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Hiring your first executive

Posted by SBC Team in Financing Tips on Jul 19, 2010 4:58:00 PM

What small business owners should think about when looking to fill that initial senior management role

by Reed Richardson

Starting out, a small business can reach many important milestones fairly quickly, dashing from first sale to first profit to first employee sometimes all in the same quarter. But as a small business matures and its management needs multiply, these milestones usually grow less frequent, yet more important. One critical turning point that eventually confronts almost every successful small business owner involves the hiring of the company's first executive.

 

For entrepreneurs who have poured blood, sweat, and tears into building up their business, this often momentous step, which can make or break a company's long-term chances for survival, is an especially sensitive one. "I've worked with a number of small business owners, doing executive searches for them," explains Peter Felix, president of the Association of Executive Search Consultants (AESC). "And I've found that it can be as emotional for them as getting married."

Ascertaining the need

Of course, there are a number of specific factors that might prompt a small business owner to create a new executive-level position within his or her company. But according to Felix, it usually boils down to two, each based on an owner's more optimistic or pessimistic assessment of the business's fundamental position. "A successful small business may be thinking more positively and strategically, and so it decides to bring in a new CEO to take the reins and grow the company," Felix offers as an example of the more optimistic stance. But an executive search also could be the result of thinking negatively, he points out. "For example, if a small business finds itself in crisis mode because of its finances, it may decide it now needs more professional management and begins looking for a CFO."

Whatever the impetus, Felix says the recent recession offers something of a silver lining to small businesses looking to find a new executive in the near future. Because of the waves of recent corporate cutbacks and downsizing, he explains that many executives have become disillusioned with their current circumstances and may be ready to try a less traditional career path. As evidence, he notes that a recent BlueSteps.com survey conducted by his organization found that 41% of executives are dissatisfied with their present positions and a whopping 70% say they are now actively looking for new career opportunities. "There's a real synergy in the marketplace right now between need and supply."

Still, before leaping into the executive search pool, hiring experts recommend that small businesses take the time to thoroughly develop their expectations for any new executive's role. "In defining the job specifications, go into detail about both job duties and requirements," writes Martin Babinec, CEO of the New Jersey-based recruiting firm TriNet, in an article on the entrepreneurship.org website. "Most of the companies we encounter don't bother to detail the hiring spec beyond a paragraph or two." These crucial details, Babinec notes, should include the specific skill sets required as well as information about how the new executive's performance will be measured.

"In addition, it's important to consider how your company's future growth affects the competencies you will need from someone in that role," Babinec writes. "For example, if you're hiring a senior finance person and your company is a $3-million operation today while expecting to be a $15-million company in a few years, you should ask yourself what kind of demands will your finance department face? What kind of role should your new hire ideally grow into?"

 


Be prepared to take a different recruiting path

 


Precisely because the responsibilities and expectations that come with hiring an executive can be radically different than those associated with direct-report employees, small business owners should be prepared for a much more rigorous and time-consuming search process. "Hiring at the top is labor-intensive, in part, because it means tracking a person's entire career," writes Bob Pearson, CEO of the executive search firm Pearson Partners International. In "Tips for Hiring at the Top," an article on entrepreneurship.org, Pearson notes: "The CEO, especially, is the most demanding job to fill because the job requirements are amorphous."

For small business owners who are already awash in a million other tasks, finding the time to seek out, accumulate, and screen dozens of prospective executive candidates on your own may be a bridge too far. "It can work, if you're lucky," says Felix. "But for most small businesses, who have little knowledge of the process, going it alone is taking a risk." To relieve oneself of that risk, he counsels small businesses to seriously consider the services of an executive search consultant.
While most executive search firms, like those that are members of the AESC, are hired on retainer, many will still take on smaller clients on an as-needed or contingent basis, an arrangement that would likely best suit most small businesses.

Sarah Endline, founder of the boutique confectionary company Sweetriot, says she followed just such a path to find a new COO for her business. "We did lots of industry networking on our own, looked at LinkedIn and trade shows to find someone," she explains, "but we did engage a recruiter who knows the industry to help us find a candidate." The recruiter's fee, she found, fell within the industry standard, which amounts to roughly 20% to 30% of the new executive's annual salary.

