`I believed our industry was recession-proof'

Name: Ted Martin, 45
Title: Founder and chief executive
Company: Martin Partners LLC
Type of company: Executive search firm
Founded: 1996
Number of employees: 10

I have always been an entrepreneur. In high school, I became a distributor for high-end engine lubricant oil.

In the summers during college, I ran a restaurant/catering business that I passed on to my younger sisters, and we kept it in the family for nine years.

In business school at Kellogg, I started a company called Souveneer Beer, a precursor to the craft beer explosion and an idea ahead of its time.

After a brief career in brand management at Wilson Sporting Goods and Kraft Foods Inc., I wanted to work in a non-hierarchical business with a high performance-reward correlation. I had a natural talent for assessing people and decided to join the executive search industry.

I gained experience with a New York City-headquartered search firm for 10 years and then saw the opportunity to start Martin Partners at the beginning of 1996.

After decent growth that reflected the industry growth cycle of '97 and '98, we had a 50 percent growth spurt that coincided with the tech run of the times.

In '99 and 2000 our growth was only limited by the real estate space we were in and the search capacity of each recruiter.

Then along came the economic downturn. At first, I believed it was just a short-term down cycle. And I also was convinced that that our industry was recession-proof: Successful companies need to hire new leaders as they expand faster than the internal talent pool, and failing companies need to bring in new leadership at the top to turn the company around.

But the turmoil in the economy resulted in our industry dropping by 30 percent to 40 percent in '01, and I was caught with excess search capacity.

Thinking that the downturn was temporary caused me to wait too long to eliminate recruiters. It also caused me to eliminate one at a time, versus recognizing that the middle level of our firm needed to be removed. By the end of 2001, seven account managers were gone from the firm, but it probably cost me about $500,000 more than if I had acted quickly at the end of 2000.

In hindsight, my biggest mistake was to believe that our industry was recession-proof.

After 16 years in the business without a down year, I had experienced consistent growth through good and bad times and convinced myself there really were not any bad times.

Many in my industry believed that we had become recession-proof, and when the market softened, we failed to realize that it was the start of a real downturn instead of the predictable three-month cycle.

It took me six months longer than it should have to come to the table and find a way to provide soft landings for talented recruiters who only had one fault--not developing enough business on their own.

I should have restructured the business much faster, rather than one person at a time.

The good news is that we were up more than 8 percent for 2002 versus 2001, even though the industry dropped 18 percent to 20 percent. We made some changes, and partners now all are doing their own searches from start to finish.

So my mistake comes with a silver lining; the market is embracing the return of the partners to hands-on search work.

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