leadership Archives

After quite a bit of discussion was sparked on an earlier blog post in March around the 7 Reasons why early and growth-stage CEOs fail (http://www.bostonsearchgroup.com/blog/7-reasons-ceos-fail/ )in technology-driven innovation-stage companies, we thought we’d get the venture capital perspective.  Below are the results.  The two biggest reasons behind CEO failure revolved around a CEO’s inability to balance revenues and burn-rate (23%), tied with the CEO’s inability to hire well at the VP level, with repeat VP-level failure/turnover (also ~23%).  The balance of forced ranking of CEO failure include categories such as–

- New CEO didn’t integrate with rest of incumbent team

- Business model changed (different horses for different courses)

- Leadership fatigue (plateauing company for too long a period)

- CEO “Peter Principle,” and

- CEO getting sideways with Board of Director(s)/ board chemistry

From the venture investor’s perspective, what are the top reasons CEOs fail in venture-backed early and growth-stage companies?

Below is a poll aggregating responses.  For VCs taking the poll for the first time, check out prior blog post at http://blog.bostonsearchgroup.com/7-reasons-ceos-fail/  for further detail on some of the possible reasons short-handed below.

Feel free to forward to other qualified investors.  [Please note, it's the honor system on investors only.  In other words, please resist the temptation to stack the deck or share "opinion."  Experience only.]

For summary of Harvard Business Review article written a few years back around “Why Entrepreneurs Don’t Scale” see below poll.

[Poll closed. See blog post at http://www.bostonsearchgroup.com/blog/common-reasons-ceos-fail-venture-capitals-perspective/ for for results.]

Founder “Peter principle.” This has been well-documented by others, most notably by John Hamm, venture capitalist at VSP Capital and leadership development coach who authored a Harvard Business Review article a few years back, titled “Why Entrepreneurs Don’t Scale.” To set up John’s observations, most of our time as executive recruiters, we focus on helping early-stage companies jump the leadership chasm from entrepreneurial to professional leadership. More often than not, there is absolute certainty that a casualty will occur- the only question is whether that casualty will be the founder(s), or the company. Where venture capital or private equity is involved, all is done to avoid the latter in favor of the former. Regardless, it is too rare an occurrence when this collision between founder CEO, growth mandate, and outside investors ends positively, and if the company survives, it has to deal with the emotional baggage of shedding this first founder layer and all the pain this brings with it. John outlines four management tendencies that work for smaller-company environments but become Achilles’ heels as these CEOs try to scale their companies. The first tendency is loyalty to founding team mates. In entrepreneurial mode, you need to lead as though you’re in charge of a combat unit on the wrong side of enemy lines where anyone on your team is a keeper. However, in larger company growth mode, blind loyalty can become a liability. At some point, it may be required that the rest of the team that started the company with the CEO may need to be changed out for an executive team with experience at the “growth-stage” versus just the “start-up” stage. The second tendency, task orientation, is critical in driving toward a big initial product launch, but excessive attention to detail can cause a growing organization to either suffocate under such leadership-one that can’t generate creative ideas or momentum without being instructed by the CEO-or lose sight of its long-term goals. The third tendency, single-mindedness, is important in a visionary CEO who is unleashing a revolutionary product or service on the world. However, this can limit the company’s potential as it grows, as all good ideas aren’t always born from one person. In addition, often a lack of self-awareness or “emotional intelligence” can create a large blind spot around what isn’t working with the original idea, and instead of an ability to iterate to a better but related idea for the marketplace, the founder CEO can become caught up in the initial “vision” and stick to it regardless of external market input that would indicate changes to the initial value proposition are needed to capture broader market adoption. The fourth tendency, working in isolation, is fine for the brilliant scientist focused on an ingenious idea, technology or science. But it’s a non-starter for a leader whose expanding organization increasingly relies on people other than the CEO. There is also a significant difference in skill set required when the company grows beyond a single layer of management, requiring, VPs who manage directors, who may manage managers. Managing through a multi-layer management system requires a very different managerial toolbox. As the summary for the article outlines, “Leaders who scale deal honestly with problems and quickly weed out nonperformers. They see past distractions and establish strategic priorities. They learn how to deal effectively with diverse employees, customers, and external constituencies. And, most important, they make the company’s continuing health and welfare their top concern.”

