Referral Hiring Works Best When Someone Owns the Risk

“Referral hiring” means hiring someone through the introduction of an existing member of the organization. In most cases, this means bringing in a former colleague or a university classmate.

【Affirmative argument】

The most important things to watch for in hiring are skill match and culture fit. With a referral, someone inside the company already knows the candidate’s skills and everyday behavior well, so the risk is very low.

【Negative argument】

Office politics should be eliminated as much as possible. A person hired through referral naturally has a strong bond with the person who referred them. For example, if an engineer who joined through the CTO’s referral finds themselves in a situation where the CTO and CEO clash, it’s obvious whose side they’ll take. To avoid the risk of factions forming inside the company, hiring should favor people who are as neutral as possible.

【Kuzuryu’s view】

Speed matters especially for many startups. Increasing speed means lowering communication costs, and shared context helps enormously with that. Among referral hires, the “former colleague” pattern tends to come with a high probability of shared context, and this makes it very effective for keeping development moving smoothly.

In large companies, though, referral hiring occasionally backfires. At companies of a certain size, personnel placement and organizational restructuring generally happen beyond the understanding or intentions of rank-and-file members, so the history behind a referral often ends up ignored. (“Wait, he said he was working on such-and-such… actually he’s already in a different department now.”) When something like that happens, maintaining motivation can become somewhat difficult. Of course, highly adaptable people find new motivation in a new environment, so this isn’t necessarily a reason to avoid referral hiring altogether.

Personally, I trust and value referral hiring. Underlying that trust, though, is a fairly severe idea: the person who made the referral should bear responsibility for the person who got hired.

In the United States, for example, I would occasionally get a call out of nowhere from an unfamiliar number. The caller would be a recruiting agency or the HR (Human Resource) department of some company. “I heard you worked with so-and-so two years ago. Could you tell me about him/her?” This is what’s called a reference check.

When you apply for a job opening somewhere, you’re almost always asked to provide references. That’s when a former colleague sometimes names me, saying “ask Kuz.” They pick someone who worked closely with them and who seems unlikely to say anything unfavorable about them. From what I understand, the agency or HR typically narrows a list down to two or three people to call.

At first, “in the Japanese way,” I just praised the person unreservedly, but as I talked with colleagues about these kinds of experiences, my thinking gradually changed. (“Wait, if I don’t answer properly here, it could reflect back on my own reputation.”) I recall my boss at the time, J, saying something to that effect in a rather blunt way. After that, I made sure to answer honestly, as things actually were. If anything, I made an effort to balance the good points and the bad points so that both sides came across properly.

I haven’t had much experience with this kind of reference-taking in Japan, but referral hiring is, in a sense, a pattern where the same logic applies. The performance of someone hired through a referral reflects back on the reputation of the person who made the referral. That’s fine if it’s a positive story, but it isn’t always.

Sometimes the person hired doesn’t actually function well enough, or causes trouble with other members. That bad impression spreads as well. To avoid that, the person should act to improve the situation before the people around them start to feel something is wrong. Referral hiring is a good approach, but making it work effectively requires having a proper scheme in place.

The contents of this post are an excerpt (original text) from the following book. If you’re interested, please consider getting the book.

The Shape of a Happy IoT Startup

The Shape of a Happy IoT Startup

Originally published in Japanese at https://clazytech.com/2022/09/1195/. Translated with LLM assistance and reviewed before publication.