April 14, 2016 – For small to mid-sized search firms, it can be tough to convince set-in-their-way Fortune 500 companies to choose them over their big league rivals, especially when it comes to CEO assignments. Still, boutiques have made tremendous progress in recent years and in many cases are staking out territory in which the largest firms can’t easily compete.
Dan Grosh, managing partner of Calibre One in San Francisco, says that his group has done particularly well in its efforts with venture capital and private equity-backed organizations, and that it often beats the Big Five firms for emerging growth and mid-sized company CEO searches.
“We win more private equity and venture backed business simply because the Big Five firms are not well-suited for this type of work,” Dan told me recently. “First off, they have very high minimum fee requirements,” he says. “For instance, a $5 million growing technology business is likely not going to pay their minimum fee requirements for a CEO search with set 0-30-60 day terms, regardless of outcome.” Venture practices at large search firms have struggled as a result, he says, as it can be difficult to make a decent living for search consultants at the big bracket firms serving emerging growth clients.
Built for Volume
It usually comes down to the numbers. The big firm commission plans tend to pay significantly less than the boutiques. “The larger firms are built on Fortune 500 volume and the high fee business volume that it generates,” says Dan. “We boutiques have thriving technology practices right now while a lot of the big firms are losing great tech consultants to firms like ours. In addition, several phenomenal search consultants, in both large firms and boutiques, have departed, moving into top private equity and/or venture firms as internal talent partners.”
Those who have started their own search firms tend to have an entrepreneurial mind-set and can relate to the challenges and choices others running startups and the like face. That sort of connection goes a long way in building trust, and in winning further assignments.
“We think like venture; we are entrepreneurially focused on hiring entrepreneurial talent,” says Dan. “Several of us have run small businesses in the past as well. And, I would argue, we know the candidate pool much better within the emerging growth sector and have built deeper relationships throughout. As evidenced by your own statistics in last year’s ‘Hunt-Scanlon Top 50’ ranking, the boutiques are growing at a much faster rate than the Big Five, and I wouldn’t be surprised to see that trend continuing well into the future.”
Calibre One conducts about a dozen CEO and board assignments a year. In large part, the searches are for technology companies and many of their sub-sectors, like e-commerce, loT, SaaS, cloud, hardware, and more. Some 66 percent of the firm’s CEO work comes from the San Francisco Bay area, New York City, Austin, London, or Los Angeles.
Dan points out that an increasing amount of Calibre One’s CEO, board, and other C-level searches are now coming from outside of what one might consider the expected high-tech hubs. He points to Reston, Orlando, Albuquerque, Minneapolis, White Plains, and the South Asia’s Bangladesh as just some examples.
Governance issues and regulations are constantly in flux, says Dan, but for Calibre One the fundamentals of conducting a board search remain unchanged. For most of his firm’s clients, diversity remains a top priority, among a host of other needs.
“Each search is unique depending on the size and type of entity as well as the specific role that specific board members will play,” says Dan. “Certainly, having a global background has been a constant theme requirement as has domain experience and ‘connections’ for business development and channel opportunities for our client companies.”
Board positions, it’s becoming clear, are drawing more interest from potential prospects as well. “One interesting recent trend is that we have been asked to represent a GM / division president of a Fortune 500 technology company to help put this individual on several external boards,” says Dan. “In other words, we are acting as the ‘agent’ for this executive, reversing the traditional process. I have learned from some of our friendly competitors that they are seeing this as well and are taking on similar projects.”
When looking for CEO and board candidates, Calibre One seeks multiple attributes. The challenges vary because every company is different – in terms of its history, team makeup, structure, and size. “That said, there are certain characteristics and attributes that are universal: integrity, consensus builder, problem solver, someone who can deal with adversity well, versatility, drive, curiosity, and passion,” says Dan. “I am obviously omitting several others, but there are the key things we look for when trying to identify the next best leader for our clients.”
Progress, though slow, is being made in bringing women and minorities onto boards. It’s been even harder, however, to change the face of the CEO position. That’s an issue that Dan and his team contend with on a regular basis. “There are many statistics on how immense the gender gap remains, especially in technology,” he says. “This persists as one of the leading dilemmas of our time. Frankly, it is an embarrassment for the technology community that we service.”
Client companies are asking for diverse slates of candidates, but they have been reluctant to actually hire diversity CEO and equivalent prospects, says Dan. “Consistently, there tends to be several issues at play,” he says. “First, lack of experience. So many of our clients are looking for ‘been there, done it’ prior CEO experience and are not willing to look at the up-and-comer.”
Second up, a talent shortage. “In the up-and-comer profile group, let’s say at the VP sales or VP product level, there are simply not as many women and minorities in comparison to other VP functions, like marketing, for example.”
Finally, he says, competition remains incredibly high in this tight technology labor market. “For the few women and minorities that do have prior equivalent experience, everybody on the planet is after them. They are highly insulated in their current roles and tend to be very well compensated. I agree that the gender and diversity gap has improved considerably for independent board members, but the gap needs to tighten. It is our job as search consultants to educate our clients on the barriers and our moral responsibility to fight for equality.”
Contributed by Stephen Sawicki, Managing Editor, Hunt Scanlon Media and Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media