I was chatting to a colleague recently about my time working
in private equity backed businesses and how my experiences there differed from my
time in public companies. Immediately
there were a few things that really stuck me about my time spent leading these
types of companies and I thought I’d share these.
1. Above all, it’s all about the numbers
Really, it is. Delivery
of financial targets is absolutely critical much more so than any plc business
that I have worked in. As the saying goes, if the numbers are green you never
see the Americans. If they’re red,
they’ll be on your front lawn! Getting
the numbers right is the first rule of success when leading a private equity
business. So what does this involve? Careful budgeting, keeping some contingency
in reserve, staying on track and always knowing where you stand against your
targets. Typically, private equity
partners are usually invested in the funds they manage so they tend to have a more
personal interest in the financial results. I learnt early on that being all over your
numbers was time well spent.
2. The type of Private Equity fund often
determines the operational culture
A lot depends on the type of PE funds involved in the
ownership of a business e.g. Buy and Build, Distressed Credit Equity Funds,
Start-up Equity Funds and so on.
You’ll need to understand the objectives, and culture, of your
private equity owner/fund as these can vary dramatically depending on the
nature of the funds involved. In the
end, the goals of your operational business will be closely aligned to the
owner’s fund objectives and you need to try and understand what’s going on at a
fund level. This requires a fair bit of informal stakeholder management.
In the past, I’ve experienced working for a private equity
firm who clearly had zero interest in staff progression or cultivating customer
loyalty and engagement. Their focus was fixed
only on actions that positively impacted the bottom line. Staff engagement or customer programmes didn’t
form part of my year end goals which were only financial in nature. As CEO, you
then have to drive the balanced scorecard goals and ensure that they were of
equal importance for the Leadership team.
3. CEO has a high degree of autonomy
One aspect I really enjoyed was the level of autonomy I had
as CEO in these private equity companies (subject of course to those numbers
being green!) It was largely left to me to steer the ship, on the understanding
that I was fully accountable and most of the decisions were mine to make. This level of accountability really suits my
leadership style as I am comfortable making big decisions and working through
the consequences. As a follow-on from that I also learnt that building
relationships and governance models with the private equity owners is
critically important if you are to succeed and influence. Private equity
colleagues tend to have a very high IQ and high levels of numerical literacy,
often not scoring quite so high in terms of EQ! So it works well to make
an effort to engage them on a personal level and build a good working
relationship. This way stakeholder management
is achieved in both an formal and informal manner and everyone is clear on
where they stand. Frequently governance routines are very fluid so
it’s important to solidify decisions and agree actions as you go. Having built these relationships, this
becomes a much easier process.
4. Securing investment is challenging
It’s never easy to get investment, and it seemed
particularly so in the case of private equity companies where it’s all about
the bottom line. Typically getting multi-million investment can be a slow
process. I found it challenging to
secure investment from private equity owners for the delivery of business
enhancing initiatives. A high level of
proof was always required to satisfy them before they were prepared to invest
in a material way which can be tricky to show.
However, once they invest they become very impatient for results!
This varies depending on the type of company but it’s fair
to say that getting the investment dollars is a tough process and requires a
number of tries to close the deal.
5. It’s very different to a plc environment
Private Equity backed companies tend to be more focused on driving the business towards a sale therefore the approach is more task orientated and primarily focuses on the short term or up to the end of fund term. On the other hand, a Plc would more likely make decisions on a longer term basis; say up to 5 years. The PE model quickens the pace and heightens the pressure to ensure the short-term targets are met. As CEO, this means bringing the team with you and driving initiatives across the business to make things happen fast. I really enjoyed this pace of work as it suited my working style really well.
Overall the business style and operational model in private
equity firms is a great environment to work in.
I enjoyed the speedy decision -making process, which is not bogged down
in excessive governance or bureaucracy. I relished the autonomy, the overall fast
pace of work, the ability to drive the business forward and the financial
awards. Naturally there were challenges
but this is the case for any growing business. It’s a world I’d be keen to go back into
again should the opportunity arise.
