At Arris Partners, one of our main areas of focus is partnering with Private Equity Portfolio companies to build their businesses by developing and executing well thought-out talent acquisition strategies. For many professionals, landing a job at a PE portfolio company is the “elusive brass ring,” but they should know this is one industry that’s not for the faint hearted. Many people want to work for a PE portfolio company, but not everyone knows what it takes to be successful or what the tradeoffs are when compared to a more traditional corporate role.
Many leaders of large companies aspire to get into the C-suite and see private equity as a fruitful career path filled with autonomy, the chance to build something and the opportunity to lead. And while many of these leaders have wonderful backgrounds and skill sets, that does not automatically prepare them to lead and be successful in a private equity company. Despite their strengths, excelling as a leader of a division of a large company does not always translate well to running a $250 million portfolio company. In a recent Chief Executive article, author Eric Leventhal explored the concept of executive private equity readiness through speaking with portfolio company CEOs and PE partners about key success factors. Below, we’ll go over some of his findings, as well as additional research that exposes the top skills needed to be successful in private equity.
Doing More With Less
Among the leading keys to success at a private equity portfolio company is the ability to do more with less (on many levels). Managers and leaders at portfolio companies need to be “doers”. Often required to work long or irregular hours, those who work at portfolio companies are under a lot of pressure and should be able to wear any number of hats when needed. Information can be scarce, so being able to make decisions based on intuition and best available information is critical.
Executives from a corporate background will often have to adjust to a different pace and set of expectations than those to which they are accustomed. In a corporate role, division heads might be tasked with achieving two to three percent growth while managing costs, but in a private equity role, they could suddenly be asked to double the size of the business in a few years. Doing more with less comes into play again here, as effective private equity leadership should have the ability to prioritize initiatives, demonstrate urgency when needed and have an entrepreneurial attitude in general.
Becoming the Visionary and Building a Team
As a leader of a private equity portfolio company, one must truly become a visionary regarding how to expand the business. A recent study conducted by Jeffrey Cohn of DHR International surveyed and interviewed the managing partners of 32 private equity firms (including Blackstone, Carlyle, KKR, and Silver Lake), about what they value in their CEO search processes. The results may surprise you. Executives said they’ve learned to pay less attention to attributes such as track record and experience and give more weight to softer skills, according to a Harvard Business Review (HBR) article about the survey’s findings. “‘There’s a big difference in philosophy, economics and process’ between PE firms and public company boards.”
Among the most important skills that firms look for in CEOs is the ability to build and motivate a team. Out of 13 attributes included in the survey, the highest ranked was a candidate’s ability to build a high-performing team. The reason this makes sense is that PE investments move rapidly. In many cases, the CEO must completely build the C-suite and typically “spend a lot more time in the trenches working alongside subordinates rather than providing autonomy with loose supervision,” writes HBR.
Urgency is Essential
As I mentioned earlier, for PE portfolio company leaders, having a sense of urgency is of the utmost importance. PE firms operate under pressure and adhere to strict timelines when it comes to improving companies and recouping investment through sale or IPO. Private equity CEOs and leaders face aggressive deadlines, close oversight and heightened expectations, according to HBR. There are plenty of professionals who want to be private equity leaders, but many will not be able to withstand the PE-driven pace, where cost cutting and revenue growth are expected to take place quickly and simultaneously. This is especially true for those who have “grown accustomed to plusher, more heavily resourced environments.”
Driving Change and Self Motivation
Being successful in a PE portfolio setting means being skilled when it comes to making changes and improvements in an environment with a lot of uncertainty, pressure and fluctuation. Driven by numbers and metrics, as a leader in a PE portfolio company you must be able to push hard to ensure those running the company are operating efficiently and effectively to increase cash flow and cut costs. To do this, drive and self-motivation are critical, along with the ability to influence others positively. Successful private equity leaders should be able to work in a gray area, have the ability to multitask, be driven by metrics and be able to make agile decisions based on little precedence. Additionally, this means being able to justify decisions and having the ability to hold their own in disagreements.
For a professional coming out of corporate America with staff support and a comfortable environment, making the jump to PE can be a daunting change. Leaving the office at 5pm every day is unlikely and oftentimes new systems and processes need to be implemented quickly to ensure success. In some cases, there may be legacy employees who either need to be influenced or replaced. Making those types of decisions and being that influencer requires a lot of charisma, confidence and courage, because your decisions directly impact the success of your company, the investment of the private equity firm, and the lives of those with whom you work.
If you are interested in adding exceptional leaders in all executive and functional areas of your PE portfolio company, please contact me at your earliest convenience.
Brian McMerty
Managing Partner
Arris Partners
DD: 919-424-1592
bmcmerty@arris.partners