Mike,
One of the keys to getting the very best person to fill a position is to start with a very specific job description. Screening candidates for the qualifications identified in the job description is the next step. I am a believer in a structured interview process. I like to establish my interview questions ahead of time and to ask the same questions of all of the candidates. It gives me a basis for comparing the candidates. Not everyone agrees with this process but it has always worked for me.
You talked about hiring graduates which can be a great way to hire the best possible candidate. Now you have a candidate, as you say that you know. Another techniques is getting referrals from other employees. At least you are not hiring blind. Even though you don't have an HR department, you can still establish a process that allows you to hire high quality individuals for your open positions.
Dr. Patricia Kapper