How to hire employees: Employee referral vs. external hiring

As your business begins to expand, you may need to hire new employees whether referrals or external.

Tags: Best practices, Employees
Published: November 11, 2019

Is it better to hire acquaintances you already know, or people who are qualified but are external? Both options have their advantages and disadvantages.

The majority of people who get hired by business owners are already known by the owner or are referred by another trusted contact, rather than by a recruiter or from answering an ad. There’s nothing wrong with internal hiring, but you could be missing out on some excellent candidates if you don’t consider hiring someone with whom you have no prior acquaintance or referral. 


The case for employee referrals

When someone you know personally or professionally refers a job candidate to you, you may feel a certain level of comfort in hiring an employee referral. You may already know, or think you know, that the candidate is qualified. With this initial trust already established, you can spend more time getting to know them as a person and may be more open to tailoring the job to fit the candidate.

Of course, there is more risk involved when hiring an external candidate. It takes time before you can be certain they are competent, reliable, and honest. In fact, it may turn out that they have none of those characteristics, and as a result, your business progress has been slowed or obstructed. But there are benefits to hiring outside of your circle of acquaintances, too.


The case for external hiring

Although there’s a greater degree of comfort in hiring an employee referral, that candidate may not be the best fit. By focusing only on internal hiring, you may miss an opportunity to hire someone who is better qualified and helps your business grow more than a familiar candidate would. 

External candidates—even if they have better qualifications—are put at a disadvantage because they are unfamiliar. However, hiring them may be the best option for your business. To pursue the possible advantages, the first step you should take is to learn to break down the barrier between employee referrals and external candidates during the interview process. 

A formal interview is seldom comfortable for the interviewer or the interviewee, especially if the candidate is not an acquaintance. For example, when interviewing external candidates, you’re more likely to stick to the script, matching the resume against the list of criteria for the job, and possibly not exposing other qualities they have to offer that could be beneficial to the company. Here are some suggestions for making it easier and more fruitful.

  • Ask the candidate to submit a sample of their work in advance to give your discussion a starting point.
  • Create a comfortable atmosphere for the interview, allowing it to be a discussion rather than a Q&A session.
  • Meet off-site. A coffee shop (or your employee lunchroom) is a neutral locale and less imposing than an office or conference room. That doesn’t mean you should dumb-down the interview, but a few sips of coffee can fill awkward silences.
  • If time doesn’t permit you to leave the office, take the candidate on a tour first. Point out different areas they might be working in, and take time to explain what your company does and answer their questions.
  • Show the candidate some completed projects or products and ask their opinion.
  • If the candidate seems promising, and time permits (and it doesn’t present a conflict), ask if they would be willing to work on a project to gauge their abilities. If not, discuss a project issue and how they might go about solving a particular problem.
  • Schedule brief get-to-know-you interviews with other key people or groups in the company. Group interviews can help gauge the compatibility of people who would ultimately be working together. 

Though you may still end up hiring someone who was referred by a colleague, by pursuing the option of hiring an external candidate, you will have put yourself in a better position to find the right person for the job.



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