The process of recruiting top executives as compared to ordinary employees is different. Given that critical senior-level positions can impact the strategic direction of the business (even the stock prices!), companies typically get the help of executive search (or “headhunting”) firms to assist them in finding the best person for the job.
While some companies know that they can maybe find 10 people qualified for the job, getting the help of an executive search business can expand that pool to about 150 or more. For example, Google’s Chairman Eric Schmidt was placed at Google by the top executive search firm Heidrick & Struggles.
The executive service has grown tremendously in the last few years. The growth of electronic commerce has contributed to a scramble for skilled senior staff, which seems to be in short supply. Studies show that searches for e-business and Internet managers grew 739 per cent. Searches in the advertising and public relations industry climbed 45 per cent. Demand for executives earning $1m or more a year grew by 40 per cent. The reason the headhunters are so busy is that capable senior managers are in short supply.
Few senior positions today are filled without consulting headhunters. The overwhelming majority of senior positions advertised in the classified ads section ask for applications to be made through a search consultant.
What is an Executive Search Business?
Simply put, headhunting or executive search business is a matchmaking service. Executive search firms are paid by companies to help them find and fill the management, technical and professional positions in their businesses. They specialize in the recruitment and placement of middle to senior-level executives such as CEO, CFO, VP, etc., within various industries, for domestic and international corporations. The annual salary of positions executive search businesses look for range from minimum of $100,000, though it’s typically more in the range of $250,000 and up.
The job of an executive search business is to provide a list of possible senior-level personnel for the client’s consideration in an efficient and timely manner. They don’t make the hiring decisions – that’s the client’s prerogative – but they do the legwork to make sure that the client has a deep-enough pool to choose the right candidates.
Specifically, the tasks of an executive search business are:
- Help draft accurate and enticing job descriptions
- Make a list and contact qualified job candidates
- Check references
- Speed up the hiring process
The executive search business differs with employment agencies in several ways. Employers pay the executive recruiters; whereas employment agencies collect their fees from the people they place. State laws also heavily regulate employment agencies, while recruiters are free of licensing requirements.
Starting an Executive Search Business
Executive search is a business dominated by big companies and used by a wide range of businesses from industrial, manufacturing, non-profits, and technical. This is an important factor to consider when starting a home-based or small executive search business. Your business may not handle the placement of the next CEO of Google, but many local businesses may need your expertise and connection to help them find the senior executives that they need.
The key to start this business is information. You are selling your specialized knowledge of a specific field – both in terms of the businesses involved in that field as well as the talents working on that field. To be able to select appropriate candidates for the job, you must have a deep understanding of specific industries, companies and their strategies and cultures, as well as their compensation structures.
You must also have an extensive database of key people and talents for specific industries. Use the Web, including social media such as LinkedIn and Twitter, to find experts in the field. Networking is a prime activity of this business. You must spend a great deal of time networking in order to build the number and quality of contacts needed to succeed in this business.
If you are starting a home-based executive search business, it may be easier to focus on specific industries instead of spreading yourself too thin. This will enable you to develop and deeper database of possible talents for that industry, as well as a stronger reputation among potential clients. You want to be known as the person who knows the right people for the job for that particular industry.
As a small executive search business, your advantage is that you are able to provide a more personalized service to your clients. Also, since you have fewer clients, you have fewer conflicts to consider (executive search firms typically don’t recruit from their client companies).
Track record of the executive search firm in filling up positions is extremely important. It is important to understand the metrics that companies look for when choosing an executive search business to assist them. The key metrics potential clients look for include:
- Completion ratio or the percentage of a search ending with a successful placement
- Average time to complete an assignment
The success of your executive search business also depends on your reputation for integrity and confidentiality. You also need to have excellent people skills as well as sensitivity to the needs of all parties.
Income Potential of an Executive Search Business
Executive search is a high-income business. According to the Top 25 Search Firms of America list published by HSZ Media in April 2013, the top 10 executive search businesses earned a total of US$1.8 billion in revenues. Smaller executive searchers can earn as much as $232,000 a year, according to a survey of 2,545 consultants conducted by Fordyce Letter.
Headhunting services for executives are not cheap. The fee for executive search services range from 25 to 33-1/3 percent of the position’s total annualized first year’s compensation, including bonuses as well as “administrative fees”. The norm for the industry appears to be 30 percent, although home-based establishments normally charge 25 percent to be more competitive relative to office-based competitors.
Normally, the client pays 1/3 of the anticipated total fee at the commencement of each search assignment. The rest of the fee is paid when the candidate begins his or her employment. Some recruiters work on a retainer basis. Other firms are now also demanding companies pay them a third of any signing-on fee the executive receives and some are even insisting on share options equivalent to a proportion of the executive’s first-year entitlement.
Start-ups costs can be minimal, ranging from $2,000 to $10,000 depending on the equipment bought and size of the initial marketing budget. Miscellaneous expenses that are related to the search process, such as telephone charges, photocopying, postage, messenger, secretarial services and consultant time are normally invoiced monthly to the client at the flat rate.
Additional expenses incurred associated with bringing in candidates to interview, travel that the client requests, taxi expense and meals associated with the interviewing of candidates are invoiced, at actual cost on the month in which they are incurred.
Challenges Faced by the Executive Search Industry
The recruitment market has changed in recent years, and below are some of the challenges and threats faced by executive search firms:
- Employers are bypassing executive search firms. According to a recent survey by HSZ Media , in-house recruiting where companies search for talents themselves has increased by 25% over the last five years.
- Growth of social media such as LinkedIn. The professional networking site LinkedIn makes it easy for employers to find professional talents and managers. By using LinkedIn, they can bypass executive search firms and find managers and executives they need by themselves.
- The fees are driving away customers. Many businesses are objecting to the high fees charged by executive search firms. Executive search firms charge a third of the first-year salary for the position plus the administrative fee, whether a suitable candidate is found or not (at least for the big recruiting firms). Plus, studies have found that 40% of recruits by headhunters leave the companies within 18 months.
- Growth of upper level online classified ads websites. There are a growing number of online classified ads geared towards top professionals. One example is RegionUp.com, where professionals looking for $100K jobs in Asia can post their resumes and be approached by recruiters.
An executive search business provides huge opportunities for a home-based entrepreneur. To succeed in this business, you must not only have the right domain expertise, but the commitment and ability to complete projects quickly and successfully.
Recommended Books on How to Start an Executive Search Business:
- Start Your Own Executive Recruiting Service (StartUp Series)
- The Executive Job Search: A Comprehensive Handbook for Seasoned Professionals
- “Headhunter” Hiring Secrets: The Rules of the Hiring Game Have Changed . . . Forever!
- Executive Job Search for $100,000 to $1 Million+ Jobs: Resumes, Career Portfolios, Leadership Profiles, Executive Branding Statements and More
- The Secrets of Executive Search: Professional Strategies for Managing Your Personal Job Search