The last time I saw some confusion around why an executive was making a change in industry was back in 1997 to 2000.  This was the dawn of the “internet age.”   Executives were leaving traditional industries like financial services, management consulting, retail, and even manufacturing, because there was a new thing called the Internet that was going to “change the world.”  In the earliest of those  years of 1996 and 1997, there were the early adopters.  These executives were truly missionary.  Money hadn’t been made yet in the Internet sector, and trails hadn’t been blazed.  Those early pioneers had caught a glimmer of a powerful disruptive technology, and were keen on experimenting with it, with the aim of changing the world as we know it, and how things get done.

There are some industries that have always been missionary, and have attracted a consistent flow of executive talent toward them.  The education industry attracts innovators who want to find a better way to sculpt and expand the minds of our children and young adults.  The  medical devices industry wants to help innovate tools and components that will allow us to repair our bodies, or extend their useful life.  The biotech industry wants to find new ways to pinpoint the reasons and sources of disease and develop novel ways to cure them, whether seeking the cure for cancer, cure for Alzheimer’s, or other terrible human disorders.  Cleantech is likely the newest addition here.

The reasons executives decide to change industries are many.  One popular reason is “I’ve done well, now I’d like to do good.”  You see this often in the investment banking industry, where wealth can be made, but “doing good” is rarely part of the equation.  Therefore, frequently these and other similar executives achieve doing well and doing good in a “serial” fashion, when Maslow’s hierarchy of needs kicks in (http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs ).

Back to our comparison of the Internet craze and today, and how this impacts why executives decide to change industries, during the Internet craze, we were in an economic upswing.  Yet, it wasn’t such a stark contrast as we see today in our current state of economic adversity.  Then, in the late ’90s, there was a much smaller difference between an ability to earn a good living versus create an insane “wealth creation event” via a dot-com IPO in less than 2 year’s work.  It’s wasn’t perceived as binary, “if I’m not in Internet, I’m at risk of being unemployed.”  In today’s market, this is often the reality.  Is the motivation, drive, or reason to look at the cleantech industry altruism, or self-interest in the executive’s value system?  Or, is it possible and desirable to have “enlightened self interest” in a leader who is changing from one industry into one more in vogue like cleantech?  One where the sheer proliferation of terms to alternately describe the industry is an indicator of its popularity–  greentech, renewables, sustainable energy, and other popular terms used interchangeably today.

Now, the vast majority of both growth-stage and mature-stage industry sectors are suffering.  As a result, it pushes our challenge as executive recruiters-or for anyone who’s assessing talent to add to their teams-to determine how much missionary versus mercenary is driving an executive’s decision to make a change.

This teeter-totter of altruism versus self-interest John Doerr popularized in the late 1990s as a Partner at well-known venture capital firm Kleiner Perkins.  For a good snippet from Doerr’s thinking, go to blog post http://constructiveventures.wordpress.com/2008/04/27/mercenaries-vs-missionaries-the-next-wave-of-entrepreneurs/ .  For a deeper dive, you can see Wharton article, http://knowledge.wharton.upenn.edu/article.cfm?articleid=170 .

Today’s executive assessment challenge is to first determine what the mix of mercenary (M1) and missionary (M2) is in the executive’s motivation to change career focus from their current industry to cleantech.  We need to make sure that there is a healthy enough balance, 5X% missionary, 4X% mercenary, and then make sure that this DNA matches that of the existing executive team to maximize the probability the executive will stay through good times and bad.

A derivative question arises at this point-Is it best to mix M1s and M2s together in a team, or select for homogeneity?  If you had a subset of executive team members who were missionary, and another faction who was mercenary, the cohesion of the entire team is likely doomed.  Offsetting too missionary a culture by counter-balancing with a few mercenaries is not a recipe for success.  Rather, there should be a balance within each individual.

