When Should A Startup Use An Executive Search Firm?

Quick answer: Most startups should not use an executive search firm for their first hires. Founders should make early hires themselves and lean on their own networks and investors. A search firm starts to make sense once you are funded to hire a true executive, the role is critical, the best candidates are senior people at larger companies who are not looking, and your own network has run dry. Confidential replacements and board seats are other common triggers.

Startup founders hear conflicting advice about search firms. Some investors push for a retained search as soon as a round closes; others say founders should never outsource their most important hires. Both are partly right. The question is not whether search firms work, but when the cost and process fit the stage of the company and the role in front of you.

This guide focuses on that timing decision. For how fees are calculated, see our guide to executive search fees, and for the difference between models, see retained vs contingency search.

A Stage-By-Stage View

The table below is a general guide. Every company is different, and the right answer depends on the role, your network and your budget.

When Should A Startup Use An Executive Search Firm?

You Are Hiring Someone Your Network Cannot Reach

The core value of a search firm is reach into senior people who are not on the job market. If the leader you need runs a function at a much larger company, has never heard of you and is not looking, a search consultant who can map that market and approach those people directly adds real value.

You Are Bringing In A Leader From A Bigger Company

Elad Gil, in his post on building a recruiting organization, says retained searches “work best if you are hiring an executive for the company,” partly because senior candidates may be more willing to talk to a recruiter from a known firm.

The Search Must Stay Confidential

Replacing an executive who is still in role, or hiring a leader before a reorganization is announced, is hard to do through your own network without word getting out. A single retained firm working under a confidentiality agreement is the usual answer.

You Are Building A Board Or Preparing For Public Markets

Independent directors, an audit committee chair or a public company CFO are specialist searches with a small pool of qualified people. Our list of board of directors search and recruitment firms covers firms that do this work.

You Have Tried And Failed

If you have run a disciplined search yourself for several months, spoken to many candidates and still not found the right person, an outside firm can bring fresh research and a candid view of whether your brief and package match the market.

When A Startup Should Not Use A Search Firm Yet

Pear VC’s practical guide for working with recruiting agencies recommends that “founders personally hire their first five employees,” and says “retained search is typically overkill for early-stage hiring needs” unless you need a highly specialized executive. Search is also a poor fit when:

• The role is not yet clearly defined, or will change completely within a year.
• You cannot yet afford a market-rate package for the person you are describing.
• Strong candidates respond to your own outreach and job posts.
• You need many hires, not one; a recruiter on your team or an RPO partner suits volume better. See our list of top RPO providers.
• You need help now but not a permanent leader, in which case a fractional or interim executive may be the better route.

Hire For The Stage You Are In

The most common startup executive mistake is not the choice of recruiter; it is hiring someone built for a company several times larger. Jason Lemkin’s advice on hiring your first executives is to hire for your current stage, look for people who have held a senior role at a startup roughly one stage ahead of yours at most, and avoid any VP hire “you don’t 100% believe in.” He also warns that a bad hire at the VP level can set a company back six to nine months.

A good search firm will push back if your brief describes a leader for a later stage. If a firm simply accepts a profile drawn from a large public company, treat it as a warning sign.

What Startups Should Know About Fees And Incentives

Search fees are usually based on the hire’s first-year cash compensation, which matters for startups that pay part of the package in equity. Our fees guide explains how the base is calculated and what alternatives such as engaged or flat-fee searches look like.

Keep incentives in mind too. In a SaaStr session on hiring your first VP of Sales, investor Brendon Cassidy warns founders not to “just check the box because the retained search firm wants to get the second half of their payment.” A search firm is paid to complete the search; you are the one who has to live with the hire. Agree the profile and the bar before the search starts, and do not lower it to close the assignment.

For roles below executive level, contingency recruiters charge only on a hire. Pear puts typical contingency fees at 20 to 30% of first-year compensation.

Alternatives Worth Trying First

• Your investors’ talent teams: many venture firms run talent functions for portfolio companies. Andreessen Horowitz, for example, has advertised talent roles whose remit includes counseling portfolio companies on hiring processes “to help build world-class management teams.” Ask what your investors offer before paying a firm.
• An in-house recruiter: Lemkin advises bringing in an internal recruiter once you are hiring more than one person a month.
• Fractional or interim leaders: a part-time or interim executive can cover a gap while the company grows into the full role.
• Advisers and operators: an experienced former executive in the function can help you write the brief, interview candidates and test your judgment.

How To Run A Search Well As A Startup

If you do engage a firm, your involvement still determines the outcome:

• Make time: Lemkin suggests founders spend about 20% of their time on recruiting and not delegate it early.
• See enough people: he suggests expecting to interview around 30 candidates for a VP role, even if the right hire appears earlier.
• Weight references heavily: Andy Price of Artisanal Talent, in an interview on executive hiring advice, says referencing is 80% of the hiring process and recommends speaking with direct reports and peers.
• Spend real time with finalists: short interviews reveal little; longer working sessions show how a candidate thinks and works.
• Sell honestly: Price advises not spending more than half of the first conversation selling, and using the rest to learn about the candidate.

Questions To Ask A Search Firm As A Startup

If you decide to engage a firm, ask questions that test whether it understands early-stage companies, not just executive hiring in general:

• Which startups at our stage have you placed leaders with recently? Look for comparable funding stage and size, not just famous names.
• Who will run our search, and how many other searches are they running? Startups can be lower-fee clients, so make sure you are not handed to the most junior person.
• How will you sell a company that most candidates have never heard of? A good consultant will have a view on your story, your equity and your risks.
• Which companies are off-limits to you? A firm that works for many of your investors’ portfolio companies may be blocked from approaching some of the leaders you want.
• How do you treat equity in the fee calculation? Get the answer in writing before you sign.
• What happens if we pause or cancel? Startup plans change quickly, so know what you owe if a funding event or strategy shift changes the role.

Conclusion

A startup should use an executive search firm when the role is a true executive hire, the right candidates are senior and not looking, confidentiality matters or the company is building a board, and the founders’ own networks have been exhausted. Before that point, founders, investors, in-house recruiters and fractional leaders are usually the better and cheaper route.

To compare search firms by function, sector and city, and to read our guides on fees, process and assessment, visit the executive search and recruiting hub.