The Recruit Mafia: The 60-Year Old Behemoth that Keeps Creating Japanese Business Leaders
PayPal, a now well-known electronic payment platform, is also known for having spawned several notable tech insiders, from serial entrepreneurs to successful venture capitalists — the roster includes YouTube, LinkedIn, Yammer, and SpaceX for new startups, and Founders Fund, 500 Startups, and Mithril for venture capital firms to name a few.
Also known as the PayPal Mafia, over twenty of these early employees at PayPal have contributed directly dozens of companies, not to mention hundreds of venture capital investments, and similar to groups of early employees at Google and Facebook, the great thing about wildly successful startups is that they become a new incubating ecosystem for future founders and visionaries.
Across the pond, in the largely enterprise-heavy land of Japan, there is one company that stands out as having graduated numerous alumni well known in the Japanese business world.
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The Basics: Recruit Holdings
Recruit Holdings has a long history starting in 1960, when it started out as an advertising agency for university newspapers (think classifieds and other job-related ads). In the 60 or so years in existence, it has grown to a corporate giant with more than $16 billion in annual revenue across 21 group companies, and approximately 45,000 employees across the globe. The company has acquired a number of non-Japanese companies in recent years, the most notable being Glassdoor and Indeed, both in the recruitment and corporate review space. It’s probably a safe bet that you didn’t think these two companies were now owned by one Japanese corporation.
Compared to its humble beginnings (and perhaps a lack of brand value in the US), the company is now a household name in Japan, operating several high-profile magazines and websites targeting audiences in specific life stages, from part-time and freelance classifieds TownWork, to Zexy for wedding and marriage-related tips, and SUUMO, Japan’s leading real estate search site.
Though it’s had an amazing six-decade run, the company hasn’t been immune to the kinds of corporate scandals many large companies face given enough time in the market. The company was once blasted in Japanese media in the 1980s when the then-chairman was caught leading an insider trading scheme that involved senior business leaders and political figures. The incident, known as the Recruit Scandal, is said to have swayed public opinion so much that the nation voted in a government led by the Democratic Party of Japan after a 39-year reign by the Liberal Democratic Party. That’s the kind of influence Recruit has built, one ad channel at a time.
Recruit has continued to grow throughout the decades, surviving both the asset price bubble bursting Japanese Lost Decade of the 90s and the financial crisis of 2008 (during which the Lost Decade was used as a case study in numerous articles), continuing into the 2010s with a number of global acquisitions. And over these decades, Recruit has built a reputation for their internal hiring, training, and operating practices that have resulted in numerous alumni founding successful startups, or being poached by other organizations as effective leaders.
The Recruit System
To understand why there have been so many startups founded by ex-Recruit employees, we’ve compiled a list of factors posited by many writers and ex-Recruit employees have already tried to answer the question (thank goodness for the popularity of this topic over in Japan). No matter what article, it seemed that these four factors created a solid foundation to nurture future leaders:
- Extreme Accountability and Meritocracy
- Attention to Processes (but for the results)
- Internal Mingling and Angling
- New Business Development Support
Extreme Accountability and Meritocracy
“…an article from 2018 reports 32% of Japanese male workers and 26% of Japanese female workers will only work for one company until retirement.”
Believe it or not, a large number of Japanese companies still operate on the assumption of lifetime employment, whereby a college graduate joins and stays at one company for their entire career. In fact, an article from 2018 reports 32% of Japanese male workers and 26% of Japanese female workers will only work for one company until retirement. The Japanese Institute for Labor Policy and Training found that close to a whopping 90% of respondents desired lifetime employment. This system has resulted in a seniority-based compensation system that rewards loyalty vis-a-vis each employee’s tenure and age rather than results, which inevitably results in mediocre or even poor performance being ignored, high performers disincentivized to continue producing high-quality work, and low tolerance for risk taking so as to not rock the boat, or worse, have a project you’re involve fail.
Recruit has taken an almost polar opposite approach of actually focusing on an individual’s performance by setting up concrete performance metrics to evaluate their contribution and progress — a perspective Japanese corporations are warming up to, yet still unable to switch gears after decades of lifetime employment firmly embedded as a key pillar of Japanese society. A Recruit employee is given individual accountability and can move up the ladder much quicker than in traditional enterprises, along with an increasing paycheck, which in turn incentivizes them to keep producing solid work (who would’ve thought?).
