PRIVATE EQUITY BACKED COMPANIES: HOW TO HIRE KEY EXECUTIVES
Hiring for Private Equity backed companies is best described as hiring on fast-forward. Investor-backed organizations want top executives who will make big changes in a truncated time-horizon. Even in the era of covid-19, this narrows the already small talent pool dramatically, increasing the difficulty and pressure to make the right hire. “The pace, time-horizon, and focus on efficiency is greatly accelerated when a private equity firm or family office gets involved” says Ken Schmitt, CEO & Founder of TurningPoint Executive Search.
Hiring the best Leader for your Private Equity-Backed Company
Ignore Experience as the Primary Determinant
Traditionally, Managing Directors, Partners & boards focus heavily on experience and hard skills when hiring Leaders. However, experienced executive search firms understand a private equity search is a whole different animal. A top achiever in one industry may be a disaster in another. Organizations need someone who can come into a situation and immediately identify opportunities for revenue expansion and expense control. They must be able to adapt to the highly metric-driven environment, and quickly assess the current team.
Additionally, past accomplishments and current challenges are not always equal. “While every search is different, regardless of the financial backing, PE-backed clients require a heightened level of talent assessment, to ensure the right cultural fit and alignment with ownership” according to TurningPoint’s CEO, Ken Schmitt. Candidates who grew a family-owned business from $8m to $20 over 10 years, are not the same people who can take a PE-owned firm from $11m to $30m in 48 months.
Focus on WE, not I
The ability to build a reliable, collaborative, and high-performing C-Suite team is the CEO’s first challenge. CEOs will be much more hands-on and work directly with his/her teams as compared to their larger, public counterparts. Therefore, team-building skills are imperative and your hiring strategy should focus on identifying those candidates with a proven history of effectively assessing prospective new hires. According to Executive Search Review, “Less than 10 percent of senior leaders are able to consult with their staff in decision making while still being able to act decisively or pay attention to the big picture and also attending to the day-today details. Successful portfolio CEOs need to be able to recognize their limitations and staff accordingly.”
Ask for examples of how your CEO candidate has built teams in the past. How did they source their talent? What are his/her processes to ensure support as the teams evolve and face new challenges? How many employees followed them from one company to the next? What was the average tenure of their new hires, and those they inherited? Do they employ a benchmark or assessment tool? If they have experience in a private equity-backed organization, inquire about the input they received from the board and Managing Partners. Ask if they ever went against the recommendation from the board in order to hire someone they felt was the best fit.
Accept Efficiency Over Empathy
CEOs of investor-backed companies face a heightened sense of urgency that other executives do not. Their resources are fewer. The hurdles they are expected to clear are higher and their timetable to deliver is shockingly shorter. Typically, the company should be improved and the investment recouped within 4-5 years. Because the clock is ticking, leaders “must be able to identify and orchestrate the process and people changes needed to pull off [a relatively quick success].” Decisions must be unwavering and in the best interest of getting the organization in a position to sell. This doesn’t mean management can be disrespectful to their employees, but it does mean “[often] empathy needs to take a back seat to urgency. Many highly empathetic leaders are not able to make tough personnel decisions that need to be made.”
Look for Grit
Stepping into a turnaround situation is not easy. CEOs and Executive Leaders will face pushback from staff and investors; they will need to be up to speed on the numbers at a much more granular level; they may feel strangled by the shortened time horizons; and they will undoubtedly have less leeway when it comes to setbacks as compared to a traditional leadership role. How will they handle it and have they faced this kind of heightened scrutiny in the past? If they’ve encountered these obstacles previously, they will face these challenges head-on. If they haven’t, it’s going to be a painful lesson for them and an expensive one for investors when they have to replace a leader who can’t hack it. “PE firms want to see that a candidate has faced setbacks, made errors, and run adrift—yet lived to fight another day,” according to the researchers’ report.
Create Diversity of Thought
Don’t underestimate the importance of looking at the number of industry experts already on board. Don’t assume the best Executive Leader comes from the industry. Consider whether there is too much “group think” among the current team. Industry diversity is important! The most effective, innovative teams hail from a variety of companies and sectors. They bring new ideas and perspectives to each situation.