7 Warning Signs You Really Need a Retained Search Firm
January 08, 2021
by Krista Bradford

7 Warning Signs You Really Need a Retained Executive Search Firm

Retained executive search is expensive. It represents a significant investment. Given that the cost that often runs into the 6-figures, how do you know when you really need a retained executive search firm?

Good question.

 

My First Advice: Check Your Gut

If the senior executive opening is critical to the success of your company, it is likely time to retain an executive search firm. Retained search firms worth their salt focus on delivering top-performing executives and technologists — the kind of talent capable of accelerating profitability.

If you notice you have a growing sense of unease about an executive’s performance or if you worry that your company’s search for a senior leader may not end well, those are pretty strong warning signs that you could use some help.

 

1. You Are Rapidly Scaling Your Company

Venture capital-backed startups have their eyes on the prize: a hockey-stick growth curve. When they get to the inflection point, usually at their Series B or C round, they need to grow . . . and fast.

Any delay in bringing the necessary leadership onboard can cripple sales, marketing, production, engineering . . . you name it. You lose opportunities you may never get back. Profitability suffers, as does morale. 

Not to put too fine a point on it, but failing to fill executive positions is a recipe for disaster. It affects your ability to raise subsequent rounds of capital. Without capital, you run out of runway. It’s all over.

If you’re actively scaling a VC-backed company, that is a warning sign that you really need a retained executive search firm. In fact, as startups approach an IPO, retained search firms are regularly tapped to deliver marquis-name talent. Impressive leadership teams make for higher valuations and ultimately higher stock prices when the company goes public.

That’s why retained search firms are essential partners to venture capital firm portfolio companies as they scale.

 

2. You Suspect You May Be Losing a Key Executive

If you have a star executive, you can assume that they are being courted by the competition. So, as you work to ensure your brilliant executive is more than satisfied with the scope of their job, career path, compensation, and work-life balance, you need a back-up plan.

It makes sense to develop a bench of succession talent. Succession searches are executive searches that are conducted in advance of a possible opening. If the executive takes off, you’ve got a slate of viable replacements, ready to go.

However, succession searches are not easily conducted by corporations themselves. When you have an incumbent, doing your own outreach risks your search getting back to your superstar.

Not good.

Retained search firms regularly handle engagements that must be kept on the down-low. That’s what we’re here for. And, who knows, you might even discover that your walk-on-water executive is more run-of-the-mill than you thought. In fact, it may be a time for an upgrade.

 

3. Your Recruiting Team Has Not Yet Filled a Critical Opening

You have given your internal executive search team all the tools. They have premium licenses on LinkedIn, applicant tracking systems, and all the latest AI-driven apps. So how could they possibly come up empty for an important executive search?

It happens more than you would think.

When companies come to us with that problem, it is clear those teams have worked incredibly hard. Frequently, their list of potential candidates numbers in the hundreds. By the time they get to us, the sourcers and recruiters are growing frustrated. Worse, the hiring executive is starting to lose patience. If you’re noticing these warning signs, now would be a good time to turn to a retained search firm.

Since your search is already in critical condition, your selection of the right firm matters more. Make sure you trust that the search firm is capable of finding your hire when your internal team did not.

Any firm that asserts that they personally know all top candidates are, well, lying to your face. Seriously. (Check out Dunbar’s Number.) That’s a red flag and disqualifying.

Searches that hit the wall need a firm with the deep research expertise to surface candidates that your team has missed or were unable to engage. Sad to say, few retained search firms have invested in expert researchers. In fact, many of the leading firms have laid off research support as they tighten their belts, focusing primarily on sales. Be wary of firms that are not obsessively focused on execution — how they’d find you your person.

You also need a firm that is capable of finding your hire within weeks, not months. So, while you are at it, assess their ability to move at lightning speed.

 

 

4. Filling the Executive Opening is Politically-Charged

If you have the growing sense that a search may be impossible for company recruiters to fill, it may be time to go out to retained search.  Failed executive searches reflect poorly on the hiring executive who is responsible. If you fear repercussions up the chain of command, that’s a pretty strong indicator that you could really used a retained executive search firm.

