Latest / Hiring & Firing with Fexingo: Recruitment, Performance, and Workforce Decisions / How a Reference Check Saved One Million Dollars
Transcript
- Lucas: So there's a story I keep coming back to — a mid-market SaaS company in Chicago, about three hundred employees, growing fast. Back in early 2024, they hired a VP of Sales who, on paper, was a perfect fit. Luna: On paper. That's always the catch, isn't it? Lucas: Exactly. The guy had a decade of experience at a well-known CRM company, strong revenue numbers, charismatic in every interview. The CEO was blown away. They moved fast — offer letter within two weeks. Luna: Did they do reference checks? Lucas: They did. But here's the thing — they only checked the references the candidate provided. Three people, all former direct reports who liked him. And those references were glowing. Luna: Right, so the candidate controlled the narrative entirely. Lucas: Exactly. And within ninety days, the story flipped. The new VP of Sales was brilliant at presenting to the board, but he couldn't build a pipeline. He micromanaged his team, killed morale, and blamed his underperformance on the product team. By month five, three top sales reps had quit. Luna: Ouch. And the CEO? Lucas: The CEO spent another two months trying to coach him, then finally fired him. Total cost — salary, severance, recruiting fees, lost revenue from the reps who left — over one point two million dollars, by their own estimate. Luna: That's a lot of money. And all because they didn't dig deeper on a reference. Lucas: Yep. So here's what my firm now does, and it's dead simple. We call it the three-layer reference protocol. Luna: I'm listening. Lucas: Layer one: you call the candidate's provided references — but you don't just ask surface-level stuff. You ask, 'If you could change one thing about how this person managed, what would it be?' And you listen for hesitation. Luna: That's a good question. It forces honesty without putting the referee on the spot. Lucas: Exactly. Layer two: you ask the candidate for one more reference — specifically, someone they didn't include on their list. A former peer or a boss from three jobs ago. If they hesitate or resist, that's a red flag. Luna: And if they say no? Luna: And layer three? Lucas: Layer three is the hardest but most valuable. You find your own reference — someone in your network who worked with the candidate, at any company, regardless of relationship. A quick LinkedIn search or a call to a mutual contact. That's where the real signal lives. Luna: Because they have no incentive to sugarcoat. Lucas: None. In the case of that VP of Sales, a mutual contact might have revealed that he had a pattern of burning bridges — that his exit from the CRM company wasn't voluntary, and that his team's revenue numbers were inflated by a massive existing account base. Luna: So you're saying the reference check isn't just a formality — it's a research project. Lucas: Exactly. And it should happen before you make an offer, not after. Too many companies treat it as a compliance checkbox, but it's actually the cheapest due diligence you can do. Luna: I want to push back a little, though. A lot of hiring managers say reference checks are basically useless because candidates only give you people who will say nice things. Lucas: They're not wrong — if you only do layer one. But if you add layers two and three, you change the game. Layer two gives you a reference the candidate didn't pre-vet. Layer three gives you an independent source. Suddenly, the candidate can't control the narrative. Luna: And the time cost? Is it really worth it for every hire? Lucas: For senior roles, absolutely. If you're hiring a VP or a director, you should budget at least two to three hours for reference work. For an entry-level role, maybe you just do layer one. But the ROI is enormous when you consider the cost of a bad hire. Luna: And I've seen studies that say the average cost of a bad hire is around thirty percent of that person's first-year salary. Lucas: Right. So if you're hiring a VP of Sales at two hundred fifty thousand dollars, that's seventy-five thousand dollars just in direct costs, not counting the lost revenue and team disruption. A two-hour reference protocol is cheap insurance. Luna: I want to circle back to that Chicago company. Did they ever figure out what they missed? Lucas: The CEO wrote a post-mortem on his personal blog — it's pretty raw. He admitted they were so excited by the candidate's polish and pedigree that they skipped the hard questions. He said, and I'm paraphrasing, 'We hired for presentation skills, not for results.' Luna: That's a painful lesson. But I wonder — could a good reference check have caught the personality issues, or just the performance issues? Lucas: Both, if you ask the right questions. For example, layer one question: 'How did this person handle conflict with peers?' If the referee stumbles or says something like 'He was very direct,' that's code for 'he was a jerk.' You just have to listen for the euphemisms. Luna: So it's as much about reading between the lines as it is about the actual answers. Lucas: Exactly. And that's a skill that improves with practice. But the first step is just deciding to do it — to treat references as an investigation, not a rubber stamp. Luna: I like that framing. I also want to mention one more thing that came up in a conversation I had recently. A friend of mine hires for a nonprofit, and she says she always asks for a reference from a former subordinate — someone the candidate managed. Lucas: That's a great layer two variant. Subordinate references are incredibly revealing because they have nothing to gain from lying. They'll tell you if the person was a good coach or a micromanager. Luna: Right. And she said one time a candidate refused to provide a subordinate reference, and that alone was enough to move on. Lucas: Makes sense. If you can't name one person you managed who would vouch for you, that's a red flag the size of a billboard. Luna: So we've talked about the protocol. But I'm curious — do you have a favorite specific question you always ask? Lucas: I do. I always ask: 'What would you tell this candidate to work on if you were their coach?' It's a variation of the one I mentioned earlier, but it often gets a more honest answer because it's framed as developmental advice, not criticism. Luna: And what have you heard? Lucas: I've heard everything from 'They need to delegate more' to 'They sometimes let ego get in the way of the best idea.' Those are signals you can then probe in your own interview process. Luna: Yeah, that's good. It's also a question that doesn't feel like a trap, so people are more likely to be candid. Lucas: Exactly. And you can follow up with: 'On a scale of one to ten, how ready is this candidate for a role with more responsibility?' If they say seven or lower, you want to know why. Luna: I'm going to steal that. Lucas: Please do. And honestly, if these conversations help you make one better hire or avoid one bad one, that's the whole point. If today's episode was worth a coffee to you, you can find the link at buy me a coffee dot com slash fexingo. It's a small way to keep this show ad-free and focused on practical stuff. Luna: Yeah, we don't run ads, and listener support is what keeps it that way. So if this helped, that's the spot. Lucas: Alright, back to the protocol. One more thing I want to mention: don't forget to document everything you hear. If you ever need to defend a hire or a non-hire, those notes are gold. Luna: For legal reasons, too. Lucas: Exactly. And finally, I want to leave you with a quick story about a company that did the reference check right. A friend of mine at a fintech startup was hiring a CFO. They did all three layers, and in layer three, a mutual contact mentioned that the candidate had a history of signing off on financial reports that were 'aggressive.' That one word saved them from a potential disaster. Luna: 'Aggressive' is accounting code for 'we bent the rules.' Lucas: Exactly. They passed on the candidate, and six months later, that candidate's former company restated earnings. So the reference check didn't just save them money — it saved their reputation. Luna: That's a great example. So the takeaway is: invest the time, ask the hard questions, and always find a source the candidate doesn't control. Lucas: Exactly. And you can start tomorrow with your next hire. Even just adding layer two — asking for one additional reference — will put you ahead of most hiring managers. Luna: Alright, that's a good note to end on. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.