As the leading independent CFO executive search consultant, I’m interviewed about my search process and approach to search by prospective clients many times a year. But frequently I’m not asked some of the questions that I know to be the most critical, based on my 20+ years of experience in the search field. Given the key role of the search consultant in the hiring process, and the importance of making the right management hire to the bottom line, you wouldn’t think this was the case. I chalk it up to the idea that most executives only engage search consultants for exceptional hires so they do not have a lot of experience in this area. So, as a public service to any company contemplating hiring a search firm to assist on ANY executive level assignment, here are some key questions to ask.
What is your percentage completion rate for searches you (not the firm) undertake?
The answer can be hard to verify, but it’s critical to understand the completion and stick rate of the search consultant you’re considering hiring. Publicly-available industry estimates indicate that only 70% of searches are completed. It would be outrageous to pay 100% of the fee to a certain search firm if there’s a 30% chance that you don’t get a great hire, right?!
Look for an executive search consultant that is in the 90%+ range for completions. Our completion rate at Arnold Partners is 98%. The way to verify this is through the tone and sincerity of the consultant’s answer and by doing in-depth reference checks. The corollary to completion rate is stick rate: how do the placed candidates perform once in the seat, for how long, and how much value did they create? This can be verified by checking older references. I am FREQUENTLY asked how many searches I’ve done in the last six months. This is not nearly as important as: “Tell me about a placement you made two years ago, and what is happening with that placement?” Or “Tell me about a difficult search you completed, and what made it difficult?”
Who will be representing me and my company to the marketplace?
In most search firms, even boutique firms, the role of “sourcing candidates” is usually performed by the most junior people on staff. Partners, even in boutique firms, are incentivized by bringing new business into the firm. This means the person you meet when interviewing a prospective search firm is probably not the person that would represent you (initially) to potential candidates. The “sourcing” person may not really understand the nuances of you, your culture and/or the unique elements of the role. That situation is kind of like the game of telephone: you tell the partner/executive search consultant all the subtleties of your needs… they return to their office and have someone else write a specification… then yet another more junior associate reaches out to prospects. This is part of the reason for the 70% industry completion rate. In the case of Arnold Partners, while we use very sophisticated, data-driven research, ONLY Dave Arnold contacts prospects to ascertain interest and then qualifications — more on this in question 5.
Are you willing to “shoot for the moon” for me?
What I mean by this question is that every company has a level of executive they can realistically attract to their C-suite based on various factors unique to that company. Is your executive search consultant willing to push that threshold, to try to attract a pro-level player to a Triple-A club? There’s no harm in shopping at a level above your current team but this actually causes fear in most search consultants, because if the bar is set too high in terms of client expectations, the role may never be filled, and mutual frustration can result.
My approach is to shoot for the moon out of the gate, and have a realistic agreement with my client that if we don’t land that moon-shot after an agreed-to amount of time, we agree to re-aim our expectations. This can make for more work, but why try to land the executive you dream about?
What is the specific expertise of the search consultant handling my search?
There are two ways to go: the consultant is an expert in your industry, or they’re an expert in the function of the role to be hired. Obviously in my case, I’m a CFO expert and industry agnostic. Part of the reason for that is my belief that CFOs are industry agnostic because their skills and abilities cross over industry lines. That is not typically the case in other C-suite functions such as marketing or engineering. It’s OK to go one way or the other, but don’t hire a generalist. Your executive search consultant needs to answer to your liking to the question, “Tell me about your expertise in…”
What is the specific approach you will use to attract candidates to consider our opportunity?
It’s my opinion, based on many years of studying recruitment practices and training other recruiters, this is a good question because it will separate the wheat from the chaff. If the search consultant answers the question by saying they will sell your opportunity to candidates by telling them about you, and expounding on what a great opportunity it is, they have the cart before the horse. In my experience, a skillful search consultant will get the candidate to talk about themselves, their accomplishments, and aspirations BEFORE launching into a pitch for your company’s opportunity. Gaining this insight about the candidate is key to successful recruiting. By listening closely to the candidate’s words, a seasoned search consultant can determine whether it makes sense to go the next step. And if your executive search consultant regurgitates the spec as an opening salvo, take note, you may have the wrong search partner.
There are several other key considerations such as: current work load of the partner you’re considering hiring, fee structure, guarantee terms, conflicts of interest or “hands off” target companies, geographical reach, follow-up post placement, etc. But in my opinion, the five questions above will bring about the most important discovery, leading to the right partner for a successful search.
Let me know what you think about the best questions to ask when hiring a search firm and your own experience by contacting me at moc.srentrapdlonra@evad or call 408-205-737. For more great tips, check out the rest of my blog!
Recently my friendly competitor and colleague Cliff Scheffel published a white paper titled, “When is the right time for a tech startup to hire a CFO?” What I really liked about his report, which was co-written by Jeff Epstein of Bessemer Ventures, is that it gives analytical support to what all three of us have experienced as search executives and as investors. It provides a CEO, board, or founder with specific metrics that signal when to hire a CFO. The key markers cited are 100 employees, $25MM in revenue, and/or revenue growth of 100+%.