The risk of missed assessment?  A fair-weather executive.  Someone who-when the going gets tough, or when a more lucrative, safer, or easier role pops up on the radar-will fledge the existing nest for what they perceive as a more attractive roost. What the next more attractive sandbox will be is hotly debated.  However, in this economy, other than government and eHealth/healthcare IT, cleantech is the new land of opportunity, and it will attract both missionary and mercenary entrepreneurs.   If you agree with any of the above, the challenge is to figure out how to tell them apart.

Footnote to assessing “motivation“: In assessing this decision to make a change, there is sometimes confusion around the use of the word “motivation.”  At times, executives are assessed for their “motivation,” which is referring to drive, not motive for seeking a new role.

I was traveling on business recently and spent some time down in New Orleans.  It was the first time I’d been there after Hurricane Katrina.  My hosts were fellow entrepreneurs, also part of EO (www.eonetwork.org) and on the board of the local chapter there.  They put together a private tour of New Orleans, with a focus on the issues that led to the spectacular and tragic failure of so many systems post-Katrina.  As one of my hosts put it, it was a breakdown of three things –   vision, leadership and communication.  The more we drove around New Orleans and the more I saw of the devastation, the more I heard of how these entrepreneurs responded to it.  I got this strange feeling of metaphoric déjà vu.  And then it dawned on me.  Katrina is a parallel for the current economic crisis America finds itself in– a sudden, unpredicted disaster for which none of us were prepared.   So I asked Jude Olinger, the current EO New Orleans Chapter President and CEO of market research firm the Olinger Group, if he had any “lessons learned” that he felt might apply to any unpredictable, catastrophic disaster.  His response? Oh yeah.  In fact, Jude had sat down several months after Katrina, and tried to capture the lessons learned.  He emailed them to me after our meeting.  And what I saw was an eerie parallel in the lessons Jude learned surviving and succeeding post-Katrina to what each of us--entrepreneur, business person, head of household, individual–could also adopt as survival strategies in one of the biggest financial hurricanes ever to hit the U.S. in modern times, perhaps the globe.   As much as entrepreneurs drive the economy, and no doubt recovery, we all should think of heeding these lessons.  In reflecting on the below, I saw them universally applicable to all current innovation sectors in which we as an executive search firm have practice areas, whether cleantech / energy, medical devices, software, biotech, distance learning / education, Internet Web 2.0, mobility / wireless.  In chatting with CEOs in each of these sectors to test my assumption, they too felt these were “universal truths.”

Below is a partial list of Jude’s lessons learned, selected for those that carry strong correlation both to a natural disaster such as Katrina as well as an economic disaster.  Following it is some interesting Q&A in dialoging with him about the experience.  And to learn more about Jude Olinger’s firm, go to www.olingergroup.com.

After crisis strikes…

-         Lesson #1 - Don’t panic but act quickly.  Stay focused on the tasks that you have to accomplish to recover.  Prioritize tasks and act upon them immediately.  Time, or rather lack of time, is your enemy.  Everyone is going to want your time… so have to prioritize and think ahead.  Anticipate things that might happen and prepare for them.  If you know you have to lay people off, and it’s a reality, then do it.

-         Lesson #2 - [In knowledge worker industries] Don’t lose your greatest asset – your employees.  Be decisive.  Communicate with employees quickly and frequently.  Be a leader and let them know the plans and intentions of the company and how they fit in.  Evaluate what you can do for them immediately and provide as much assistance as possible.  Don’t lose the key people that make you successful every day

-         Lesson #3 - Communicate with your clients and vendors quickly.  Let them know that you are still in business and intend to fulfill your obligations.  There often is  client empathy and understanding for about a week.  Then clients start to look to mitigate their risk by moving business-all or at least part of it-to another provider just to reduce their risk.   Keep them from defecting.  IF they don’t hear from you, then they’ll assume that risk is real in continuing to work with your firm..

