In his recent “Letter to Shareholders”, Amazon CEO Jeff Bezos illustrated what he calls his “Day 1” philosophy, a mentality and approach to doing business that came about in the very beginning of Amazon’s existence. The idea, simply put, is that the company should always be feeding off the energy and momentum being a newer or “Day 1” company and should fight the idea that “Day 2” has arrived. At its core, what “Day 1” really means is that the driving goals at Amazon are “not just words, but fully activated concepts used inside the company every day.” According to a recent Forbes article, Bezos is uninterested in Day 2, which he sees as stasis, or even worse, the reversal of the Day 1 attitude followed by irrelevance. The same is true for private equity portfolio companies – leaders in PE must always be in Day 1, which means embracing the new, making high velocity decisions based on best available information, and taking calculated risks.
PE Portfolio Company Leaders Must Have a “Day 1” Mindset
In a PE portfolio company environment where priorities change rapidly and slack days don’t exist, achieving success depends on having the right leaders in place throughout the organization – leaders who live and breathe Bezos’s Day 1 philosophy. Although a Day 2 or a “continuous improvement” mindset is acceptable, and even encouraged in more traditional business settings, it’s not enough to maximize a successful exit as a portfolio company. When the goal of a PE investor is to achieve a high level of sustained growth and cost reductions within a portfolio company, the investor needs leaders who are constantly pushing for dramatic improvements – transformational change – and never move beyond a “Day 1” mentality.
PE leaders must be able to resist process as a proxy. While good process is needed to best serve customers, it can become a slow-draining status quo if leaders are not watchful. This can happen very quickly and subtly in any organization. PE leaders who drive transformational change are constantly aware that they need to own the process, rather than be owned by it.
Maintaining a “Day 1” Mentality in Private Equity
Perhaps the most difficult aspect of Bezos’s “Day 1” philosophy is the challenge of maintaining that mentality as a company and avoiding sinking into stasis. Staying in Day 1, according to Bezos, “requires leaders to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight.” PE portfolio company leaders must work tirelessly to remain in Day 1, and part of achieving that means protecting their company from being pushed into “Day 2”. Doing so requires embracing powerful trends quickly, making clever observations and capitalizing on big opportunities quickly.
To remain in “Day 1”, PE portfolio leaders must also be adept at quickly recognizing and correcting bad decisions. When a leader is good at course correcting, being wrong becomes less costly, whereas being slow to course correct is almost guaranteed to be expensive. Portfolio leaders must have the ability to create new opportunities and be willing to leverage unorthodox methods to achieve moonshot business goals when necessary. High-velocity decision-making is critical because, frankly, speed matters in a PE portfolio scenario. According to Bezos, a high-velocity decision-making environment is more fun, too. This means never using a one-size-fits all decision making process
Attracting and Retaining “Day 1” Executive Talent
The true challenge lies in uncovering, attracting and retaining leaders with a “Day 1” approach to business. These professionals are few and far between and can be difficult to identify without experience doing so, or the right network of connections. The reality is that not just anyone can be successful in a PE portfolio environment because it takes a unique breed. Many leaders who lead larger corporations aspire to enter private equity and see it as an opportunity to build something. While many of these leaders have impressive backgrounds and skill sets, their skills don’t automatically transfer to becoming the visionary of a PE portfolio company.
When it comes to driving transformational change at a portfolio company, executives and professionals who are self-motivated and can do more with less (on many levels) are required. In a business setting where significant growth and extensive cost reductions are demanded, demonstrating urgency and having an entrepreneurial attitude is key. As Bezos argued in his letter to shareholders, speed matters when you’re a Day 1 business, and it’s always Day 1 in private equity.
If your private equity portfolio company needs exceptional leaders with a Day 1 mentality at every level of the organization, please contact me.
Brian McMerty
Managing Partner
Arris Partners
DD: 919-424-1592
bmcmerty@arris.partners