00:01:01 · CJ Gustafson
[00:01:01] S1: Applying for a job has gotten a lot easier. AI can write your resume, it can tailor your cover letter, and it can help you apply to hundreds of positions. Did you really apply or did your agent? Naturally, employers are now using AI to screen all those AI applications, and candidates are using more AI to get through that screen. I'm not sure this is what anyone had in mind when we talked about making hiring more efficient. Actually, it sounds like a doom loop. My guest today is Paul Todgham, the CFO of Greenhouse, a company that makes recruiting software and is dealing with this stuff firsthand. Me and Paul talked about the rising cost of hiring employees, including all the software and AI stuff that come along with them, and how Greenhouse is thinking about pricing its own AI products. Paul also has some strong opinions about how companies calculate AI ROI. AI ROI. If an employee tells you a tool saves them five hours a week, that's cool, but you should probably also know where those five hours went and what they're actually doing now with that free time. Oh, and we covered his budgeting framework. It's called surges in savings, which sounds like a 10 k road race in the state of Maine. It makes department heads identify what they'd be willing to cut to fund something new. All this and much, much more on Run the Numbers. Paul, thank you so much for joining me on the show today. Thanks, CJ. I've used Greenhouse for years, so I know the product pretty intimately. And I was excited to talk to you because you're working at this company that sits at the intersection of human capital, software, hiring, and AI product launches.
00:02:29 · Paul Todgham
[00:02:29] S0: You know about Greenhouse, but maybe some of your listeners don't. I I did not prior to joining. So just, you know, Greenhouse, we're an a hour... AI powered hiring platform that helps companies make better decisions and build stronger teams. We bring structure and consistency and data to the full recruiting process from sourcing and interviewing through offers and onboarding. So the idea is that hiring should become a strategic business process, not kind of a black box. The company spent about fifteen years improving how companies hire, and more recently, we're using AI to make that even more effective. So, you know, for finance leaders, that typically means we're trying to provide better visibility into a major investment, people. People related costs are typically about 70% of a company's operating budget. So it's sort of a cliche that people say, our people are our most important investment. I mean, every company kind of says it. But mathematically, it's actually true for most companies. And yet, the hiring and development and retention of those people tends to receive a lot less analytical rigor than, you know, much smaller capital or non labor investments, and we can talk about why that is.
00:03:28 · CJ Gustafson
[00:03:28] S1: Before we get too deep into how AI is changing hiring, when you were describing Greenhouse, I had this visceral reaction of having to do planning without an ATS before. And there's always this trade off of, like, when you go to set the budget, because we're about to go through annual planning season right now, Paul, where you have the people, the butts in seats today, then you have the list that's being worked through by the recruiting team to hopefully fill, and then you have the heads that you wanna hire for next year. But there's always this no man's land, this area where these these heads that weren't hired this year somehow... Some people think they're in their budget, some people don't know that if they're in their budget, but like, it's like this parking spot analogy of like, there was no car there before, do I still have the parking spot to put the person? So there are probably a lot of people driving to work right now nodding their head just saying like, yes, I've had to do this five dimensional chess before.
00:04:16 · Paul Todgham, CJ Gustafson
[00:04:16] S0: Our business is growing pretty nicely. So I haven't had to navigate too much of that challenge in my last couple years here. In lower growth experiences, and again, I've been in some lower growth environments in retail and others, you know, you have this dynamic where you get off to a slow start to the year. You gotta pause a bunch of heads that you said you needed to pause, maybe they were approved in budget. Maybe you've paused them two forecasts, maybe six months. And then you get to the fall. And the cost of those heads now is not the cost in that fiscal year. It's gonna be the cost in next year, right? The annualization impact. [00:04:46] S1: Sure. [00:04:46] S0: And so, mean, it's a challenging and interesting dynamic to basically have to tell people you did the right thing by delaying the heads. You don't have budget for it. You gotta basically fight for it again. And knowing it's a repeated game, how to make sure that's not too punishing of the people who do the right thing versus those who just fill every role they can just so they've got annualization and whatnot. But yeah, I've had to work through that many years. I empathize with anyone nodding their head in the car. And thankfully we haven't had too much of that to worry about in the last last couple years of Greenhouse, but it's but it's certainly something I'm used to.
00:04:46 · Paul Todgham, CJ Gustafson
[00:04:46] S0: And so, mean, it's a challenging and interesting dynamic to basically have to tell people you did the right thing by delaying the heads. You don't have budget for it. You gotta basically fight for it again. And knowing it's a repeated game, how to make sure that's not too punishing of the people who do the right thing versus those who just fill every role they can just so they've got annualization and whatnot. But yeah, I've had to work through that many years. I empathize with anyone nodding their head in the car. And thankfully we haven't had too much of that to worry about in the last last couple years of Greenhouse, but it's but it's certainly something I'm used to. [00:05:16] S1: We always talk about salary and benefits. You said it's probably 70% of the cost. Right? 70% of the cost walks on two legs. But now every person might also come with a growing stack of software and AI tools. Do you think that fundamentally changes the hurdle rate for adding headcount?
00:05:33 · Paul Todgham
[00:05:33] S0: The jury's still out on whether AI, you know, will lead to growth in employment or contraction in employment. Right? I mean, most breakthrough technologies have brought similar fears, as I think we're facing now, that jobs are going away but have actually expanded employment. Now, AI may be different. Right? And and... But, you know, we'll see. No doubt, though, there's a tremendous amount of disruption, obviously, in employment driven by AI, and we're seeing that, you know, at Greenhouse. Greenhouse. On the hurdle rate part, I think there's a couple considerations. I mean, first, you do need to weigh the higher costs, but weigh them against higher productivity of a given employee as well. So the productivity might actually be rising faster than costs. The higher is more important, but not necessarily harder to fund or change your hurdle rate. On the downside, a lot of us, pretty much all of us in finance are feeling pressure to demonstrate a return on our AI investment. And again, that can be hard to do, particularly when you're in experimentation phase or when everybody's getting 10% more productive, but you aren't losing bodies or whatnot. So I know one way folks are doing that is just by putting pressure on backfills. Right? Instead of saying, hey, is there a chance we don't need to you know, fill this role? Flip flip the script. You gotta justify that this role gets filled and and can't be done by AI and org changes that allow us to be more, you know, more productive.