IN THIS MONTH'S OCTOBER ISSUE:
| COVER
STORY Role Reversals Between Venture Capitalists And
Recruiters Rise A select group of
wealthy individual investors nationwide has in recent months screened an unusual, if not
virtually unheard of, videotape featuring the chief executive of a retained search firm.
In a one-hour performance, Jeff Christian, CEO of
Christian & Timbers, discusses the details of a $50 million venture fund he is
raising through OffRoadCapital.com, an online
securities marketplace. Limited to no more than 99 investors, the fund, called Access LLP,
is to be managed by Mr. Christian upon closing. “I think the best way for top search
people to get into the venture business is to keep doing what they do well, and to push
their own firms to behave more like venture capital firms,” he says. Mr. Christian’s
example is extreme, but only to a degree these days. In recent months, numerous retained
search firms, from publicly traded Heidrick &
Struggles International to privately held Redwood
Partners, have announced plans to raise funds for venture investing (see box, page 8).
The ability to distribute a fund’s return among firm partners is, some industry
observers suspect, a necessary retention tool as recruiters of all experience levels are
abandoning traditional jobs at search firms to ply their trade at venture capital firms,
business incubators and accelerators. In the ongoing battle for the best and brightest
entrepreneurs, business plans and seasoned executives, recruiters are increasingly
recognized as a crucial component for ultimate victory. “Venture capital
organizations are much stronger, and helpful today to entrepreneurs,” says Bob
Higgins, a founder and managing general partner of Highland
Capital Partners, begun in 1988. “The stakes and time pressures are much higher
today than they were 20 years ago. The most important resource is people.” It’s an
exhilarating time for members of a profession once derided as headhunting. Longtime search
consultants are pioneering new roles as opportunities at venture firms and incubators open
up. Ann Peckenpaugh, a Schweichler Associates’
vice president, moved to venture outfit Highland Capital in October. One month earlier,
Laura Hill, a managing director of Redwood Partners joined MobileSpring, an incubator of wireless Internet
product-and-services companies, as vp human capital. This summer, Shayne Lightner
abandoned Korn/Ferry International to recruit
senior executives for incubator IdeaLab. Margaret
King in April left Spencer Stuart to join the
venture firm formerly known as Weiss, Peck & Greer
as recruiting partner. For the past year, ex-Russell
Reynolds’ managing director Marijo Bos has developed recruiting strategies and
resources for start-ups funded by eCompanies.
Heidrick & Struggles partner Rick Devine signed up with Internet Capital Group in July 1999, and built
an in-house recruiting team throughout the past year. At the forefront of the trend:
Nancie Whitehouse, who joined venture firm General
Atlantic Partners as director of search strategies from Huntington Group in 1997. Almost as numerous
and varied as the consultants who’ve left search firms for business backers are the
descriptions and the structure of their new functions. Some, like Ms. Whitehouse and Ms.
King, cultivate longstanding relationships with specific search firms and partners
worldwide, and recommend particular recruiters to their portfolio companies when needs
arise. In both cases, portfolio companies pay the search firm. Others, including Shayne
Lightner and Mr. Devine’s recruiters at ICG, perform every search themselves, and
have researchers and databases inhouse. Portfolio companies pay ICG recruiters a flat fee
upon completion, while Mr. Lightner receives a portion of a fee up front and the rest when
a candidate is tapped. Neither Ms. Hill of MobileSpring and eCompanies’ Ms. Bos
charge incubating companies for recruiting performed inhouse; the service is included as
part of the incubator’s equity stake in the start-up. If an outside search firm is
hired, the payer varies, according to the startup’s maturity. Ms. Hill’s mandate
includes keeping the use of outside vendors “to a minimum,” she says. One result of these
evolving relationships – as venture firms and incubators begin to act like search
firms – for traditional retained search firms is that “once clearly defined
relationships are now blurry,” says Greg Selker, managing director, Christian &
Timbers venture and technology practice. “The client has become fuzzy.” The
start-up may pay the fee, but the money often comes from the coffers of the venture
capital firm backing the start-up. One important function for both Ms. King and Ms.
