The best resource for finding new hires is often your community –– the team, advisors and board members with which you’ve surrounded yourself. Engaging a firm can be an expensive endeavor, so make sure to consider whether you truly have a gap in your network around the role for which you’re hiring before you dive in.
Yvonne Hao (Pillpack), Joe Suliman (Daversa) and Matt Goldstein (True Search) have worked on hundreds of search firm engagements. Below, we’ve shared questions, advice and insights they recommend to help you run a successful process.
Cost & Fee Structure
A typical executive search engagement for a VP or C-level hire can cost anywhere between $125K – $150K.
- Contingency Search Firms operate under a “No Win, No Fee” model, where they aren’t paid until they make a placement. Typically, they have aggregated a group of candidates and shop them around to 5-7 companies, hoping for a match. Contingency search firms are typically better for technical and more junior-level roles, and are typically paid 25-30% of the first-year cash compensation of the hire.
- Retained Search Firms are paid whether the search is completed or not. However, they’re typically doing more bespoke work for VP and C-level hires. Unlike contingency search, they have to understand the company’s long-term needs and are looking to fill a unique executive opening that is critical to the future growth of the company. Typically, that means going out into the marketplace to look for candidates who aren’t looking to leave their current roles. They’re often paid a percent of the candidate’s annual cash compensation (base and bonus at target). And, their terms involve getting paid in 3-part increments, typically ⅓ upfront, ⅓ 30-60 days in and ⅓ 90-180 days into the search. The client also covers any other fees, related to travel, etc. The percentage and payment terms are negotiable, and you should definitely negotiate for terms most advantageous to your needs.
Creating a Competitive Environment: Search Firm Bake-Off
Meet with 2-3 search firms to compare expertise, understand the fee structure and create a competitive environment to bid for your role. Ask fellow founders, heads of HR and your board members for recommendations. Keep in mind that some firms have specific areas of expertise (sector, job function, etc.) — and therefore, deeper talent pools in those areas. The specific firm matters, especially if the search is a more unique role, and requires breadth in terms of geography, function, etc. However, more important than the specific firm is the individual you will work with at the search firm, as they will shape the outcome of the search. Keep in mind, conversations with search firms don’t need to result in a search — it is helpful to cultivate relationships with multiple recruiters to help give you a view of the market and they often offer free advice upfront for the potential of future business.
Questions when interviewing Search Firms
- Do you have the bandwidth to do this search?
- If I hire you, will I get you (the partner) or will it be handed off to a junior associate to handle the day-to-day work?
- Who is executing the search and do you have functional expertise in this role? A COO/GM search is very different from a CFO search.
- What are the relevant searches you’ve done in the last 90 days?
- Ask upfront about diversity, and their approach to sourcing and finding the most diverse slate. Ask them for examples of recent diverse candidate placements.
- Do you have any candidate ideas for this role? If you ask and they start freezing up, they’re not a good fit. A good search firm will be in daily conversations with prospective candidates and will have a few names that they’d start off with.
- Make sure to call out any candidates that you already know and are talking with, so that you can highlight these in the contract, and carve them out of any payments to the search firm.
- Can I call CEOs you’ve worked with for reference checks? It helps to do a few reference calls, and ideally to have some “back door” references that are names they don’t give you, but are people who have worked with this firm and individual.
- Do you have candidates you have a conflict of interest with and are off-limits?
- If the search doesn’t go well and someone leaves, what happens?
- If the search drags on beyond the expected time frame, what happens?
- How often and how will we communicate during this process? Good search firms will have a set process, and established dashboards, timelines, etc. You should ask for examples of these. Ask for sample write-ups of what materials you will be getting for each candidate in advance of interviewing them.
- What kind of background checks / referencing do you do for final candidates? Search firms should do some of the lifting on this, and have a process in place.
- Check to make sure the search firm has a good administrative team, and that you like that person and the search lead. They will be representing you and your brand to candidates, and you want them to reflect your values. Also, scheduling is a huge part of the process, and you want someone who will be competent and collaborative.
Managing a Search Firm
As with any resource, it takes active management to make sure you’re getting the value you’re paying for. Once you’ve decided to work with a search firm, here are some best practices to manage the team and communicate effectively.