-         Lesson #4 - Locate your advisors (accountant, insurance agent, banker, attorney) quickly and leverage their knowledge/expertise in the recovery.  These relationships should become PERSONAL…  you need to know your banker’s wife, husband, and children….  For accountant/bankers, questions like:  ”Should I do a 25% paycut?” (accountant/CPA), or “Will banks offer any forebearance in the interim?”

-         Lesson #5 – Be selfish with your time - everyone will want it, and you won’t have enough of it to go around.  Tend to your personal relationships and yourself.  Crisis will test you mentally, physically, and emotionally and you will need all of your strength and energy to survive it.

-         Lesson #6 - Get the facts - not things reported as fact by the media – before making any major life or business decisions.  Lots of false rumors will abound.  Filter information carefully.  Be as close to the information as possible – the further you are away from it, the less accurate it is.

-         Lesson #7 - Don’t consume too much media.  It will discourage you and take away from your focus.  Expect lots of inaccuracies in the news – see Lesson #8.

-         Lesson #8 - CASH is KING – even more so in a crisis.  Build up cash reserves.  Manage cash flow very wisely.  Be prepared for a 3 to 6 months cash flow crunch and figure out how to survive it.

-         Lesson #9 - Don’t count on ANY government assistance (FEMA assistance, SBA loans, or other federal/state assistance).  By the time you get it, if you get it, it may already be too late.

-         Lesson #10 - Keep a positive attitude - no matter how bad your situation – or you are done.  It’s the one thing that you have total control over and is critical for you to persevere.

-         Lesson #11 - Don’t expect things to be what they were before.  They won’t be the same.  Adapt, adjust, and keep moving.  It will never be “what it was before.” And don’t expect it to be.

Times of crisis test us in ways that we can never imagine.  It’s these times that makes us stronger and more determined.  Don’t let ANYTHING, not even a catastrophe, get in the way of reaching your goals and achieving success.

In further discussing the lessons Jude took away from the Katrina experience as an entrepreneur/business owner, here are some of Jude’s sentiments some three years out from ground zero:

Q: How are you entrepreneurs in New Orleans different after than before?

A: We’re smarter.  We had a chance to start from scratch, and can be anything we wanted to be (operationally).  When you lose everything, you have an opportunity to start all over again, and you can do it better the second time you build the house versus the first.  All of us have gotten smarter about who we want as clients, focusing on more profitable clients that fit the core value proposition of the company, versus taking on all comers.

Q: Has it permanently changed, or only temporarily changed your prioritization of work, family, and personal?

A: Jude said that one word was crucial on keeping balance…. “perspective.”  It’s all about perspective, keep proper perspective, and realizing that not everything may be as bad as you might think it is.  Put all things in perspective.   Events like Katrina [or the current economic crisis] create incredible stress.  Perspective is critical to subdue this stress.

Q: And “that which doesn’t kill you makes you stronger”?

A: True.  But it’s an unfinished sentence.  The end of the sentence is “but leaves deep scars.”  Think about PTSS (Post-Traumatic Stress Syndrome… Vietnam/Iraq…) Your life is turned upside down, you spend 3 years re-building it, and you always will fear that something will happen again.  “I cry a lot more.  Am much more empathetic… in a good way.   I believe the Katrina experience has allowed me to can connect to people better than before.”

Was having coffee with a CEO of a successful venture-capital-backed company in the Boston area the other day.  They’re in the healthcare IT space, and doing incredibly well, sales forecasts up, counter to many of the other growth-stage technology companies suffering through the recent economic emergency thrust upon most.

We got to chatting about business development, and he brought up something I had rarely if ever heard before.  When it comes to the competition, he makes it a point to get to know them.  In fact, if there is a competitor that pops up he hasn’t talked to, he’ll ring them up.   As he’s CEO, he usually calls the other CEO (if he calls the head of sales, the competitor’s CEO might get the wrong idea).  “Just the other day, I heard about a company that hadn’t been in the mix before, and I called and left a message for the CEO saying that as we were both in the same industry, it would be good to chat and perhaps meet up for coffee.”

