The Cost of a Bad Hire: Explained

Published on
April 10, 2024
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It’s no surprise that startups move quickly. With a general motto of move fast and break things, most startups expect their employees to take risks, test the market with beta products or services, and hire new employees at a rapid speed to keep up with the growth. And while most startups don’t intend to be reckless in these practices, too many find themselves dealing with the costs of decisions made too quickly—especially when it comes to hiring new people for the team. 

Even with this startup mentality of moving quickly, the landscape for startups has shifted dramatically in the last few years. Funding trends have slowed and most new businesses are required to do more with less. This puts even more pressure on the employees tasked with growing the business—and prioritizing the mission of the organization. 

The bottom line—hiring the right people is more important than ever, because if you don't, it will cost you.

How does a bad hire impact a startup? There are four key ways: 

The financial costs are exponential. 

It’s not groundbreaking that making a poor hiring decision will cost the business money. Most startups and established businesses recognize that it can take around 6 weeks or 44 days to find and hire a new employee, cost your business up to 30% of the employee’s annual salary, and take up to 6 months for a business to break even on the investment of a new hire. 

Hiring poorly is simply expensive. Add in the time cost that likely the CEO or someone on the leadership team—in lieu of a traditional, in-house HR recruiting team—is spending to find a new hire, the impact grows even more. On average, some businesses spend 30 hours over the course of 4 weeks to recruit a single employee. Senior-level positions require even more time with 40 hours over 6 - 8 weeks

The real loss—when startups hire poorly, they lose precious funding dollars that could have been spent on the right hire the first time. 

The time lost impacts more than product and service delivery.

Startups have a short window of opportunity to deliver on their promises to investors and to the market. Whether they’re producing physical products, coding new software, or working on cutting edge solutions or important research that could potentially save lives, time is critical. 

When startups make the wrong hire, have to let that person go, and then find a new employee to take their place, the time delay adds up quickly. Three months could pass before someone is up-to-speed and able to contribute to the business in a meaningful way—especially if they are crucial to executing on the vision of the business (and in a startup, every role helps move the business toward that vision).

The real loss—when startups hire poorly, they lose time to impact. And for a startup, impact is everything. 

The morale decline internally impacts everyone. 

As with most small teams—employees at startups are intricately connected. Each employee is reliant on the next employee for their own success. Without marketing, the sales team can’t move forward. Without engineering, marketing doesn’t know how to position a new product. When one team can’t meet a deadline, another team is behind. 

Because of this web of connectivity, a poor hire at a startup has a cascading impact. A vacant role doesn’t just mean a hole in hiring. It means a critical role is empty. Employees lose speed on meeting deadlines, they take a hit on morale that hiring and firing might be part of the culture at the startup, and then they’re tasked with getting new people onboarded quickly and efficiently.

The real loss—when startups hire poorly, they lose momentum from everyone on the team. Not only does the speed of productivity slow, but employees have to bring new hires up-to-speed with important company context, best practices, and nuances. 

The company’s reputation declines. 

Startups often have one shot to make a good impression—to new investors, to customers, and to potential candidates that could help them achieve their goals. When a startup cuts someone loose because it’s not a good fit or they aren’t contributing to the business in the right way, the impact spreads beyond internal repercussions—the company’s reputation can quickly decline. 

A poor reputation can strip away potential investor relationships, customer sales, and the opportunity to find a replacement for the employee the business had to let go.

The real loss—when startups hire poorly, they waste investor time and money, they potentially lose new customers based on a poor brand reputation, and they impact the speed of future hires if turnover is too high. 

Hire right the first time.

At Moonhub, we know how important every individual is to a startup’s success. Moonhub is helping startups across the country hire the right people quickly—no more rehiring, no more losing precious time, and no more delays to your business’s mission.

With Moonhub, you get access to best-in-class recruiting AI services, ensuring you find every possible candidate who fits your job criteria. With a more diverse talent pool, you can find the right hire the first time. Plus, with Moonhub, you can rely on experts who specialize in startup hiring—cutting costs for your business, improving morale for your team, and helping you find the right people to drive your business’s mission and vision into reality.

Talk to our team of experts today!