Accountability at Recruit comes in the form of autonomy and freedom in decision making, both in professional development and responsibilities over their domain. It’s the individual who comes up with their stretch KPIs and set annual professional goals to achieve their short- and longer-term career vision. Their pay grade and positions come with very clear expectations, which make mapping your own career plan as well as receiving constructive feedback a natural part of their work.
In addition, when things seem to be getting off track, whether it be a project or a sales cycle, it isn’t the individual’s manager’s role to step in to course correct — they start by simply asking what that individual wants to deal with that situation. This provides an opportunity for the employee to think through the issue without overly focusing on the consequences, getting him or her out of their comfort zone and allowing them to grow as professionals. It also instills in the employee a sense of ownership (something not all employees in the US get, either), an emotional aspect of motivation that’s proven to produce better results.
Attention to Processes (but for the results)
While many business teams set their quarterly revenue goals and work hard to achieve them, Recruit sales people have been known to break goals down into weekly subgoals and processes. For example, rather than working to achieve $40,000 a month, working on $10k a week and taking it week-by-week makes it easier to pace yourself and track progress. While developing processes and optimizing workflows is a large part of Japanese business, it usually comes at the expense of results—given enough time, following processes and orders for the sake of following them becomes the norm. To the contrary, processes at Recruit have been implemented to support the results-driven workforce, making goals more measurable and achievable and keeping each employee on track. In fact, non-sales teams (engineering, new business planning, etc.) also operate on this results-based mentality, laying out their own KPIs and tangible, actionable metrics to improve their own departments.
Their daily or weekly standup meetings, as well as awards given out frequently (weekly, monthly, quarterly, etc.), are other methods Recruit companies employ to keep everyone honest and moving in the same direction, not to mention motivated while stoking friendly competition.
Internal Mingling and Angling
As Recruit sales teams tend to work very closely with their clients, sometimes even embedded on-site, they often don’t consider themselves ad sales people, or external recruiters, but rather business consultants. Due to this mentality, there’s always something intriguing one of your colleagues is working on outside of your scope. In order to be in-the-known of what everyone else is working on, a lot of Recruit conversations end up resulting in people talking about their latest project to showcase their experience and network — and working hard to find interesting ways to communicate what you’re working on in order to show off the projects you’re working on. This has created a culture in which employees find stimulation in talking about their unique projects, find out the exciting, fast-paced industries in which some of their clients operate, and keep the competitive spirit alive within each business, along with planting seeds for future cross-business collaboration.
New Business Development Support
Quitting your job at Recruit is commonly known as graduating, and the ex-Recruit network reaches far and wide. While Japanese companies are known for their lifetime employment system, still very standard to this day, Recruit has made it very easy, and even beneficial, for employees to leave the company.
One example of that is their “graduation” severance package of one-year’s salary after 5~6.5 years of employment. This creates a sense of security for those leaving the company to pursue other, riskier opportunities, if not outright entrepreneurship, and provides a reason to move on rather than sit idly in a role that may have become just another job. Recruit as an organization understands, just like venture capitalists and tech insiders in Silicon Valley, that the endeavor of entrepreneurship is, in and of itself, a beneficial journey you can undertake; having your alumni start new businesses, even if they fail in the end, creates a better alumni network that’s better for the Recruit network.
In addition, Recruit has created their own internal business idea pipeline Ring. Initially set up in 1982, Ring has created business units such as Zexy, StudySapuri, and R25, all household names in Japan today. Ring is organized as a business idea contest with initial submissions, feedback, and a final presentation to the executive directors of the company including the president. Once an idea has been given approval to move forward as an actual project, the process starts over — the winning teams have to hit certain goals to receive further funding and support at the seed, MVP, alpha, and beta stages before it is turned into an actual business line (another nod to Recruit’s process- and results-oriented culture).
What We Can Learn from Recruit
If you’re somebody who works at an American startup or tech sales organization, what Recruit does well, from its meritocracy, to autonomy given to employees, and internal water cooler talk, may already be a given in your day-to-day life. Recruit’s practices may come across as obvious and even mundane to you. However, I took these four pillars of Recruit’s success as a kind of management mantra — key insights and actions to take and codify in order to create a successful business culture instead of waiting for these attributes to organically materialize on day.
Just like the Checklist Manifesto, How to Make Friends and Influence People, and other tried and tested management books, Recruit has found a way to successfully build a wide variety of business on these pillars. And if a Japanese conglomerate can generate successful leaders and entrepreneurs one after another using these methods, I have a feeling all other companies, especially those in the US, have a solid chance at improving their business outcomes.
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