Lots of companies are entering the job referral space. It’s heating up like crazy. They’re looking at someone’s social graph and trying to figure out how to convince and incentivize that person to recommend friends for jobs. And from what I’ve seen, they don’t work. I don’t know of a single recruitment company or startup that’s significantly improved how we make job referrals. I’m not saying these companies don’t exist (or won’t in the future), I just haven’t seen them yet. I do believe in social recruiting and the movement in that direction, but referrals are a beast of a challenge.

Why is that the case? Why haven’t the job referral startups / companies succeeded?

I’m not entirely sure. I hope someone figures it out, because I’d love to see this nut cracked in a huge way. I do have some thoughts though…

Job referrals are done instantaneously, but a bunch of micro-decisions are made in that instant to decide whether or not to refer someone to a job.

People typically only make job referrals instantly; the minute they receive the request or shortly thereafter. If they have to think about it for a long time, they won’t do it. People are lazy and people are busy. Technology could presumably grease these wheels, if it could provide us with the right people to refer, instantly, to any job requirement. And there are a number of companies working on this. But does it work?

The data that a computer system / algorithm needs to make the right recommendations is wholly incomplete. It can’t possibly understand the human psychology and subtleties that go on in the instant that someone decides: (a) yes, I want to make a recommendation; and (b) I know the right person. Here’s an example thought process that someone goes through when asked for a referral:

• Do I know someone?
• How well do I know them?
• How well do I know the employer?
• Why should I do it?
• What’s my responsibility here?
• Do I owe the employer anything?
• Will the employer recognize that by making this referral they owe me (you scratch my back, I scratch yours)?
• Do I want to put my reputation on the line?
• Will I get an increase in reputation (from the two parties involved and beyond) by making this referral?
• Is the person I’m thinking about available?
• Will the person like the new job?
• Will the employer like the person?
• Will I be “in trouble” (in some way) with the employer I’m “stealing” the prospect from?
• Do I even want this referral to be public?
• Even if the person isn’t hired, will the interaction be valuable enough to the two of them that my reputation will: (a) remain intact; and (b) increase?

All of this goes through a person’s head when asked to make a job referral. It’s complex, but happens almost instantaneously. And if something doesn’t compute through this thought process, a recommendation doesn’t happen. Note that, “Will I make money off the referral” doesn’t fit into this at all. Why? Because I don’t think (and others with a lot of experience in this space have told me) that it doesn’t matter. Referral bonuses that you earn for recommending people are nice, but they don’t seem to drive people to make more referrals. The social capital ramifications are too big and outweigh the monetary rewards. Many people know that their networks are one of their most valuable assets. Those networks can’t be and shouldn’t be accessed cheaply or easily.

Jobs are one of the most personal, complicated and important things in people’s lives. You’re not recommending a plumber to fix a clogged toilet. You’re messing with people’s lives and their livelihoods. People don’t make these kinds of recommendations lightly.

Accessing Employee Referrals

Employee referral programs have existed for a long time. I’m certain they work but not as well as you might think. Employees – although they have obvious internal motivation to impress their employer – aren’t chomping at the bit to make referrals. They don’t necessarily think about it more, work longer at it or act more aggressively because of monetary rewards. Employees are equally cautious about tapping into their networks, and in some cases the stakes are higher – they may be working with the person they refer and be closer to the feedback (positive or negative.)

Employee networks often have quite a bit of overlap as well, and this is especially true for tech startups. A small tech company with 10-50 employees is going to have a lot of people with similar networks. That limits the number of referrals any one person can and will make, and means that referrals have to go multiple degrees away.

You Can’t Kill Recruiters

A lot of startups in the recruitment space point themselves directly at recruiters. The basic logic is that recruiters charge too much to place people. And if you look at other markets like travel and home sales, the intermediaries (travel agents and real estate agents) have been displaced (at least to some degree). But in recruitment, very little if anything has displaced recruiters. In fact, job boards and even social sites like LinkedIn, make a lot of their revenue from recruiters.

Job referral startups target recruiters because they want to offer a less expensive way of recruiting. And job referrals (if they work) are less expensive. But most of these startups heavily discount what recruiters do and the importance of significant human intervention in a very human, delicate interaction (getting a job). So I tend to discount recruitment startups that are going to “take down recruiters.”

The Secret to Successful Job Referrals

So what’s the secret? For a job referral system to succeed it needs to grease the wheels and make referrals effortlessly while taking into account the social and psychological issues involved. To make referrals easy on someone, you have to tell them exactly who they should refer to a job and why. In order to do that you need the right kind of data – a lot of which is not easily accessible – and a lot of which is based on human behavior and judgement.

I’m not saying it’s not possible, and I’m not saying there isn’t a startup working on this problem right now that won’t hit a home run in this space, but the problems in the recruitment space are much more complex and challenging than most people realize.