The "Bad Hire Cost" Nobody Accounts For
dailyblog.scottdclary.com
Hi All,
Here’s my daily newsletter navigating the crossroads of business, growth, and life.
If you love this content (please share it), but also…
Start here > https://newsletter.scottdclary.com
Check out my Podcast, connect with me on YouTube / Twitter, and read my Weekly newsletter.
Sponsor: Indeed
Let's be real - nobody can predict hiring success. Applications trickling in, screening taking forever, top candidates choosing competitors... it's a lot. But here's the thing: over 580 million job seekers have found something better than endless job boards. They use Indeed to connect with employers in one place - we're talking unparalleled candidate reach, automated screening, and virtual interviews. While others are stuck with busy work, you'll have real tools to hire faster and smarter.
Want to see what the future of your recruiting could look like? Get a $75 credit to sponsor your first job at indeed.com/clary.
$75 Sponsored Job Credit: indeed.com/clary (T&C Apply)
Listen Here
The "Bad Hire Cost" Nobody Accounts For
You're about to make a hiring mistake that will cost you far more than you realize.
That mediocre candidate you're considering because you need to fill the position "ASAP"? They're a ticking time bomb for your company culture, team morale, and bottom line.
Most founders and managers only look at the obvious costs—salary, benefits, maybe some onboarding expenses. They think the worst-case scenario is paying someone to do subpar work for a few months before letting them go.
This failure of imagination is destroying your business from the inside out.
I've watched companies implode because of a single bad hire. I've seen thriving teams disintegrate after one toxic person joined. I've witnessed standards plummet across entire departments because leadership couldn't recognize the true cost of their hiring decisions.
The real expense of a bad hire isn't what you pay them. It's what they do to everyone else around them.
Let me show you what's really at stake.
The Invisible Plague of Lowered Standards
When you bring a B-player into an A-team environment, something fascinating and terrifying happens.
At first, everyone tries to pull them up. Your best people spend extra time training, correcting, and supporting the new hire. They make excuses: "They're still learning," or "They'll get better with time."
But then something shifts.
The standards don't raise the person. The person lowers the standards.
It's subtle at first. Small compromises. Slightly delayed deadlines. Quality issues that would have been unacceptable before are now met with resigned sighs.
What's happening? Your team's mental model of "good enough" is being recalibrated downward.
This is human nature. We instinctively calibrate to the people around us. When someone consistently underperforms and faces no consequences, it creates a new implicit standard.
Think about how this plays out:
The exceptional becomes "above and beyond"
The good becomes "exceptional"
The mediocre becomes "good enough"
The poor becomes "not ideal but we'll manage"
Every level shifts downward.
I've seen companies where a single mediocre designer led to an entire rebrand being compromised. One poor sales hire lowered the bar for what constituted an "acceptable" close rate. One sloppy engineer normalized cutting corners in code reviews.
The worst part? This happens regardless of what you say. Your stated values and standards mean nothing compared to what you actually tolerate.
People believe what they see, not what they hear.
When they see mediocrity accepted, that becomes the new reality—regardless of what's written on your values wall.
The Exponential Cost of Morale Destruction
The second hidden cost is even more devastating: the destruction of team morale.
Your best people—the ones who care deeply about quality, who hold themselves to high standards, who take pride in their work—are watching everything.
They notice when:
The new hire consistently misses deadlines without consequences
Their half-completed work becomes someone else's problem
They show up unprepared for meetings
They lack the skill level that was supposedly required for the role
At first, your A-players will try to help. But when the pattern continues, something breaks.
The internal dialogue shifts from "How can we help them improve?" to "Why am I working so hard when this is considered acceptable?"
This isn't just demotivating—it's demoralizing. It attacks the very core of what drives your best people: their internal standards and sense of purpose.
What happens next is predictable but almost always missed by leadership:
Your top performers start disengaging emotionally
Their own work quality gradually declines
They stop raising concerns or suggesting improvements
They begin looking for opportunities elsewhere
By the time you notice these symptoms, it's usually too late. The damage is done.
I've worked with companies that lost their three best engineers within six months of making a single bad engineering hire. The official exit interviews cited "better opportunities" or "career growth." The real reason? They couldn't stand watching the standards they helped build get systematically eroded.
One bad hire doesn't just fail to contribute. They actively drain the contribution of others.
The Talent Exodus You Never Saw Coming
Here's the final and most expensive cost: your bad hire will literally push good people out the door.
A-players want to work with other A-players. This isn't ego—it's about growth, challenge, and shared standards. They know intuitively that they become better by surrounding themselves with excellence.
When you compromise on hiring, you're sending a powerful message to your existing team:
"We value filling seats over maintaining quality"
"We don't actually believe our talk about excellence"
"We don't respect your time enough to ensure you work with capable peers"
Your best people will start looking for the exit, while those who remain will adjust their performance downward.
Even worse, your recruiting pipeline will suffer. Top talent talks to each other. They ask around before joining companies. One of the first questions they ask their network: "What's the team like?"
