Secret Services
A private eye has found a lucrative niche helping entrepreneurs protect secrets, bust embezzlers, and keep scandals out of the press.
By Elaine Pofeldt/New York

(FORTUNE Small Business) – The entrepreneur, the owner and CEO of a small financial services company in New York City, was distraught. His son, who was in his 30s, had been hooked on cocaine and heroin for years. He would not return phone calls from his family. The father had spent a small fortune to hire addiction experts to help his son, but every effort had failed. He feared that his son would either overdose or get arrested and damage the reputation of the family business, which the CEO's grandfather had started.

Finally, another CEO suggested that the entrepreneur call Robert Strang, head of Investigative Management Group, a private-investigation firm in New York City adept at keeping family scandals out of the press. The private detective acted quickly, moving the troubled son by private jet to Los Angeles and away from his circle of drugged-out friends. Strang even put a psychiatrist onboard ready to prescribe drugs to help the addict through withdrawal. Once on the West Coast, Strang hired the son a lawyer, provided a 24-hour support team, and eventually enrolled him in a detox program. After kicking his addiction, the son started his own company. Four years later he is still running it.

While not all of Strang's cases turn out so happily, he has done well enough to cut himself a lucrative, fast-growing niche handling sticky problems for entrepreneurs, corporate titans, and other wealthy clients. When Strang, 49, with his business partner, Ann Hayes, 46, both retired DEA agents, started Investigative Management Group in 2003, they knew they needed to stand out in a crowded field. The answer: white-glove service--at a price--and strict confidentiality.

With their preppy good looks and understated, country-club style, Strang and Hayes blend seamlessly into the world of their clientele. Hayes favors ladylike floral suits, speaks with a South Carolina twang, and has a warm, confiding manner that undoubtedly puts clients at ease. Strang, a native of New Jersey with a self-deprecating sense of humor, is able to fraternize with not only downtrodden drug abusers but also prestigious executives.

The detective business is divided among big firms like Kroll, which do anti-terrorism and fraud-prevention work for Fortune 500 clients, and tiny, one-person, Philip Marlowe-type offices. According to the U.S. Bureau of Labor Statistics, 10,000 self-employed private investigators operate in the U.S., many of them retired law-enforcement agents. More than a few, however, fail because of increasing competition from big security firms, which have been on a growth spurt and a hiring spree (see chart). Others fall prey to poor financial practices. In Indiana, for example, about half of private eyes don't renew their licenses two years after seeking them, and the case is similar around the country, says Don Johnson, editor of PI Magazine: Journal of Professional Investigations and owner of Trace Investigations in Bloomington, Ind. Often detectives don't know how to survive if major clients are slow to pay the bill for an investigation. "It's a lot more than working on a case," says Johnson. "You have to treat it as a business."

But before they launched IMG, Strang and Hayes already had years of experience running a private-investigations firm. In 1989 they started Strang Hayes Consulting, which they sold in 2001. During those years they built relationships with many wealthy clients--from the owners of sports teams to major retailers. Before long the two discovered that in addition to needing routine services such as building-security and travel-safety consulting, some clients had problems that few firms were equipped to handle. They ranged from a mentally ill son's refusal to take his medication to untrustworthy employees who steal sensitive information about the entrepreneurs' businesses.

When Strang kept hearing that many entrepreneurs didn't trust mainstream private-investigation firms, some of which routinely leak information on cases to the media in a quest for publicity, he and Hayes decided to start Investigative Management. By offering to tackle delicate situations with a heightened level of discretion, the pair found a steady supply of work from clients who were well equipped to pay their bills on time. "Most of our cases are referrals," says Strang. "People who call us are already comfortable because someone in their circle has recommended us." Two years after the company's founding, Strang says, the 25-employee firm is making a profit on annual sales of more than $5 million.

To be sure, Investigative Management Group's services aren't for everyone. The tab for a case that requires several months of surveillance and a team of medical, legal, and computer forensics experts can easily run into the low six figures.

The problems that entrepreneurs ask Strang to solve often involve idea theft by a trusted executive, or false accusations by an unstable employee, or outsiders seeking to extort money. "Entrepreneurs are optimists," says Strang. "When they find someone who shares their vision and can help them succeed, they overlook some red flags along the way." One time a CEO hired the firm to check out the past behavior of an employee who had falsely accused him of sexual harassment. Relying on his field detectives--most of whom are former law-enforcement agents--Strang uncovered a slew of data that had never turned up when the company initially hired the complaining employee. "We were able to determine that she had a history of litigation and hospitalization." That information, when revealed to the accuser, was enough to end her complaints. "We were able to defuse a potential litigation against our CEO," says Strang.

In another case, an entrepreneur suspected that a key executive at his medical technology company was trying to leave to start his own firm. There was no smoking gun, but Strang trusted the entrepreneur's gut instinct. "Usually entrepreneurs in these businesses--people who live and breathe the business--almost have a sixth sense that tells them something is wrong," says Strang. By sending a digital forensic unit into the company at night to gather data from the employee's computer and by having undercover detectives shadow him through city streets so that they could overhear his private conversations, Strang and his team were able to confirm the entrepreneur's worst suspicions.

There are times, however, when companies need to involve law enforcement in their problems, no matter how much they would prefer having an investigator handle the situation quietly. If there is clear evidence, say experts, that a crime such as drug dealing or inventory theft has taken place in the workplace, it must be reported to the police. "The client has to protect himself from liability," says Johnson, of PI Magazine. "And part of that liability would be not reporting a crime." So while private eyes can solve some sticky problems, it's best to leave justice to the pros.

The Competition

Despite competition from the growing number of private eyes working for big firms, Investigative Management Group is thriving in its unique niche.

Source: Bureau of Labor Statistics