Understanding Contingent Vs. Retained Search Firms for Family Businesses

"Why should you pay a retainer for an executive recruiter?"

The initial reaction to this question is often skeptical. It feels like paying for your food before you eat it. Why would you pay upfront for results you haven't received yet?

To address this question effectively, it's best not to think about the money first, but to think about the process. Understanding how search firms operate when they collect money upfront versus only being paid once a project is complete reveals fundamental differences in how they serve clients.

The Two Search Models: Contingent vs. Retained

There are two different ways search firms structure their business, and both types will accept a retainer. Everyone likes money upfront, after all. But their underlying business models create dramatically different approaches to your search.

Contingency search firms are built to accept the risk that they won't be paid until their clients make a hire. To address this risk, contingency firms are incentivized to build giant candidate inventory through what the industry calls "farming." They then push their inventory forward to their clients so they can close searches as quickly as possible.

The risk contingency search firms face is straightforward: the longer a client project continues, the less likely they are to get paid. The more energy they invest in a client's work, the lower the value of that project becomes, making them less incentivized to complete it thoroughly.

Retained search firms operate differently. They are committed to completing the project from the start. They take on less work and focus on what is truly called headhunting. While the terminology might seem aggressive, the best way to think about it is that they are hunting specific people who are directly aligned with their clients' interests.

The retainer guarantees that the search firm's process and people are directly dedicated to the outcomes of their clients, not just closing the hire quickly.

Process vs. Resumes: What You're Actually Buying

The fundamental difference between contingent and retained search comes down to this: if what you want is resumes, work with a contingency search firm. If what you want is a process that ensures you're making the best decision with guidance along that process, work with a retained talent advisor.

Retained search firms, such as Stranberg, are accountable for completing the project. They don't farm candidates or create pools of people they sell to all their customers. Instead, they hunt specific individuals that match their clients' precise requirements.

Addressing Internal Candidates and Existing Resumes

A common question arises: "What happens if we already have internal candidates or resumes in our database? Why should we pay a retainer for someone we already know?"

The importance lies in understanding the difference between process versus resumes. You're not engaging a retained search firm for resumes. You're engaging them for the process.

When you have internal candidates and work with a retained search firm, you're ensuring that the people already in your system meet the same standards and are the best people available in the market for the given position.

There's also a deeper consideration for family companies with internal candidates: you must address questions about bias. If the internal candidate is a family member, are you truly evaluating them based on qualifications, or through a sentimental and emotional lens based on shared history?

Families face significant risk by promoting unqualified people because of their connection to the family. When you run a process that forces candidates into consideration based on their qualifications rather than their family ties, and when that process is conducted by an unbiased third party, you ensure that you're making qualified decisions rather than decisions based on bias, whether direct or unconscious.

Why This Matters for Family Businesses

Family businesses face unique challenges that make the retained search model particularly valuable:

• Cultural Complexity: Understanding family values and how they translate to executive leadership requires deep consultation that takes time and expertise.

• Long-term Relationships: Family businesses typically expect longer executive tenures, making it crucial to get the hire right the first time.

• Stakeholder Dynamics: Multiple family members and long-tenured employees often need to buy into executive decisions, requiring a consultative process that contingent models don't support.

• Strategic Integration: Many family business executive hires are part of larger succession planning efforts that require comprehensive analysis beyond simple candidate matching.

  
  

The Investment Perspective

Rather than viewing retainer payments as costs, consider them investments in ensuring your most critical hire is handled properly. The wrong executive can result in significant costs through severance, lost opportunities, and cultural disruption. The right executive can drive substantial value creation and successful business transitions.

The retainer ensures that your search receives dedicated resources and systematic attention rather than being treated as one of many opportunities competing for a recruiter's time and energy.

Ready to discuss your executive search needs? Contact Stranberg to learn how our retained search process can help you find the right leader for your family business's specific situation and long-term success.

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