over time.

David Windley: So, um, those are the two things that I, I would say are universal, really important.

David Windley: That I've learned across, whether you're a large organization or a small organization.

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