The report was well done. Let me know if I can send you a copy.
I got thinking about a related question: what factors or changes call for changing the CFO? I believe that in some cases, the first CFO, perhaps at the stage of company that Cliff and Jeff outlined above, can grow his/her skills along with the growth of the company. In other cases, a change in CFO is needed as the company changes.
IPO Stage
It’s common for companies to contemplate a change in CFO when they start to seriously look at an IPO. In a VC-backed company, the investors are always looking for ways to minimize risks in their portfolio. If the CEO doesn’t have previous public company experience, that is also an important consideration on when to hire a CFO – the investors will almost certainly want an experienced hand in the CFO. If the incumbent CFO can demonstrate the ability to communicate the story to investors, they may be considered a candidate, but this situation will frequently prompt a CFO change.
Pre-Revenue to Commercial Stage
What about a company that goes from pre-revenue to commercial stage? This too can prompt a CFO change. We see this in the Life Science sector of our technology practice at Arnold Partners. If a bio or pharma company is successful in getting a drug approved, they have a major decision to make about bringing that drug to market. If they plan to build out a commercial organization, the role of the CFO changes materially. I actually had a CFO tell me a few weeks ago, just as his organization with going through this change, that he wanted no part of being in charge of a revenue-producing company!
Beyond IPO and Commercialization
Beyond IPO and commercialization, other changes in a company can affect options for when to hire a CFO. For many tech companies, international expansion is happening earlier and faster than ever before as tech goes to the cloud. In the med-tech side of things, sometimes getting a CE mark of approval is a better strategy to prove product acceptance than trying to fund a US-based study for FDA approval. These considerations affect the role and requirements for the CFO big time.
In an earlier blog, I wrote about how most CFOs get their first chance in the seat through a battlefield promotion. This can be a big break for a Controller or VP Finance that significantly changes the trajectory of their career. However, CEOs need to be careful in making a choice out of convenience over careful consideration of a slate of curated candidates while also considering the company’s stage of growth. Running a search process in parallel to a temporary promotion of a number two can pay dividends for all the parties: the CEO, the board, and the person in the seat. It can provide an objective test of the market to make sure the right person is running the show and that careful consideration is taken for all parties.
In only a few occasions have I seen a CFO go from pre-public company CFO to passing $1B in sales. It’s rare. CEOs need to be diligent to make sure they have the right CFO partner as their companies evolve in complexity and size. If you would like a consultative review or even more information about when to hire a CFO, please contact me at moc.srentrapdlonra@evad or call 408-205-7373. As a corollary to this subject, my next blog will be about the importance of agreeing upon a good position specification when starting a search, “The Spec!” Stay tuned.
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My CEO clients are always asking me, “How long will it take to find a CFO, Dave?”
By industry standards, an executive-level search takes between four and five months to complete, on average. This is backed by search industry statistics, as well as data from our project management software provider, Clockwork Recruiting, as noted in a memo they sent their customers last week.
Clockwork Findings
The Clockwork memo stated: “Over the last two years, Clockwork has been growing fast. We’ve signed up a lot of new executive search firms and we’ve migrated over 7,000 search projects from other systems like Bullhorn, Encore, Invenias, and Filefinder. Over that same two-year period, you—our Clockwork users—ran over 7,000 search projects inside Clockwork. This gave us two large, similarly-sized datasets to look at. We looked at “Days to Close,” a top Key Performance Indicator (KPI) in our industry measuring how long it takes to run a search project from start to placement. Thanks to you guys and your great work, the data show that projects run on Clockwork close 48% faster than the other guys.”
Arnold Partners Beats the Clock
We discovered that Arnold Partners is running 30% faster in “Days to Close” than the average Clockwork user. So that puts us at the top of the industry for a key measure that almost every CEO asks me about. By the time most of my clients call me, they are feeling like they should have started the search to find a CFO months, or sometimes years, before. They generally have a strong sense of urgency and want to know that the project will be thorough AND timely.
One major reason we can move more quickly than our competition comes down to focus. We meet CFOs every day. When we are called on to find that needle in the hay stack, we probably know where it is, or only need to move a few straws to find it. It’s never a new search in the sense of having to build an entirely new database of connections every time—it’s really an organic outreach to people we already know, warm calls to people with whom we have influence, who gladly take our call. Even if the role is not for them, they are quick to make referrals. This is why we never outsource candidate calls to associates or third parties. The CFO community wants to hear from Dave. Period.
More Important than Speed: Accuracy
However, I want to emphasize: more important than speed is accuracy. In fact, I don’t really want to be known for being fast or the fastest if people associate that with recklessness, sloppiness or lack of lasting results. What I want to be known for is our accuracy when we find a CFO. The truth is, over the last 20 years of recruiting experience, we have placed only one CFO that did not work out—far less than 1% of all our placements. And honestly, the reason had nothing to do with our process.
The Bottom Line: Value Creation
Our placed CFOs are extremely well tenured post-placement, creating massive value creation for their companies and stakeholders. Over the last 10 years our placed CFOs have created over $11B in value and counting. (Did you see our client Roblox just raised $92MM?)