When I asked my coffee companion the responses he got, he said they varied.  Sometimes, the other CEO doesn’t respond.  Sometimes they respond with a strong overtone of suspicion.   However, once they meet, he feels a lot comes out of these meetings.

When I asked him when he started to do this, he referenced a global 2000 company he used to work for, and a customer review he had with his boss.  When his boss asked him about several specific competitors and our protagonist didn’t know them in the first-person, he vowed to forever more make it part of his SOP to reach out to the competition and meet up to learn more about them.

When I asked him what were the biggest benefits of the practice, he pointed to three:

•     Often competitors are pitching against each other at the same client prospect. Sometimes is valuable to compare competitive market intelligence, especially if the vendor is getting the feeling they’re being played with some disinformation.

•     Ignorance breeds fear: if competitors don’t know each other, they’re much more likely to slip into badmouthing the other guy. If you get to know them, this is a lot less likely.

•     Invariably, at some point one competitor may replace the other competitor’s technology. To be able to call the other party and have a bridge already built at senior levels can go a long way in the integration of the new technology, even if it’s a bitter pill for the one being replaced. “It just makes the whole changeover for the customer less painful.”

We periodically bring small groups in to our conference room to brainstorm over lunch on a new disruptive technology that has yet to find its market. As executive recruiters focused on the innovation sector, it’s an informal matchmaking that looks a lot like a focus group of sorts, or a technology version of “lunch dates.” In this case, it was a new robotics related technology out of MIT that behaves like “smart skin.” What resulted was a set of free-flowing observations that highlighted possible markets and applications ranging from clinical medical diagnostics, to medical therapeutics surrounding rehabilitation and injury prevention, to consumer applications like in-home health and even consumer gaming applications. All were great observations from a veteran group of a half-dozen venture capitalists, innovation catalysts, and serial entrepreneurs in technology, healthcare IT, medical devices, and software. One of the serendipitous outputs of the brainstorming session was how best to go to market in this economic climate with a new innovation. The opinion that was almost universally held amongst the group was the following:

• Developing a component is really difficult. Developing an end user complete solution is by far the better way to go.
• Components are often harder to visualize as displacing current technologies or sciences. In particular, VERY hard for consumers to visualize.
• Those who may be most interested in the innovation may be so interested because they stand the most to lose. Therefore, to get control of the technology might be important, but to further develop and deploy it may be exactly the opposite of what they had in mind.
• Kevin Johnson, CEO of Manifold Products, mechanical engineer and serial entrepreneur, had one of the best sports metaphors for it-

“It’s not enough to be the Harlem Globe Trotters and show off fancy ball tricks in the back court, expecting that others will notice and say, ‘Hey pass me the ball and I’ll take it to the basket.’ Instead, you have to take it all the way to the hoop yourself and demonstrate the value/viability/feasibility before anyone else will sign on….”

Several times a year, we get a group of venture-backed CEOs-only together to share experiences over cocktails, dinner, and a topic that they often pick. Our role at BSG Team Ventures is to host it and recruit the best panelists possible. This Fall’s topic was Managing the Board – Best Practices in Board Management through Turbulent Times. We assembled a panel and facilitated an interactive discussion with three veteran venture-backed CEOs-

Scott Griffith, CEO of Zipcar (www.Zipcar.com).

Scott has been CEO of Zipcar from it’s angel funding stage more than 4 years ago to today, growing the company through several rounds of venture funding including investors Benchmark and Greylock and a recent merger with FlexCar that broadens Zipcar’s offering to more than 10 cities, both here in the US as well as the UK.

Jill Smith, CEO of DigitalGlobe (www.Digitalglobe.com)

Jill has been CEO of several companies, including venture-backed eDial ultimately sold to Alcatel, and COO of Micron Electronics, a $1.5B PC manufacturer. All of this ultimately led her to take the CEO role at DigitalGlobe 3+ years ago, an imagery company providing both satellite and aerial imagery for the likes of products like GoogleEarth, the U.S. Government and other mobile, commercial, location-based services companies, and nations around the world interested in geospatial information management.

