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Feb 11, 2014

There is a story in The Wall Street Journal recently about an emerging recruiting trend where traditional employee referral programs are being expanded to allow non-employees to submit referrals.

I call these variation “friends of the firm” referrals (FOF) because it expands the number of people looking for top talent for your firm beyond the traditional employee base.

That means that those looking for talent now include family, vendors, and other individuals who both like your firm and understand its talent needs.

Benefits of a “FOF” referral program

Some of the many benefits that can occur to a firm that offers FOF referrals include:

  • More talent scouts – A FOF program will dramatically expand the number of individuals who are acting as 24/7 talent scouts for your firm. This increased number of talent scouts is especially important for startups and small firms that simply don’t have very many employees to look for or vet referral.
  • Using “other people’s time” – Because these non-employee friends are not on the payroll, the time that they spend searching is essentially free to the firm (or low-cost if you provide a bonus upon hiring).
  • High-quality referrals – If the FOF program is designed correctly, eligible friends will be educated so that they only seek out and refer only high-quality prospects. In addition, because eligible friends should be limited to individuals who have a close working knowledge of the firm and its culture, this added layer of screening will help to screen out low-quality potential referrals. Although there is some variation, in my experience, you can expect the highest-quality referrals to come from these non-employee groups including board members, former employees, vendors, and family members.
  • A proven approach — Dozens of firms have successfully used this FOF approach including Verinon Technology, Internosis, Clearlink, the U.S. National Guard, and CACI.
  • A different set of prospects – Because friends of the firm probably have a unique set of contacts that is different from your employees, friends may be able to find prospects who employees cannot easily find.
  • Increased speed – With more individuals looking, it will take less time to find referral prospects (employee referrals in general are usually No. 1 in hiring speed).
  • Low-cost – Because many of the firm’s friends have a vested interest in having the firm do well (especially vendors), many will be willing to be talent scouts for little or no economic reward.
  • You may strengthen your relationships – By helping with recruiting, the non-employee friends of your firm may learn to better understand your firm and to appreciate you more. As a result, this referral relationship may further strengthen already existing business relationships.
  • Friends may also become prospects – During the process of looking for referrals, some of the firm’s friends may realize that they themselves would like to work at your firm.

Implementing a non-employee referral program

When you add a “friend of the firm referral program” to supplement your traditional employee referral program, consider taking the following six actions:

  • Set quality expectations – Make it clear to all of your eligible non-employees that you’re looking for extremely high-quality prospects, so that friends would be expected to make no more than three referrals per month. Friends would be encouraged not to refer strangers who approach them; people have to be vetted for skills and fit.
  • Require friends to provide detailed information when they refer – FOF referrals (as well as employee referrals) can be improved dramatically if you require the referring individual to describe and attest to the superiority of: 1) the work of the individual; 2) their skills; 3) their fit with the company; and 4) that they have sold the individual to the point where they are already willing to accept an interview.
  • Provide a referral toolkit – Just like with employees, friends will make better referrals if they receive an educational referral toolkit. That toolkit should educate them on the best places to look; how to build effective social media profiles to attract; how to make initial contacts; and how to effectively convince identified prospects to agree to become a formal referral. The toolkit should also include frequently asked questions with answers and examples of “ideal” approaches and scripts. Friends should be made aware of how they can become more visible on the Internet by tweeting and writing articles and blogs so that top prospects can easily find them.
  • Provide “ownership” and motivation – Get your non-employees to take ownership of this talent scout role. Next, educate all of the friends on the many reasons why they should seek out referrals. Some facts that might motivate them include 1) referral hires can increase the firm’s performance and value; 2) they can make it more likely that family members and employees who they know will be able to work alongside the very best new hires; 3) they can help the firm meet its mission; and 4) acting as a talent scout is a chance to give back to a firm that has treated these non-employees well as vendors, board members, customers, or back when they were employees. Rather than offering a large reward, initially try low-cost rewards like free product samples, a booklet of movie tickets, a Starbucks coffee card, or a drawing for a fun vacation trip. Those who don’t expect a direct reward for themselves may further be energized by the fact that the firm is willing to make a donation to their favorite charity in lieu of them receiving a monetary reward.
  • Take advantage of every opportunity to ask for referrals – You should ask almost everyone who knows and respects your firm but especially top performers who are leaving during “offboarding interviews” to agree to actively participate in the FOF program. Also remember to ask friends during corporate events and product unveilings where non-employees usually attend. Also proactively approach your vendor managers and salespeople and ask them to help to spread the word among non-employees who they regularly interact with. Have the VP of HR or the CEO approach board members and those on external advisory committees.
  • Minimize administrative roadblocks — Proactively work with HR to ensure that referrals are expedited and with accounting to ensure that there is no resistance to paying any promised rewards despite any tax obstacles. You should obviously develop a set of success measures to demonstrate both to executives and to your firm’s friends” the large dollar impact that FOF referrals are having on the organization.
  • Consider these categories of potential “friends” – Although every firm is different, you should at least initially consider accepting referrals from individuals in each of these categories:
    • Contingent , seasonal, and part-time workers who are not considered as an FTE;
    • Members of your board of directors;
    • References provided by your quality hires (these can be a continuous source);
    • Employees of major vendors;
    • Close family members;
    • Consultants who work with your firm;
    • Long-term individual customers or the employees of corporate customers;
    • Your college interns;
    • Top quality job applicants or finalists;
    • Corporate alumni (former top employees) who can refer. However, they can also be recruited themselves and asked to return or in addition, be asked to also make sales or business referrals

Potential problems

As with any program, the friends program can carry with it some potential issues.

The most common one is that if you are offering a reward of over $100, it may be an administrative burden to issue non-employees 1099 forms to cover taxes.

Even though it is not proved to be a problem in well-designed programs, executives may also worry that friend’s referrals won’t be of a high enough quality. If you do experience weak referrals from non-employees, effective upfront education and direct feedback to those who make weak referrals can help to minimize future problems.

One last area of concern is the occurrence of any potential conflicts of interest, and in these cases you can simply reject the individual referral, disqualify the individual, or donate any rewards to a charity.

Final thoughts

Although almost every new idea in recruiting is routinely met with some degree of resistance, a friends of the firm referral program is a proven approach that is justifiably increasing in popularity as the “war for top talent” heats up.

If you’re still unsure about a Friends of the Firm program, start with a pilot project in one group in order to first work out the bugs and then expand it to other groups as you learn more.

In any case, it’s hard to argue against the concept that if you can successfully convince most of the friends of your firm to act as talent scouts, it can only positively improve your firm’s chances to find the best talent.