Whitehouse to ensure clear communication between the venture fund partner, the client
company’s management and the recruiter in every search. “I know the red flags of
an assignment that’s going bad,” says Ms. King. She keeps close tabs on progress
and resolves logjams throughout. Still, with demand
for a recruiter’s services so strong, many consultants within search firms are
increasingly cherrypicking for searches with the highest chances for success. “We
consider the concept, the investors, and whether we want to be involved,” says
Richard Spitz, a Korn/Ferry International managing director in the advanced technology
practice. “If I am calling CEOs to take a look at companies that aren’t worth
their time, that’ll kill my career.” Some search firms are striking preferred
provider arrangements with venture firms to ensure access to select deals: Korn/Ferry, for
instance has relationships with Discovery
Capital, Softbank and Campsix. “We have to consider our resources,”
says Mr. Spitz, “and pick assignments that play to our strengths.” Point/Counterpoint An item published
in Hunt-Scanlon’s Recruiting Industry Newswire
(www.hunt-scanlon.com)
on September 18, 2000 touched a nerve among readers. The piece, printed below, put forth
the opinion of Brian Sullivan, managing partner of Heidrick
& Struggles International’s Global Financial Services Practice, in response
to the question, “Will Banking Consolidation Cause Search Industry Shakeout?”
Mr. Sullivan joined H&S in 1999 with the firm’s purchase of his 11-year-old Wall
Street-focused boutique, Sullivan & Co. The recent flurry of
merger activity in the financial services industry could potentially lead to a shakeout
among boutique financial services recruitment firms, predicts Brian Sullivan, managing
partner of Heidrick & Struggles International's Global Financial Services Practice. In
an interview with Hunt-Scanlon Advisors, Mr. Sullivan observes that “the Street is
getting smaller,” so there will be fewer clients for search firms to service.
Financial industry clients, says Mr. Sullivan, are extremely sophisticated and require
their search partners to understand all aspects of the financial-services business. Those
recruiters with global reach and broad capabilities, reasons Mr. Sullivan, will be
impacted the least by the consolidation trend. “The reality is that the guy who is
going to get killed in all this is the niche player who is strong in a local market or one
specialty area,” says Mr. Sullivan. “The logical conclusion might be further
consolidation of small boutique recruiting outfits, but most of the good ones have already
been acquired in the last 18 months.” Below, readers’
e-mail responses. From John Jazylo I totally disagree
with Brian Sullivan’s opinion. His narrow viewpoint summarily discounts the solid
relationships that “boutique firms” have built by providing “superior”
service to their clients. Why do large, global companies continue to work with small
firms? It is because we are more accommodating and flexible than larger search firms. As
to the sell-out of smaller search firms to larger ones, I believe that the previous owners
decided to cash out and reap the payout. No criticism, just fact. From Craig
Lapham, Esq. Mr. Sullivan reasons
that since “The Street” is getting smaller, there will be fewer clients for the
smaller search firms to service. Unfortunately, his “prediction” suffers from a
significant lapse in logic for the following reason: The rate at which continued financial
services industry consolidation limits a boutique firm’s client base is directly
proportional to the rate at which such consolidation reduces the number of target
companies a global search firm’s specialty practice can tap for potential candidates.
The specialty practice is disadvantaged under the rule of client conflict. Mr. Sullivan’s
“logical conclusion” that boutique firms will seek to be acquired suggests that
he fails to grasp the value proposition of a boutique search firm – maintaining a
limited client base by design, thus preventing significant client conflict/blockage. The
winner, I predict, will be the boutique search firm. Descended From
Irish Detectives, Joe Sullivan Jr. Builds On Family Traits Joe Sullivan Jr.
opened his eponymously named search firm in 1976 knowing nothing of the business of
executive recruiting. He was 40 years old at the time and had held management and
executive positions at such well-known entities as CBS,
Corinthian Broadcasting and the Television Bureau of
Advertising. As a rising young television executive, he’d talked to recruiters,
but never pursued the opportunities. “They were all nice guys,” recalls Mr.