Jim Mahoney, CEO of Novomer (www.Novomer.com).

Jim early in his career was an executive at Baxter, then moved into several general management & CEO roles in biotech including CEO of SurfaceLogix. Recently Jim has taken the helm as CEO of a cleantech-renewables industry start-up targeting green chemistry funded by Flagship Ventures and several others.

In recruiting these three to the panel, we were looking to find three veteran CEOs who had been in both public and private company settings, had assembled experience in CEO positions across the growth stage spectrum of technology and science-driven companies from seed-stage funding through S1/IPO. Also, we wanted to assemble CEO panelists who had been in the CEO chair a number of times, and thus had experience with a number of boards-boards with founders on them, venture capitalists and other investors on them, as well as outside and strategic investors.

The podcast below is the audio from the evening offering some thoughtful input and CEO-to-CEO questions and answers from the audience.

The audio last a bit more than 70 minutes, and you can graze it by streaming it here, or download for car, train or plane ride listening.  Enjoy.

Venture-backed CEOs talk about Best Practices in Board Management

Here is the balance of the survey responses from the VC-backed CEO survey we administered at the end of December 2008 into the first week of January 2009, both responses and a bit of interpretation.

Given survey responses, it appears the bell curve peak is in the 20-40% reduction in headcount.  The group of CEOs who indicated these reductions were approximately half of the 60 CEO respondents.

• •    40% or more staff reductions? ~ 10% of total CEOs surveyed
• •    Less than 20% staff reductions? ~ About 17% of all CEO respondents

Winner on this question was “more than 9 months,” with more than 40% of the CEOs.  Runners-up were the “0-to-6 months of cash” CEOs, evenly split with 25% saying 3 to 6 months, and another 25% saying “less than 3 months.”  What this may indicate is that there is a bimodal distribution of funding in the market –those who are well-funded, with 9 months or more, and those companies who are running out of cash (popular definition = less than 6 months of cash remaining).  This is reinforced by the fact that very few companies responded that they had 7-9 months of cash (less than 10% of companies).  Therefore, one might imagine that those companies who are shortest on cash are also those who are making the deepest cuts in staffing.  In addition, that there may be another round of cuts in store for those low-cash companies if they can’t get another round closed soon.

Top implied answer here?   Don’t raise a venture round in 2009.  And this is what the largest slug of CEOs responded with (33%).  Of those who are going to try to raise in 2009,

• •    one-third of CEOs see a flat round
• •    16% feel they’ll get an up round
• •    and almost half (45%) are predicting a down round

Winner for this question shows some great optimism however, with about 1/3 each of the CEOs responding answering with either “revenues up 1 to 25%”  or “Up more than 50%.”

There was an intentional effort to get a fairly even distribution of venture-backed CEO respondents for this survey, to try to avoid sector bias.  We were fortunate to have at least 10% (6 or more companies) from each of life sciences / biotech, medical devices, and the cleantech sectors.  Software/Internet/telecom was the largest category represented, with 42% of CEOs hailing from this sector.

BONUS SLIDE

Q: If YOU could survey your peer CEOs, what question(s) are both urgent AND important to running your business you’d like us to consider asking in future polls?

This was one of the most rewarding questions for which to see the responses.  Fully half of the CEOs polled had a question they’d like to pose to their peers, and some CEOs had several.  Below is a partial list of questions we’ll choose from in follow-on surveys.  If any of those CEOs would like to respond individually to any of the questions below, feel free to post a comment on this blog entry and we’ll post it for public consumption (clustered by general question subcategory as well as by industry sector).  Of course, the winning question asked by one of you CEOs, just to validate that venture capital-backed CEOs are-if anything-self-aware, pragmatic, and not fatally over-optimistic:

“What will CEOs do if their company fails?!”
1.   Cost-related questions

• •    Approaches or success stories in restructuring debt to the company’s advantage.
• •    Is it better to reduce headcount 20%, go to a 4-day work week, or reduce salaries by 20%?
• •    In addition to headcount reductions (if any), what type of expenses are you reducing?  Are you delaying new projects/initiatives?  How have investors reacted to this?
• •    Will you consider outsourcing some of your product development to make cost variable, at the expense of some know-how then being outside the company?