If the answer includes "there are some weak links" or "standards have been slipping," you'll never even get the chance to interview the people who could take your company to the next level.
The true cost of a bad hire isn't just their salary—it's all the great hires you'll never make because of them.
The Math Nobody Shows You
Let's put some rough numbers to this hidden cost:
Imagine you hire someone at $80,000 per year who turns out to be a bad fit. Most HR calculations would put the cost of this mistake around $120,000-$160,000 when including recruiting, onboarding, and replacement expenses.
But that's just the visible tip of the iceberg.
Now factor in:
Productivity loss from 5 team members who spend 10% of their time compensating for the bad hire's deficiencies ($40,000)
Decreased output quality affecting customer retention ($50,000+)
Time spent by managers addressing problems and complaints (30+ hours)
Two high performers who leave because of lowered standards (replacement cost: $300,000)
Three top candidates who decline to join after hearing about declining standards (opportunity cost: immeasurable)
Suddenly, your $80,000 hire has created a $500,000+ problem.
And I'm being conservative with these estimates.
The worst part? Unlike direct costs that show up clearly in your financials, these expenses are hidden—distributed across teams, buried in opportunity costs, and masked by unrelated factors.
You'll feel their impact, but you may never connect it back to that "harmless" hiring compromise you made.
Netflix's Radical Solution
Reed Hastings understood this problem better than most.
Netflix's famous "Keeper Test" is designed specifically to prevent the standards erosion that comes from tolerating mediocrity:
"If a team member was leaving for a similar role at another company, would the manager try to keep them?"
If the answer is no, they let that person go with generous severance—even if they're "doing okay." They don't wait for failure. They don't tolerate adequacy. They maintain standards proactively.
This may seem harsh, but it's actually deeply compassionate to everyone involved:
It respects the team by maintaining their environment of excellence
It respects the company's mission by ensuring the right talent is driving it forward
It even respects the person being let go by not letting them linger in a role where they won't thrive
The policy creates short-term pain but prevents the long-term damage of lowered standards.
And the results speak for themselves. Netflix has maintained one of the highest-performing cultures in tech while growing from a DVD mailer to a global entertainment powerhouse.
They understood that who they kept was just as important as who they hired.
How To Actually Fix This Problem
You're not going to solve this with another personality test or interview question.
The real solution requires fundamental changes to how you think about hiring and team building:
1. Redefine "Hiring Cost"
Start measuring the full impact of a bad hire:
Document productivity impacts on other team members
Track performance standards before and after questionable hires
Monitor turnover rates among high performers following hiring compromises
This data will make the invisible visible. It will give you the ammunition to push back against pressure to "just fill the seat."
2. Embrace the Empty Seat
An empty position is better than a filled one with the wrong person.
Yes, work isn't getting done. Yes, the team is stretched covering the gap. Yes, it feels uncomfortable.
But these are acute, visible problems you can manage directly. They're far better than the chronic, invisible damage of a bad hire.
The empty seat preserves your future options. The bad hire actively destroys them.
Make this principle explicit in your hiring policy: "We'd rather leave a position open than compromise on quality."
3. Create a "No Compromise" List
For each role, identify the 2-3 non-negotiable attributes that truly predict success.
These aren't nice-to-haves. They're not preferences. They're the fundamental qualities without which a person cannot succeed in the role, no matter what else they bring to the table.
For engineers, it might be attention to detail and intellectual curiosity. For salespeople, it might be resilience and ethical persuasiveness. For managers, it might be emotional intelligence and accountability.
Whatever these core attributes are, make them sacred. No exceptions, no matter how urgent the hire feels.
4. Institutionalize Rapid Correction
Sometimes, despite your best efforts, a bad hire slips through.
What matters next is how quickly you address it:
Set explicit 30/60/90 day expectations
Provide direct feedback at the first sign of problems
Make the tough call quickly if improvement doesn't happen
Speed matters. Each week you tolerate underperformance is another week your standards erode.
Most companies wait 6-12 months to address hiring mistakes. By then, the damage is deep and widespread. Aim to identify and address these issues within 60-90 days.
The Ultimate Competitive Advantage
There's a reason why certain teams consistently outperform others with similar resources.
It isn't better strategies. It isn't better funding. It isn't even necessarily better individual talent.
It's their ability to maintain standards—to create environments where excellence is the only acceptable option.
This is the ultimate moat in business: a culture that repels mediocrity.
When you build this, you create a self-reinforcing cycle:
High standards attract high performers
High performers maintain high standards
Together, they achieve results that others can't replicate
But it all starts with recognizing the true cost of compromising on talent—and refusing to pay that price.
The next time you're feeling pressure to fill a role with a candidate who doesn't quite meet your standards, remember what's really at stake: not just one salary, but potentially your entire culture.
The choice between waiting for the right person and settling for an available one isn't just a hiring decision. It's a statement about what kind of company you're building.
Choose carefully.
Thank you for reading.
– Scott