Hiring stars vs. growing stars: How to get the team you need in business

Hiring and developing great talent is a top priority for any business at any stage.

But should you hire it or develop it?

Generally speaking, it tends to be more cost-effective to promote from within. It’s also better for morale and productivity, according to the Society for Human Resource Management (SHRM).

Of course, a growing business almost always needs to increase headcount, and this article is by no means suggesting that companies shouldn’t hire new talent from outside.

That said, there are several important reasons why more senior roles are often better filled by internal candidates. And taking steps to avoid employee attrition at all levels is essential to building and maintaining high-performing teams. Here’s what you need to know about both.

According to SHRM, the cost of hiring a new employee can range from 30% of the position’s first-year salary to as much as four times the salary, depending on the role.

Senior positions are generally much more costly and challenging to fill than junior roles. This is due in part to the specialized recruiting services necessary to locate, attract and vet appropriate candidates. (Such services generally charge a commission of 20% to 30% of the role’s salary.) The high price tag is also due to the fact that such roles often come with hiring bonuses, severance agreements and other benefits not typically associated with rank-and-file positions. Using a position with a $100,000 salary as an example, it could cost a business at least $30,000 — and possibly much more — to find and recruit the right person. 

Money isn’t the only thing hiring can cost you. Hiring also takes time. On average, it takes 43 days to fill a role, and many positions sit unfilled for two to three months. That lengthy process slows down business operations and can be highly disruptive if you’re backfilling an existing role.

Customer-facing positions, in particular, can lead to serious challenges in account relationships as customers are realigned to other personnel and existing staff is tasked with picking up the slack.

The added burden of covering for empty positions can significantly impact team morale as well. Covering for departed colleagues for weeks or months can also lead workers to wonder why the company is taking so long to fill positions. They might begin to think that something is wrong with the company if no qualified person wants to work there. 

To be clear, this isn’t just a problem for the rank-and-file: Managing these morale issues on top of working to find and interview prospective candidates can be exhausting and demoralizing for managers too.

Perhaps the most under-recognized cost of employee turnover is loss of institutional knowledge. It’s difficult to put a price tag on the value of having people who’ve been around long enough to really get:

• How the company works
• The ins and outs of internal processes
• How to act quickly without having to figure everything out from scratch

More than that, it takes time for new hires to really get the company’s culture before they feel and act like part of the team. 

Because hiring for senior roles can be much more expensive and disruptive than hiring for entry-level positions, I like to think of team development as an upward funnel. When senior-level roles open up, it’s best to have a pool of highly developed talent to promote from within.

By developing existing talent within their teams, managers can ensure they’re ready to backfill senior-level roles that open up, with little time lost from the moment a decision is made to create a position or an employee gives notice.

An added benefit for the business is that internal promotions often cost far less in raw salary than outside hires, with new hires often demanding 18% to 20% higher salaries than internal advancements might cost.

By promoting from within, managers can focus their hiring efforts on more junior positions, which, as noted, are generally easier to fill and at lower cost and greater hiring velocity. This approach keeps a fresh corps of promotable talent flowing into the organization, creating a virtuous cycle of talent growth that benefits employees and employer alike.

While training and professional development alone isn’t a silver bullet to stop employee attrition, it’s one of the leading factors influencing job satisfaction and retention.

A 2022 article from HR services company HR Cloud cited onboarding and training as the top contributor to employee retention. Recognition and career development also ranked among the top six factors along with company culture, work–life balance and company benefits. That means three of the top six factors are closely related to a strategy of developing talent internally. Once again, we see a virtuous circle at work.

On average, companies spent approximately $1,200 annually per employee on training and professional development — a negligible sum compared to the cost of hiring qualified talent. By keeping abreast of market trends and regularly checking in with employees about their aspirations and the skills they desire to learn, managers can help align workers with the right training and development tailored to their interests and talents.

Workers, at the same time, should proactively explore and develop learning paths with their managers. By working together and communicating clearly about the company’s needs, trending skills and paths for advancement, managers and employees can collaborate to create a mutually beneficial path for growth. And all companies benefit from growth.