2.    Sales/Marketing/Revenue-related questions

• •    How are you using the economic downturn to improve your business position/model?
• •    What are you going to spend more money on in 2009 than in 2008?
• •    What changes in the sales cycle are you seeing in the last 6months, 2 months, currently?  What does the resultant trend point to for 2009 and what actions are you taking in response?
• •    How has your visibility into the level of future business changed in the last 3-6 months?Asked another way – what level of confidence do you have in your current forecast of business?
• •    (1) What emphasis do you place on marketing in your organization? (2) What do you consider the top 3 most important elements of marketing to be?
• •    How will you as CEO deal with longer term rate issues if you are a service business as it seems all labor rates are being pushed down?
• •    The number one reason why clients buy your product is? (cost, quality, service, other?)

3.    Funding/exit/valuation questions

• •    Are you finding lending lines out there?
• •    If an acquirer made an offer to buy your company today, but at a multiple less than what it would be in a strong economy, would you consider it, or wait until the economy improves so you could get a higher valuation?
• •    Are you considering merging your company with another? Are you looking at merger partners as a legitimate exit option in 2009?
• •    Are you looking to current investors or new investors for additional rounds of financing?

4.    Board of Directors/investor-related questions

• •    How will venture capital investing change in 2009?
• •    What is your satisfaction with your Board’s ability to fundraise in the future? (I think the current environment highlights a board’s function as protector of value through fundraising and too few board members are good at it)?
• •    Compensation for outside board members?

5.    Staffing/talent questions

• •    How are you balancing full time versus contract employees?
• •    How are you retaining employees during these tough times?
• •    What kind of retention ideas have you considered to make sure your key folks don’t bail for a more stable environment?
• •    What skills are you as CEO still looking to hire?
• •    What do you do to conserve cash? attract customers?
• •    How many of you CEOs have proposed reducing people to part time levels and adding equity compensation instead of releasing them all together?

6.    Economy-related questions

• •    When do you predict the market conditions to take a turn for the better?

There a few industry-specific questions CEOs wanted to ask their peer as well:

Life sciences/biotech-related questions

• •    What kind of deal structures are you seeing in liquidity-directed partnerships? What kind of partnerships, if any, are you envisioning for discovery stage assets?

Medical devices-related questions

• •    How do you expect reimbursement to be influenced during the next administration?

How are retained executive search firms assessed?  And how should they be measured?

This is a funny question. And one that can be asked at two inflection points in the search process–

• BEFORE picking a search firm

•    And AFTER a search has been executed/completed

Focusing on the “before” part for now, for most companies the 3 most popular decision factors used to help pick a winner in the “shoot-out” or “bake-off” process today are typically:

• “Relevant Rolodex” or domain expertise. Has a search firm done a similar search in a similar sector recently?

•    Familiarity. Has a search firm worked with a client before?  The implicit assumption is “devil you know is better than the one you don’t.”
•    Price.  Depending upon economic conditions, search firms are as often as not considered “about the same,” and only price is the perceived differentiator.

However, I think there should be a shift in search firm selection criteria.

Let me digress for a moment and talk about the traditional value proposition of retained executive search.  Historically, there have been 4 pieces of value that the search firm delivers on:

1)    Finding or “hunting” the candidate.  In the industry, we refer to it as “candidate identification.”
2)    Selling the client opportunity to the “hunted” candidate
3)    Assessing the candidate for hard skills and soft skills “fit” for the search
4)    Closing the final candidate once s/he has been selected by the client company-the end game, including compensation negotiation etc.

