What did David and Goliath teach us about the Executive Search business?

Boutique search firms have unique competitive advantages over

their larger, brand-name competitors

In the last few years, the mantra in the investment management world seems to be “bigger is better.” Acquisition and/or merger announcements have happened regularly. Many of the

acquisitions have been of private credit firms bought by larger firms who did not have a private credit offering – this makes good sense, for the most part. But in many other instances the reason for the merger or acquisition seems to be “bigger is better.” Massive investment managers can offer one stop shopping for investors, which has its pros and cons. And when it comes to search firms, the large brand-name “Goliath firms” with their multiple divisions and locations offer similar one-stop shopping to prospective clients. However, the smaller, boutique “David firms” hold two unique competitive advantages over their larger competitors: larger candidate pools and fee flexibility.

Most people know the story of David and Goliath from the Bible, though you probably didn’t

recall it is told in the first book of Samuel in the Old Testament. Goliath is a seemingly

invincible Philistine giant of a man who challenges any single person from the Israelite army to a fight to determine the broader battle’s outcome. None of the Israelite soldiers would dare challenge him, until a young shepherd boy tasked to bring food to his soldier brothers decides he can beat Goliath. Armed with a sling shot and some stones, and his refusal to wear armor, David struck Goliath in the head causing him to fall and then finished him off by killing him with his own sword. This story is seen as a win for the underdog, but it is also an example of bigger not always being better.

The size and reputation of Goliath made the world believe he was the best fighter around, just like many top-tier investment managers believe the large, brand-name search firms are their best option to fill a position. Yet the Goliath search firms partner with most of the top-tier investment managers, which means the employees of those investment managers are “off limit candidates” for that search firm. Thus, the candidate pool – the market size of qualified candidates that a search firm can source from – will not include employees of any existing clients of that search firm. The smaller, boutique search firms, the Davids if you will, may partner with top-tier firms on occasion but not consistently, so their candidate pool will be significantly larger and more robust. The boutique firms may not have an institutional

reputation preceding them, but they frequently led by seasoned recruiters who have an

entrepreneurial spirit and out sized work ethic compelling them to deliver successful search

outcomes.

David was nimble in his pursuit of Goliath, moving and shifting around him before eventually

slinging the prevailing stone. When it comes to search firms, boutique firms can show similar nimbleness with an ability to negotiate fees, guarantee periods, while targeting minimal overhead costs. Brand-name large firms have layers of employees and global office locations in high rent areas so must be fee conscious with little flexibility.

Just as Goliath defeated many soldiers before succumbing to David, large brand-name firms might be the right choice over a boutique firm on a given client search. If given the

opportunity, boutique firms will often times be an equal or better option than their brand-name competitors. After all, the Israelite army would’ve never thought to put David forward

to fight Goliath, but when David was given the chance…