- The most important first step in working with an outside search firm is aligning on the job specification. Everyone wants a unicorn, but it’s so critical to be clear upfront on what type of skills, what are the priority criteria, where are you willing to trade off. The job spec is also an important marketing tool that the search firm uses to generate interest, so it is helpful to position the company and the role in a way that is going to attract the candidates you want. Make sure the search firm has the context, so that when they talk with candidates, they know enough about the company, the strategy, the trajectory, the culture that they can talk intelligently and credibly and sell the opportunity effectively to prospective candidates. Nothing is more off-putting for talented people than getting search folks calling them with not a lot of substance.
- It’s also important to decide upfront if this search is going to be private vs. public. If it’s public, then you can post the job, and have the search firm canvas everyone. If it’s private (e.g., you are trying to replace someone in the role, or you want to keep it quiet for a while), then you need to make sure the search firm understands the sensitivities. For example, you can require the search firm not to share the name of the company until a candidate expresses real interest.
- Once the search gets going, ask for a 30-minute weekly standup to push the firm to deliver a strong pipeline.
- The day before the meeting, ask for a written update with pipeline status and highlights of new candidates they’re targeting.
- Ask for this in advance so you get time to process the information. In addition, if the search firm sends a list of candidates in advance, you can identify people that you or your board has access to that they might not be thinking about.
- Ask if they have a software platform where they keep track of candidates that will give you visibility into the pipeline.
- Emphasize the importance of diversity during your weekly meetings and in written communication to make sure that is top of mind for the search firm. Be specific.
- Ask for the conversation rate of the talent pipeline and the headwinds / tailwinds the search firm is experiencing in the field as they’re talking to potential hires. Are there any major layoffs or changes to the market that might be opportunistic for this search?
- Always make sure that each week, the search firm is putting new people into the pipeline. They will get their money no matter what, and it’s better for them to spend less time, so they will want you to focus on a few candidates, and choose one of them quickly. But, you want to see as broad a range of people as possible, and oftentimes, people don’t work out, and you don’t want to have to start from scratch at that point. Instead, you need to constantly be replenishing the “top of the funnel” with new people and ideas…even while interviewing and making progress with others farther along in the process.
- You should also have a clear interview process and approach. Who is the first “screener” after the search firm? Who are the next rounds? What are the criteria you want each interviewer to look for? Are there different areas you want each person to probe? How will you share notes and debrief after each interview? It’s important to discuss and agree on this process.
Alternatives to Search Firms
If you’re on a tight budget, here are a few options:
- $ Consultants or Contract Recruiters are a great option when you don’t quite have a consistent number of positions open and need help every so often. They can also be used for strategic support and advising along the way. You can expect to pay $75-100/hour for their help with your search.
- $$ Agencies are helpful if you are seeking a specialized position and don’t have the network to recruit for that position. Expect to pay $25K – $50K for agency support.
- $$$ Building an in-house recruitment team might become an attractive option once you’ve raised your Series A and are hiring consistently.
What is the right time to build a team in-house? If you are hiring a lot of similar types of roles, then it makes sense to hire a recruiting team in-house. E.g., if you are growing your technical team, and hiring a lot of software engineers. Or, if you are growing the sales team, and hiring a lot of BDRs. However, if you are only hiring a handful, and only intermittently, then there probably is not enough demand for a full-time in-house recruiting function. Also, most C-level and senior roles are not that common, so unless it’s a huge company, it doesn’t usually make sense to have a full-time recruiter for these senior roles. Recruiting for these senior roles is also quite different than recruiting for large numbers of technical / functional roles.
Would you still engage an outside firm even once you have an internal recruiting function? Yes, in certain cases. For example, it makes sense to engage a search firm if you have an internal recruiting team that focuses on hiring customer support people…and now, you are trying to hire a CFO. This is a totally different type of recruiting, and the stakes are high for the CFO role, given how senior and important it is, so you likely want to engage an outside search firm.
List of Search Firms
The Founder Playlist has a full list of recruiters, agencies and search firms founders trust. Browse the recruiting section here.