New Complexities in Running a Global Search Brand

December 11, 2015 – ZRG Partners represents a new breed of talent management provider – smaller, more intensely focused, with global reach. The firm’s CEO, Larry Hartmann, stands at the forefront of today’s leadership solutions industry, redefining a field once dominated by large, generalist players. Like its mid-sized rivals, ZRG Partners promises more attention to client’s needs and they tout themselves as more nimble and flexible.

Larry and his team excel in finding leaders across a broad spectrum of business markets, including aerospace & defense, consumer, cybersecurity, education, financial services, healthcare services and solutions, industrial, life sciences, non-profit, private equity and venture capital, and technology. In the following interview, Larry explains why ZRG secured funding earlier this year from Northcreek Mezzanine and how that capital infusion is projecting ZRG’s strategy forward. He provides his view on why search firms should not be publicly-traded – and how his prior career as a corporate board member, and as an executive at Rockford Industries, helped him set a novel course for leading a boutique search provider into the 21st century.


Earlier this year ZRG obtained capital funding through Northcreek Mezzanine. Why did you pursue this type of financing strategy? 

That is a great question and one I am often asked. For 10 years, we patiently grew our business out of retained earnings without debt or outside funding and we experienced steady growth. However, as we followed our clients around the world, and expanded to Europe and Asia Pacific, this growth added levels of complexity and fixed overhead that changed the dynamics for our firm. In looking closer at the successes and failures of other search firms over the past years, market dips coupled with lack of proper capitalization led to many failures. So, as a first priority we wanted to add extra liquidity to our balance sheet and, secondly, we felt with additional outside capital we could address needs and opportunities in the market. We accelerated our hiring of managing directors, beyond the three to four per year we were adding, and also considered additional acquisitions. Last year, we successfully acquired an 11-person firm in Chicago, New Directions Search, which has generated great growth under our banner. We also completed a couple of successful team lift-outs. All of this has been self-funded. Now we can consider additional strategic deals that help us broaden our market coverage. Liquidity allowed us to take advantage of some the industry speed bumps that occurred in 2015, including bringing on some great talent – because we put our fundraising in place. The timing worked out well for us.

What are the key triggers you look for when deciding to accelerate growth in the manner that you have? 

We were fortunate to grow significantly in past years without outside capital but we knew that to continue to expand we would require a bigger balance sheet and more options so that we could consider opportunities as they surfaced. The trigger for us was the market gap that exists in this industry. The way I see it, you have five major firms, there are many smaller boutiques and you have global networks or franchises that try to support clients globally. There are, however, very few company-owned, one P&L, mid-sized search firms. This list grows even smaller if you consider global mid-sized firms. We have been finding that clients appreciate less ‘hands off’ issues and more flexibility that many boutiques offer, but they still look for search firms than can partner with them and handle work around the world. Additionally, larger clients have been shrinking their search partner lists in order to work with a smaller number of search partners and so we now fit that need. The second trigger was getting more active in hiring top managing directors in a number of specialty sectors. This year we have added nine senior managing directors to our team and will continue this growth annually while layering in strategic acquisitions that make sense.

Some professional service organizations will seek outside capital funding for an eventual move to go public. Do you think search firms should be publicly-traded? 

It doesn’t make sense to me. My previous business was a fast growth specialty finance and lending business that we took public on the NASDAQ so I know what running and managing a public company takes. If you are public, you have to show growth year-over-year despite market conditions. Shareholders drive behavior. Executive search businesses that are public have inherent challenges. In 2001 and again in 2008 search firms’ revenues suffered with 20 to 30 percent revenue drops, and quickly went from notching profits to posting losses. This will happen again and the public markets will react badly; public investors do not like volatility in a stock much less an industry. The second challenge is alignment to the most important constituent – and is that the client or is it the shareholder? While every company must balance this, I know that as a public company shareholders garnish a bigger share of importance, especially when faced with challenges, and this can lead to poor service decisions.

Do search firms make wise investments especially since their primary assets, their recruiters, can simply walk out the door? 

That is the primary perception / challenge with raising money as a professional services firm. I heard from many PE investors during my recent fundraising episode that my assets go down the elevator every night and, for that reason, executive search is not their cup of tea. So, how do you overcome this? Some firms use legal tactics and agreements, with non-competes and bully tactics to keep talent from wanting to leave. That’s not our approach for a lot of reasons. We have tried to build a business based on positive values – to attract top talent, pay at the higher end of the range and put partner income into a formulaic outcome, not subjective or based on company success. Many top billers are frustrated over not having control over their income. Just consistently doing what you say you will do and not changing the financial structures with employees makes all the difference in the world in creating trust and retention. The second issue in insuring your assets don’t walk out the door – at least for us – is our passion to address search globally. It is easy to set up your own shingle and do local work, but when you add the complexity of doing business in 30-plus countries it is easy to see just how complicated running this sort of enterprise can be. It takes capital, it takes leadership, and it assumes that those in charge can effectively handle and manage risk. This complexity has turned into a market advantage for us in recruiting and retaining top talent.

Your background at Rockford Industries gave you experience in raising capital and hiring talent. You have also served on the boards of PE and VC-backed companies. How did this earlier experience help to shape your strategy in building and growing a search firm? 

My view of search before ZRG was as a user, not a search person. We hired many executives using search firms at all the various levels and I have to say, I was underwhelmed with the client deliverables. As a user of search, I felt like I was paying large fees and, in return, I received CV’s, opinions and references. The value prop that the recruiter’s opinion should carry the day didn’t resonate with me, and it doesn’t today with most clients. Opinions are just that, someone’s viewpoint, and they vary greatly. This set the foundation for ZRG. In bringing more data, analytics and technology to executive search and trying to find ways to truly have a value proposition that clients valued, we felt we would stand out in the world of recruiting. If you think about it, in every part of your business you have access to strong data, but when it comes to hiring key talent it often reverts to opinions and gut feel. We have tried to address this at ZRG with some of our unique tools and our approach. Raising capital and doing M&A work as a business leader before entering the search business has provided an immensely useful foundation for what I’m building now. And while some of our deals at ZRG are certainly smaller, with less zeros at the end, the same principals have applied in terms of structuring, funding and successful integration. Certainly, my past professional experience has afforded comfort to our investors and key employees, and I know that my past board work has been insightful in guiding me ahead. I think all of it has prepared me for accountability to others.

Contributed by Stephen Sawicki, Managing Editor, Hunt Scanlon Media and Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media

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