So if you want to find the right CFO—the right way—right away, email me at moc.srentrapdlonra@evaD or call 408-205-7373. I look forward to helping you with a successful, long lasting CFO hire with the help of Arnold Partners’ connections and experience.
When you think of the word “headhunter,” what comes to mind? I generally have a distaste for the cannibalistic title as it engenders a scene of a crowded, bullpen-type work environment with individuals working furiously to fill open job orders—like the penny stock operation in Wolf of Wall Street. “CFO Headhunters” fall short of the complexity of what a real search consultant brings to their clients.
I have always seen myself first as a management consultant, establishing a relationship of mutual trust with Boards and CEOs where valuable advice is shared, strategy is discussed, and technology is understood. I also see myself as a career counselor with multi-decade relationships with the CFOs I work with, helping them make great decisions while in the chair or choosing the next one.
One of the key differences between transactional “cfo headhunters” and a true search partner is the depth of understanding about the client situation, the nuances of what is needed, and the particular characteristics of each candidate and how they would contribute value, both short and long term. Creating lasting value is what it’s all about—creating value for our clients through the actions of the placed CFO or Board Member, and creating value for the placed individuals as well.
Having that deep understanding of the client situation enables us to do what might seem like shooting for the moon: reaching out to potential candidates whom the client may think are out of their league. As Dan Steele, president of influential.co recently attested: “We interviewed 10 search firms before deciding to work with Arnold Partners. Dave Arnold was the only search consultant that felt he could source and deliver a candidate out of our league, or at least go after those candidates. The other firms all thought we would just be wasting their time and ours in looking for a superstar. In the end, we got a CFO that hit on all of our must-haves, and all of our like-to-haves.”
As I pointed out in my last blog about my relationships with our CFO and Board candidates, our ability to fully prepare a candidate for the client meeting is crucial to our mutual success. By truly understanding both the client situation and the psychology of our CFO candidates, we will be on target with the match, and bring the search to a faster completion. We have a track record of doing so; an independent service provider reported that our time to close is running much shorter than the competition. While we never feel rushed or pushed by a “bullpen” environment, our clients benefit from our diligent and persistent laser focus on CFO search and Board search, delivering expedient results that create long-lasting value.
By truly being a thought partner in the search, together we can persevere though the challenges all search assignments face. Sometimes it takes perseverance, sometimes charm, most times just plain old hard work, and even Lady Luck may play a role. No matter the challenge, when you’re ready to have a real partner—not cfo headhunters—helping with your CFO hiring needs and select Board appointments, please contact me at moc.srentrapdlonra@evaD or call 408-205-7373.
Interesting conversation yesterday with a top-tier public company CFO. He was musing about the search process and about how UN-informed so many CFO recruiters are when they call with supposed opportunities. Recently he was called about a supposed “confidential” search for a public company. The CFO from this “confidential company” had already announced their departure and the company had already made the necessary public filings. After asking some questions about the opportunity, this CFO quickly figured out who the company was and wondered why the recruiter was being so coy?
Certainly there are times when we CFO recruiters conduct confidential searches and the company name needs to be held in check. However, the recruiter reaching out to this CFO was not helping his cause, or his client’s.Our conversation led to his revelation about the value that different CFO recruiters bring to the search process.
All things Not Being Equal
The CFO told me what differentiates me from other CFO recruiters when I’ve called him for CFO opportunities in the past is how thoroughly I understand and explain the client’s situation: from details about the CEO and the organization’s capital structure, to market opportunity and the challenges they face. He said few CFO recruitment calls are as informative as the ones he receives from me.
Creating Value on Both Sides of the Equation
It’s executive recruiters’ job to present to a CFO a detailed description of the opportunity in a convincing and truthful manner. If we can’t entice the CFO to the table to meet the CEO, we have failed in our duty; however, it’s not our job to oversell the situation. It’s equally imperative that CFO recruiters present the backgrounds of our CFO candidates to our clients in a similarly thoughtful, thorough manner. This is what I mean by creating value on both sides of the search process.
The importance of this balance to a successful CFO placement is why Arnold Partners doesn’t rely on outside research or junior staff for any part of our search process. We are boutique in our very nature—personally attending to every detail of the search process until it’s complete. The call to a CFO about a client opportunity is probably the most important one; I can’t imagine outsourcing that process. CFOs by their nature are skeptical and analytic and don’t want to be sold. In order to get their attention, we have to present a deep understanding as to why THIS particular client opportunity is tailor-made for them.
The Art of CFO Recruitment
What is not too surprising, we receive many “not interested” responses from CFOs even after this thoughtful process. Generally speaking, most sitting CFOs are not looking for new opportunities. However, birds of a feather stick together, and many CFOs who were not initially interested either come back a few days later for a “tell me a little more phone call.” Or more frequently, they are quick to make a referral. This is the art of recruiting that can’t be carried out by an outsourced or junior person. This intimate knowledge of the client, presented on point to a specifically targeted audience, is how Arnold Partners continue to create value for both our clients and our CFOs.