Sullivan, but “none possessed much insight into broadcasting.” Yearning, after
14 years in television, to become an entrepreneur, he launched Joe Sullivan & Associates. “I
saw room for a niche business as a search consultant in the electronic media industry,”
he says. Today, just as it
was 25 years ago, Joe Sullivan & Associates is a low-overhead operation, with a
presence in New York City and Southhold, Long Island. Mr. Sullivan is lead recruiter; wife
Barbara is chief financial officer, and Jana Heffernan, a decade-long assistant, handles
administration and research. Last April, Shane Sullivan, one of the Sullivan’s four
children, a former CBS Radio account executive and
a graduate of Fordham University’s law school,
joined as vice president. “We’re a small firm,” says the elder Mr.
Sullivan. “So we do everything ourselves.” Head count is low
but resourcefulness and energy at the outfit is high. Descending from a long line of Irish
detectives has served the founder well in establishing his reputation as a recruiter.
“My dad and uncle taught me to be skeptical, to ask questions and interpret answers.
They didn’t accept anything at face value,” says Mr. Sullivan. That background
resulted in some valuable skills, says Michael Fiorile, president, Dispatch Broadcast Group, a longtime client
and also a successful candidate: “Joe’s very thorough in checking people out.”
A second contributor to Mr. Sullivan’s industry status: owning and operating two FM
radio stations from 1985 to 1997. “Joe knows how to read ratings books, and he knows
the program distributors,” says Mr. Fiorile. “If a candidate says that he
acquired rights to a show that the station never had before, Joe knows how to check it
out.” Mr. Sullivan
approaches his leisure activities with the focus and diligence that he applies to search.
An avid Sunfish sailboat racer, he competes regularly in such events as the National
Masters, in which he placed seventh out of 42 boats last year. This October, pere Sullivan
is trailoring two boats to Mississippi for the 2000 event, while son Shane, in New York,
continues to learn search as his father did: by doing. He plans to build on a few of the
firm’s recent successes, such as placing the CEO of Radiowave.com, as well as recruiting two U.S.
broadcasting executives to jobs in Buenos Aires and Bombay. He also hopes to build a
legal-search practice. “In Shane, I saw someone with the traits I look for when I
conduct an assignment,” says father of son. “He is honest, smart and he works
hard.’’ A.T. Kearney
Turns A Management Consultant’s Eye On Search A 13-year
employee of A.T. Kearney, D. Brian Harrison was
named president of A.T. Kearney’s Executive Search Practice in late March, succeeding
Chuck Sweet. In addition to this new role, Mr. Harrison is Vice President of A.T. Kearney
Inc., a $1.5 billion global professional services firm. He oversees its research and
development, information technology infrastructure, human resources and marketing and
communications operations globally, reporting to CEO Fred Steingraber. In the following
interview with Lisa Sanders, editor in chief of Executive Search Review,
Mr. Harrison discusses his roles at A.T. Kearney and within the executive search arena. He
makes observations on current changes in the search industry, and provides insight into
how A.T. Kearney’s Executive Search Practice may adapt. ESR: You’ve
been with A.T. Kearney since 1987 as a management consultant. What is your role as
president of A.T. Kearney’s Executive Search Practice? Harrison: I
have profit and loss accountability for the search business, so I am responsible for
developing the business strategy and operating plans. I support business development and
the execution of searches, and oversee our marketing, human resources recruitment,
management and administration. ESR: You’ve
spent a number of years as a management consultant. Have you ever been a recruiter? Harrison: No. ESR: I’m
curious: what is the reasoning behind having you, with a background in management
consulting, lead the search practice? Harrison: I’m
an experienced business executive. I’ve been a member of A.T. Kearney’s Board of
Management, or governing board, since 1994. Throughout my career, I have managed a variety
of businesses and functions. And of course as a management consultant, I have learned new
businesses, reshaped their strategies and strengthened their operations to improve
profitability. ESR: What
are some of your goals, broadly speaking, for Executive Search? Harrison: We’re
focused on six industry practices: global technology and eBusiness; financial institutions; consumer industries and
retail; media and entertainment; industrial; and education. We are also strengthening our
global presence in the 18 countries in which we are already represented. ESR:
Because A.T. Kearney, a management consulting firm, owns a substantial search practice,
there’s always been a lot of discussion about the two entities collaborating. What is
your opinion about that? Harrison: We’re
not fully exploiting all of our opportunities to work together. One of my objectives is to
help us develop those opportunities. For instance, we are currently working with several