 


If you can't compete on compensation, offer control

That starting salary can present something of a competitive disadvantage to most small businesses during the executive search process. Few can offer up the six-figure salaries that executives at large and even many medium-size corporations routinely enjoy, so to attract top-notch talent, small companies must be willing to give ground in other areas. One of the primary ways of doing this, experts agree, involves something that even the highest level executives at most major corporations can often feel cheated of-control.

For instance, a prospective executive candidate may be willing to overlook a smaller salary if enticements rarely seen in the big-business world, like flexible hours, an informal, yet fast-paced work atmosphere, quick-strike decision-making, and equity shares in the company, are provided. "The thing that small businesses can offer an executive candidate is a chance to really make a difference, a hands-on challenge," notes Felix, "but you have to be prepared to relinquish some degree of ownership to get them."

For her part, Endline accepted from the outset that when her new COO comes aboard, he or she will also become part owner of Sweetriot. But this added ownership element raises the stakes of the executive search process, making it imperative to avoid a nightmare scenario in which a company is forced to abruptly disentangle itself from a new partner, who looked great on paper but didn't find the entrepreneurial world to his or her liking. "Fitting into our culture is just such a critical part of it. We want someone willing to get their hands dirty," explains Endline, whose company has just three full-time employees, herself included. "Some people want to be in an office or cubicle, but that's not what we're about."

To avoid a cultural mismatch, Endline, a Harvard Business School graduate, has established a comprehensive interview process. After an initial screening, prospective executives first meet with her alone, then with another employee, and finally, they interview with the whole team. Unfortunately, Endline's diligence stands as the exception rather than the rule. "It still amazes me that so few entrepreneurs and managers take the time to think their interview process through in advance," Babinec writes. "Many simply sit down with the candidate and have a chat or focus solely on technical qualifications." But by glossing over or even totally ignoring the intangible aspects of an executive candidate, small businesses could be flirting with disaster.

 


Don't overlook the talent you see everyday

One way to neutralize concerns about culture fit is to include in your search a population that has already proven its compatibility with your company's ethos: your current employees. Indeed, choosing a candidate that you've already been through the hiring process with can offer an entrepreneur multiple benefits.

"We always try to hire from within first whenever we have a new position," explains August Cardona, managing partner at the Manhattan-based restaurant firm Epicurean Management. At the end of 2009, when Cardona began planning to open his third restaurant in as many years, he says he realized he needed to create a Director of Operations position at his management company to oversee them all. "I had been doing the CEO, CFO, and COO jobs all to a certain degree," he explains. "So, I wanted to bring in someone to take over the day-to-day operations side so I could focus more on new business opportunities." And right away, he says he identified one of his restaurant's general managers as a likely candidate and began having conversations with him about the new role and its expectations. "He was ready for a new challenge and this was a way to keep him in the organization."

By choosing to promote from within, Cardona saved money that would have otherwise been spent on an expensive executive search. What's more, the move further cemented the loyalty of the promoted employee, preventing his talent from stagnating and keeping his institutional memory from walking out the door. And the move also set a good example for other, similarly ambitious members of the organization, signaling to them that they could have a long-term future with the company. "If we had had to go outside to hire for this executive position," Cardona says, looking back, "it would have been much more stressful and much more difficult."

 


*+Executive Hiring Resource Box</<br />To learn more about executive recruiting, check out aesc.org or Dun and Bradstreet's guide here: http://smallbusiness.dnb.com/human-resources/workforce-management-hiring-recruitment/1463-1.html.

To locate an executive search firm, try the AESC's international directory, found here: http://www.executivesearchconnect.com/.

For more on Martin Babinec's article, "Increasing Your Chances of Hiring Success," go to: http://www.entrepreneurship.org/increasing-your-hiring-successes.html.

To read more of Bob Pearson's guide to the must-have attributes of a potential CEO, go to http://www.entrepreneurship.org/tips-for-hiring-at-the-top.html.

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