Lessons I learnt as CEO of a private equity backed business

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.