Internet start-ups in situations where A.T. Kearney management consultants are doing the
strategy; EDS, our parent company, is also present; and A.T. Kearney Executive Search is
helping to put in a management team. We have probably done a dozen such assignments in the
last six to eight months. ESR: How
do you plan to encourage more collaboration between search and management consulting? Harrison:
Mostly I’ve been doing it through cross-referrals and introductions. My observation
is that one of the reasons we don’t work together more than we already do is simply
because people don’t think of it. In July, we started a program in which we are
working with each of A.T. Kearney’s top 25 management consulting accounts to explore
opportunities to serve those clients on the search side as well. ESR: How
are you doing that? Harrison: I’m
facilitating introductions between individuals on both sides of our organization. We’ll
meet, perhaps over lunch, to discuss search opportunities in the account and where
appropriate, ask for introductions to key executives. We’ll also talk about the
concept of adding retained search to the portfolio of client services the consultant
provides. My goal is to include executive search in the consultant’s account planning
process as much as possible. ESR: Let’s
turn our attention to the search industry. As you survey the marketplace, what do you see
as the four top drivers of change? Harrison:
Clearly, first and foremost is the Internet. The way that employer-to-employee
relationships are moving online – job posting and managing services, agents and
spiders that can search the Internet, retrieve resumes of potential candidates and
communicate with them. The technology is changing extremely fast. That’s one of the
major forces. Next would be the advent of database technologies. These have changed search
execution. ESR: How
so? Harrison: As
you know, all major search firms now have very significant candidate and company
databases. Firms conduct initial research through their own databases, which wasn’t
the case even a few years ago. Now, added to that, a wide range of online databases are
available. These changes have streamlined candidate identification and are altering the
cycle times and value proposition for executive search. ESR: Is A.
T. Kearney investing in technology? Harrison: We’re
rolling out our own platform, called SmartSource,
which we’ve developed internally. And we are constantly investigating new research
services and databases. Going back to the drivers of change, another that I find quite
interesting as a newcomer to search, are the two or three players that are engaged in
roll-up plays. ESR: Which
companies are you referring to, specifically? Harrison: TMP Worldwide, Korn/Ferry
International and Heidrick & Struggles are
all engaged in an effort to build significant scale. That’s clearly changing the
competitive dynamics of the industry. ESR: Many
of those large firms are developing new lines of revenue. Is A.T. Kearney’s executive
search practice considering any? Harrison: In
addition to executive search, we also have Human Capital Management Services. For example,
in merger situations, we help senior management assess the capabilities of the management
team they’ve just acquired. ESR: What
about offering additional products? Harrison: We
are always looking at opportunities. One interesting concept is an integrated offering,
such as the ability to provide a corporate recruiter with a one-stop shop for retained
executive search at senior levels. Other ideas include a middle-management search
placement capability or perhaps a recruiting desktop application service provider. ESR: Would
EDS create it? Harrison:
Perhaps, although we are talking with several potential partners. Other areas we are
considering are software makers that have search agent and spider products as well as
organizations that have online assessment services. Heidrick &
Struggles Cancels IPO For LeadersOnline Heidrick & Struggles International has formally
withdrawn its filing with the Securities & Exchange
Commission for an initial public offering of its Internet recruitment venture, LeadersOnline. The retained executive search firm
instead intends to “tighten the linkages” between LeadersOnline and its core
executive search business, according to a company press release. In conjunction with the
announcement, LeadersOnline current CEO Michael Christy takes on the title of Chairman of
LeadersOnline, while James Quandt, currently chief operating officer, assumes the chief
executive and president titles. All other LeadersOnline employees will remain in their
current capacities. Heidrick & Struggles International will incur charges totaling
almost $30 million as a result of the decision. LeadersOnline competitor, Futurestep, the middle-management online venture of
Futurestep, recently scrapped plans to offer a tracking stock to raise funds. AESC
To Launch Global Online Databases Two online global
databases owned and operated by the Association of
Executive Search Consultants will be launched as Internet-accessible services within
the next several months. The first consists of resumes, submitted to the AESC by
senior-level executives worldwide, that will be available only to AESC member firms.
