Chicago-based Heidrick & Struggles International Inc., an executive search firm with 50 years under its belt filling top positions at big companies, couldn’t say no to a little online action.
At the height of dot-com mania, the old economy company created a new economy offshoot, Aliso Viejo-based LeadersOnline, an Internet-based search firm filling middle management positions in the $75,000 to $150,000 salary range. At one point, company officials even toyed with tacking a “.com” on the end of LeadersOnline.
Flash forward two years and the picture has changed. A planned spin-off of LeadersOnline has been canned,a move that cost Heidrick & Struggles a one-time charge of about $14 million in the third quarter. And the unit’s new economy flare has given way to a more subtle tack.
“It was a strategic decision,” said Jim Quandt, LeadersOnline’s chief executive, about the plan to shelve a public offering. “As I watch a lot of companies,especially a lot of dot-coms,burn through big advertising budgets only to find the market is less accepting, we’re delighted we made the decision. I wish I would have known back then how smart we were going to look.”
These days, LeadersOnline, which uses the Internet to speed up recruiting and hiring, is careful to reiterate its role as an “Internet-enhanced” not “Internet-dependent” company, Quandt said. LeadersOnline, which gets revenue by retaining a percentage of a placed candidate’s salary, uses the Internet to slash the time it takes to recruit and hire candidates. Information gathering for job leads in a traditional search can take up to 90 days,a process that takes a matter of days with LeadersOnline. The company aims to fill positions within two months.
Quandt said he is realistic about the Web’s role in job placements.
“The Internet will never really replace the traditional personal touch of recruiting,” he said. “When the day is done it would be really hard for me to lure you away from a (company) from a combo of e-mails.”
Despite the switch in its game plan, LeadersOnline is growing. The company expects to be profitable by the third quarter, and did 485 new searches, with an average annual compensation of about $135,900 per placement for 2000, according to company reports. To get its name out, LeadersOnline also entered a pact with BusinessWeek, which lets job seekers access LeadersOnline’s site through the magazine’s online version. Clients include Bank of America Corp., Morgan Stanley Dean Witter & Co. and E*Trade Group Inc.
For the fourth quarter, LeadersOnline reported a 183% increase in revenue to $5.1 million, while the company’s operating loss widened to $1.9 million from $1.3 million in the year-ago period.
The company also recently moved its headquarters from an 8,500-square-foot space in Irvine next to Heidrick & Struggles’ Orange County office to 25,000-square-foot digs in Aliso Viejo, where it plans to sublease sections of the space. By year’s end, LeadersOnline aims to take its headcount from 50 to 150.
Heidrick & Struggles, which focuses on upper management executives making $200,000 and more a year, has opened the online subsidiary in a few of its own locations throughout the world.
LeadersOnline’s growth is tied to its plans to expand into Asia and increase its European business, Quandt said.
The U.S. is another matter. Heidrick & Struggles has “an inherent natural resistance” to a downturn in the economy because of the high-end market it serves and its diversity, said Chief Executive Pat Pittard in a recent financial report.
LeadersOnline is watching the U.S. and world economy closely, Quandt said. Other companies have been feeling the pinch, including Los Angeles-based Korn Ferry/International Inc., an executive search firm and top competitor to both Heidrick & Struggles and LeadersOnline.
Korn/Ferry, which launched an Internet-based middle-management recruiting service called Futurestep Inc. about two years ago, recently said it will cut 10% of its workforce in a cost-saving move. The company is anticipating lower revenue for the 12 months ending April 30 due to the “rapid slowdown” in the North American economy. It also pushed Futurestep’s operating breakeven date back a year.
So far, the hiring patterns of LeadersOnline’s clients remain constant, said Quandt, though he’s cognizant that many employers are re-assessing their ratio of staff to revenue.
“It means virtually every person we place needs to be focused on the profitability of the company they’re going into,” Quandt said. “The dot-com mania has pretty much faded.”
Another challenge: adjusting to the expectations of both clients and job candidates as the economy’s new environment settles in, Quandt said.
The dot-com fallout has cleared the way to a more sober reality for many companies,and opened a door for LeadersOnline. The firm now has more access to a greater pool of top-notch businesspeople with realistic goals, according to Quandt.
“We’re seeing quality candidates who fit a more traditional compensation world. They don’t expect to ‘get rich over night.’ They’re just looking to be positioned in a quality company that’s well capitalized,” he said. n