An executive search creates the opportunity to earn respect and admiration from the company for an impressive hire. But when an executive search fails, it may affect your ability to rise.

When you go out to a retained search firm, it is now up to the firm to deliver the hire. You transfer any potential blame — if there is any — to the firm.

 

5. You Are a Small Company with a C-Level Opening

We just heard from one such company today. A profitable, family-owned business requires a COO because their Chief Operating Officer is retiring. The small business does not have internal recruiters available to conduct the search. Moreover, this search may be challenging because they’re not a startup offering options as an opportunity for wealth creation.

They’re not located on either coast (but their location is growing in popularity). Their compensation is not the highest or the lowest (which suggests it may be just right.)

It is clear the owner has built a successful business that cares about its employees. They enjoy a work-life balance better than what you’d find at most of the leading companies. They may be small, but they are mighty in that way.

If you lead a small, family-owned company in need of a C-level executive, that’s a warning sign you really need a retained executive search firm. However, many of the larger, multinational firms will not take on these searches. That’s because their fees usually start at $100-thousand. So if you’re a small company in need of a C-Level executive, you will do better to focus on boutique search firms to get the support you need.

 

6. You’ve Just Become a Private Equity Turnaround

Your company has not been thriving, but you’ve got a plan. Better yet, you’ve taken Private Equity investment, which is testimony to your company’s viability. You have an action-plan for righting the ship — only it involves making significant changes in executive leadership. The timeline is aggressive.

If you’ve taken private equity investment, that’s a sign you need a trusted retained executive search partner because competition for top talent is on the rise.

Bloomberg reports that “Private equity firms are ready to pounce in 2020, armed with a record level of cash. Firms led by Blackstone Group Inc. and Carlyle Group LP have amassed almost $1.5 trillion in unspent capital, the highest year-end total on record . . .While last year saw roughly $450 billion worth of private equity deals, M&A activity this year could be on a scale not seen since the financial crisis.”

 

Available Private Equity Capital 2020

 

To provide value for their investors, private equity firms and their portfolio companies are looking to top talent more than ever before. In fact, finding the best-of-the-best leaders for portfolio companies is not just important—it is imperative.

The demand is expected to increase this year with all the “dry powder” reported by Preqin. It’s a warning sign that it is time to lock-in your retained search partners.

 

7. You Suspect a Top Executive is Mentally Unfit

Executives fail, for a lot of reasons. Executives regularly send their corporation off in completely the wrong direction. They make fundamental errors in the way they perceive the opportunities and problems their business faces. Sometimes, it is because they have personal problems.

Often, those problems can be addressed with therapy, rehab, or executive coaching. But sometimes, an executive demonstrates that the leader is incapable of change. Their behavior speaks to who they really are.

 

Psychopathy is Common in the Executive Suite

Narcissism and psychopathy are personality disorders that are common in the executive suite. According to the American Psychiatric Association, “A personality disorder is a way of thinking, feeling and behaving that deviates from the expectations of the culture, causes distress or problems functioning, and lasts over time.” In other words, personality disorders are unlikely to get better. 

The C-suite attracts narcissists because narcissistic leaders have a grandiose sense of importance that they must satisfy. In fact, narcissistic leadership is so prevalent, it has its own Wikipedia page. Equally concerning are estimates of the number of psychopaths who are CEOs. One study highlighted by the Washington Post pegged that estimate at 21-percent.  Do the math. That is one out of every five.

But here’s the thing: when you have a malignant narcissist or a psychopath, your company is at significant risk of running off the rails. Alarms should be going off: ding, ding, ding, ding, ding.

So, as a best practice, check to see whether you have an executive who has zero empathy for others, who lies, who finds it easy to bend rules and break laws, or seems dangerous or violent. Those are massive warning signs you could really use a retained search firm to find a replacement. 

Those are the many reasons to use a retained search firm, and we say this after sharing our secrets on how to avoid using search firms whenever possible. If the senior leadership role is important enough, it is likely time to retain an executive search firm.

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