Executives pay a one-time fee to submit their resume, which must be updated annually. The
second database, an online directory of the association’s member search firms
worldwide, will be available free-of-charge for companies globally. “This is a way of
communicating with a pre-qualified group of the best retained search firms who must comply
with the code of ethics and the association’s professional practice guidelines,”
says Peter Felix, president of the AESC. Additional features will be announced in the
coming months. HireStrategy
Creates Practice For VC-based Searches Ten-month old search
firm HireStrategy, based in Reston, VA, has
tapped Mindy Suissa as leader of its new Emerging Growth Practice, formed to serve the
needs of portfolio companies and their venture capital sponsors. Ms. Suissa comes from
retained search boutique Dinte Resources. Ex-Lamalie
Amrop Consultants Launch Firm John Henard and
Walter Baker, two former Lamalie Amrop search consultants, have founded Meridian Partners,
a retained search firm headquartered in Tampa, FL. Joining the two men are: Ileen Brennan,
vice president of human resources; David Sowerby, vice president; Susan Freeman, vice
president; Claudia Sanow Henderson, consultant; Peter Baker, consultant; Nancy Brereton,
associate; and finally, Cheryl Sortore, research associate. Korn/Ferry
EPS Up 73 Percent In First Quarter Korn/Ferry International's first quarter revenues for
the period ended July 31, 2000, for the fiscal year 2001, grew 65.7 percent from $104.8
million to $173.6 million, as compared to the prior year quarter ended July 31, 1999
(Q1'00). CBOT Retains Korn
Ferry For Chairman/CEO Search The Chicago Board of Trade has retained Korn/Ferry International and vice chairman Peter
Crist to conduct a search for a chairman and chief executive as the organization moves
forward with its plans to split into two for-profit companies. Both international and
external candidates will be considered for the position. Major,
Hagen & Africa Find General Counsel Legal search firm Major, Hagen & Africa has wrapped up the search
for a general counsel and senior vice president of Marsh
& McLennan Companies. William Rosoff, a partner with law firm Davis, Polk & Wardwell, is the successful candidate.
June Eichbaum and Jon Lindsey, managing partners in Major, Hagen & Africa’s New
York City office, handled the search. BridgeGate
LLC Recruits CIO for Enfrastructure BridgeGate LLC, an Irvine, CA-based search firm, has
recruited David Watson to become chief information officer of Enfrastructure, a startup backed by Microsoft and IBM.
Mr. Watson was most recently CIO for Edwards Lifesciences, a newly formed unit of
multi-billion dollar Baxter Healthcare Corp., where
he had served as vice president of information services. Kevin Rosenberg, Bridgegate
managing director, led the assignment. Erickson
Group Seeks SVP For Vindigo Vindigo, a New York City based technology start-up, has
hired Cara Erickson, founder of retained executive search firm The Erickson Group to
recruit a senior vice president, market development. Funded by General Atlantic Partners and FlatIron Partners, Vindigo is headed by Jason
Devitt, a former investment banker at D.E. Shaw & Co.