Now, back to how search firms are selected.  The above criteria emphasize and value things like candidate identification.   At one point, this was a very important selection criterion to make sure the right search firm was picked for a search.  At one point in the history of executive search, headhunters would spend decades amassing a proprietary Rolodex, mapping the industry and what talent was harbored where.  This was hard-to-come-by information, usually only amassed via “gumshoe” work, calling and talking to the industry on a constant basis.  However, in the last 10 years, and 5 in particular, there has been a huge shift at the executive levels.  There has evolved a set of technology tools that has allowed unprecedented transparency into who is where at any given point, tech tools like ZoomInfo and LinkedIn to name just a few.  So, with access to these tools and the modicum level of investigative interest and time, finding as a value proposition for executive search selection has become commoditized.  The “black book” that recruiters worked hard to build and protect has effectively been published on the Internet for each and every executive level in virtually every industry.

So if “finding” is no longer the lynchpin for search firm selection, what does that leave? There are still the other three values a search firm brings-ability to sell the opportunity, assess the candidate, and ultimately procure the candidate of choice the company selects via the final interview processes and endgame negotiating.

It would be really interesting to see a search firm selection process be shifted to an evaluation of two of these three areas, plus an addition of three new metrics:

• #1: How does a search firm “sell” the search to prospective candidates? What is the search firm’s “pitch,” how well does the executive recruiter present the opportunity, its nuances, and a compelling story. Good talent is usually not looking to move. And good talent is usually fairly happy where they are, and valued where they are. So, a good headhunter needs to present an even more compelling reason to persuade an executive to look at a new opportunity. A prospective client could ask the search firm for the marketing documents the executive recruiter has written and used from past searches and evaluate them as to their compelling nature. A client could even ask for samples of emails or voicemail “pitches” that have been used in the past, and what tools a search firm uses that uniquely differentiate a company’s executive need.
• #2: How does a search firm “assess” candidates? We feel that assessment is the new “black book” value proposition of executive search. Prospective client companies could ask search firms for how they assess candidates? What tools do they use, what key success factors does the search firm interview for in all executives, and what unique success characteristics would they interview for specific to a given position and company profile. What assessment information is passed along to the company? What does a candidate interview summary “write up” look like? And how much assessment is really delivered in the write-up, versus a simple repackaging of resume and background information? Also, how are references done, and samples of references completed to get a sense for what the search firm is looking for in its referencing process. A really interesting article written about how search firms work, and in particular, how search firms assess candidates, can be found in the PhD research of Monica Hamori, PhD candidate at Wharton. It’s a very interesting read — http://www.allbusiness.com/specialty-businesses/332669-1.html. Unfortunately, Ms. Hamori’s conclusion is that candidate assessment is done very differently from search firm to search firm. Most notably, she identified that candidate assessment is done differently from partner to partner inside large search firms, with no assessment standards or processes.

As for the three new search firm selection criteria, I’d suggest clients add these three to the two above:
•    #3: Pre-search “discovery” process.  What does the search firm do to uncover all there is to know about the company, the culture, the position, the internal and exogenous factors, and most importantly, the chemistry success equation with the hiring authority within the company to whom the position with report.

• #4: Post-search onboarding and “stick rate.” What does the search firm do to ensure success of the candidate in their new role? And what is a search firm’s “stick rate,” or success rate in placing executives in new companies who then stayed for some period of time rather than bouncing off, suffering organ rejection from the host organism company who hired them? This could even include a redistribution of the executive search fee structure. Wouldn’t it be far better alignment between client company and search firm if both were incented to nurture a new executive’s success in the role? Perhaps a deferment of part of the fee for service if onboarding coaching were employed, with a delayed “final payment” at the end of a year of service, on actual bonus paid “above targeted compensation,” rewarding the search firm for above expected performance achieved by that executive.
• #5: References. Client companies should do a better job referencing the search firm. So much can be learned from how a search firm performs references. Who they check references with, how references are performed, what questions are asked, are references aggregated or attributed to specific reference givers, or? How many references are performed? Are any references performed with those who were not provided by the candidate? Are background and credentials checks performed on the finalist candidate(s)?
  Somehow, if these 5 selection criteria were used to evaluate potential search firms, my hunch is, as often as not, a different firm would be selected. And a better ultimate executive candidate for the retained search in question.