The company builds personal navigation tools for communications devices. Its first
product, called Vindigo, works on Palm OS devices. Russell
Reynolds Associates Seeks CFO For Dow Jones Executive search
firm Russell Reynolds Associates has been retained
by Dow Jones & Company to search for a new chief
financial officer. Current executive vice president and chief financial officer Jerry
Bailey has resigned for personal family reasons. The move will take effect when a
successor is in place. Connet
& Co. Places Gagnard as Eletter CEO Mel Connet, a
partner at retained search firm Connet & Co.,
has placed Jim Gagnard as chief executive of Eletter,
an Internet-based printing and mailing service headquartered in San Jose, CA. Mr. Gagnard
was most recently president and CEO of Diffusion, a customer relationship management
applications provider. With Mr. Gagnard’s appointment, Eletter’s founding
president and CEO Manish Mehta becomes chairman. Eletter received $20 million in November
1999 in its second round of funding. Investors included Bowman Capital Management and Canaan Partners. Christian
& Timbers Seeks CEO for Excite@Home Jeff Christian,
founder and head of retained executive search firm Christian
& Timbers, is working with the board of Excite@Home
to find a successor to George Bell, who intends to resign as CEO once a suitable
replacement is found. Mr. Bell will remain as the company’s full-time chairman until
at least the end of 2001. Plummer
& Associates Recruits CFO to Dekor Plummer & Associates, an executive search
firm based in Rowayton, CT., has recruited Debra Smithart as chief financial officer of
Dekor, an Atlanta-headquartered home décor retail chain. Ms. Smithart is formerly the
chief financial offer at Firstamerica Automotive. She will start at Dekor later this year
upon its launch in the Atlanta area. Jay
Gaines & Company Finds President For Visteon Jay Gaines,
president of New York City-based search firm Jay
Gaines & Company has recruited Michael Johnston as president and chief operating
officer of Visteon Corporation. Headquartered in
Dearborn, MI, Visteon supplies technology solutions to automotive manufacturers worldwide.
Mr. Johnston’s most recent position was president, e-business for Johnson Controls. Heyman
Associates Recruits Fluhrer To Avis Group Manhattan-based
search firm Heyman Associates has placed
David Fluhrer as vice president corporate communications at Avis Group Holdings, the
parent company of Avis Rent-a-Car. Mr. Fluhrer comes
from Medscape, where he was vice president of
public relations. Bill Heyman led the assignment. Venture Capital
Is Forcing Change In The Executive Search Industry In reporting this
month’s cover story, I came to realize how significantly the rules of retained
executive search are being rewritten, largely due to the explosion of available capital.
The venture capital industry is pouring $100 billion into start-ups annually, up from
about $5 billion a decade ago. As a result, says Highland
Capital Partners founder and general partner Bob Higgins, “The scale of
everything has changed dramatically.” Demand for people to
staff the venture-backed entities is at all-time highs. The trend of search consultants
abandoning traditional retained outfits for new gigs at venture firms, incubators and
accelerators is a natural consequence of those who have money – partners in a venture
firm – attempting to gain more control over and value for dollars spent. Hiring a
recruiting partner makes sense in terms of time and finances. Venture outfits offering
recruiting services may get access to better deals and be able to negotiate larger equity
stakes. Recruiters who’ve moved inside venture outfits say a benefit is the
opportunity to be a full-fledged partner in building new businesses, not just an outside
vendor – very different from the traditional consultant/client relationship. Less tradition-bound search consultants are
finding other avenues to capitalize on this venture-rich environment. Taking equity in
exchange for services rendered is now commonplace. Investing in early stage deals via the
soon-to-launch venture funds of Christian & Timbers,
Redwood Partners and Heidrick & Struggles is another. A few brave
individuals, including Neil Lenarsky, a speaker at the IACPR’s annual conference,
held in Washington D.C., this September, or Paul Schneidermeyer, an ex-Korn/Ferry partner, who calls himself chief talent
scout to senior-level technology professionals, position themselves as working for
candidates, rather than corporate clients. “Focusing on the hiring company is no
longer efficient, particularly with technology-focused candidates,” says Mr.
Schneidermeyer. “Filling an assignment is a matter of who is available for the job,
for whatever reason. We introduce talent to venture capital firms. You don’t take a
search and go out and recruit someone today.” |
