Building a strong leadership team for a Private Equity backed business

When looking at building a senior leadership team for a PE backed business, it’s hugely different from that of a plc or large corporate.  From my experience, a PE backed business typically has a timeline of 3 to 5 years to deliver significant results for the PE fund. Accordingly the leadership team, and the hiring CEO, must develop and deliver strong business results quickly.

Whenever I joined as CEO of a business, one of the first things I would do is assess the existing management structure to ascertain if adjustments were necessary to turn the performance of the business around, or to push a successful business to achieve greater returns. I generally use a few firm principles to guide me and these are broadly as follows:  

Don’t compromise and be ruthless if necessary

There can be no hesitation or compromise to ensure you build the strongest performing teams.  I believe it’s crucial to wait for the right person; it’s all about getting the right people you need to achieve business goals.  If not, it will come back to haunt you and cause you unnecessary issues later on.

 

If you inherit a team, then it may be the case that this team is not structured or built with the right skills to enable you to carry out the activities required by the business.  The growth of the business simply requires bringing in fresh team members who have the necessary vision and skills.

In this situation, you need to make the hard calls.  If people lack the right skills or cannot do the job, then they must go. There is no scope for compromise. With the demands and pace of a PE backed business, there really is no room for passengers.  This is frequently a difficult part of the job to exit people, however I believe that the wider business understands that difficult decisions need to be made. They will acknowledge where a CEO has made a difficult leadership decision.

Experience is essential

On that basis, there are certain things I always look for in building a leadership team, namely people who have 25-30 years of experience under their belt. I call it my “grey hair” principle. It’s a great support to me as CEO to have a mature, experienced team sitting around the leadership table who will not be fazed by the various business challenges. They will pretty much have seen it all before. This reverse ageism principle has always served me well and I have had great, older colleagues who have done great jobs for me. The other big advantage of this is that they tend to speak their minds more and can contribute strongly to the growth of a business.

As CEO, I don’t have the time to wait through a long adjustment period for management to find its footing or develop into their roles.  With the right leadership in place, I can be more confident of delivering the annual return and ongoing growth that investors expect.

Once or twice however I’ve made mistakes, hired someone who wasn’t ready, or wasn’t right for the role.  This is when the 6-month probation period is crucial as this allows a get-out for both parties. I believe that setting clear goals for the first 6 months, and giving regular performance feedback, is crucial to letting a new hire know he / she is performing. If they are not hitting the required standard in these first 6 months, I have at times exited people at this stage. This is tough to do but is better in the long run for me as CEO and for the business.

Let them get on with it

When you have experienced people in place, who know more than you do frequently, it aids in the overall momentum of the business.  You can give them clear goals, get out of their way and simply let them do their jobs.   By identifying situations where strong existing leadership just needs greater independence and rewards, this makes it easier to push the business forward. A good friend of mine uses the 3D rule of management – Decide, Delegate & Disappear! I don’t quite do the “disappear” bit but I do like to actively delegate and let my experienced team work away on delivery.

I also strongly encourage people to have different opinions to me.   This challenges me, and ultimately provokes more valuable discussions with respect to business issues.  Tapping into the reservoir of others’ experience can lead to far greater returns than having to pull people along with you.

So, in summary, when you hire people that have been around the block, they can handle themselves and the demands required of them leaving you to focus on strategy, direction and other issues.

Consider your Succession Plan

Lastly, as CEO, I believe that it is imperative that you think about your succession plans and how to develop more junior colleagues so that they can potentially step up to more senior leadership roles in due course.  Ideally the skillsets and experience is there for every team member to move upwards in the chain but it’s up to the CEO to ensure that smooth transition and to create opportunities for it to happen.   Keeping an eye on the future line-up is part of maintaining a strong leadership team.

Hopefully you have enjoyed this short read about the few key principles that I have used in building leadership teams, particularly in demanding PE backed businesses. Perhaps in different types of businesses a CEO may have a longer development time line or may not be under such intense pressure for results each month or quarter. Certainly when I worked as CEO in a plc business, there were always options to move people to other parts of the wider Group so the need to exit people was not as intense. However PE backed business have a particularly demanding dynamic I believe and hence why, as CEO, I adhered strongly to these principles. They have served me well to date!

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. 

My CEO ‘Cheat Sheet’: 5 key areas to get right when leading a large business

Recently I was reflecting on my various stints as Chief Executive of various businesses both here in Ireland and internationally.  There are some universal lessons that apply across all, regardless of business, industry or location.  These will resonate with those tasked with the challenge of leading a business, especially in a time of transformational change.

1. Have clear goals and strategies for the business -set these early on and make them easy to communicate

When I was leading a business in one of the largest Irish banks, leading a team of more than 700 people, it was key that we developed company goals to make them tangible, easy to communicate and easy to understand for all members of the team.  One year we condensed these down to 3 key metrics: achieving a 4 on our Employee Engagement Scale (5 being the highest); earning a score of 90% on the Customer Satisfaction scoreboard and reaching €100m profitability.  Our slogan for that strategic cycle became ‘4, 90,100’ – it was short, memorable and easy to articulate effectively to all staff and stakeholders.  

2. Get the team in place as soon as possible - don't compromise and make the hard calls to get the right team

Changing teams is never easy, especially if teams are entrenched in certain ways of working within a business.  However, in order to get things done, it’s crucial.  As Chief Executive of a consumer finance business, I brought in a team of new, experienced directors to lead the business into a new strategic phase.   I needed this renewed vigour, and depth of experience, to help me carry out the turnaround that was necessary.   It’s not about change for change’s sake; instead it’s about ensuring that people are playing to their strengths within their roles and that accountabilities are clear

3. Delegate and empower your team

Following on from point 2 above, bring in professional, highly experienced people. Empower them in their roles and make it abundantly clear where their accountabilities and responsibilities lie.  As CEO, this is one of the first areas I focus on when trying to set a business up successfully.

I find the RACI (Responsible, Accountable, Consulted and Informed) business model particularly useful for this.  It’s a tool that is used for identifying roles and assigning clear responsibilities during an organizational change process or when setting annual goals.  When you have this model in place, it’s a lot easier to assign roles and it creates clear accountability with regards to who is delivering critical business KPIs.

4. It's all about making decisions (especially the tough ones)

No one likes to be the bad guy but if you want to earn respect and lead with integrity and conviction there are times when tough decisions must be made.  All the easy decisions get made before they get to the CEO!Keep the lines of communication open, and ensure that individuals / teams are informed as to why certain difficult decisions have been taken.  In a vacuum of knowledge, rumours and speculation take hold.  If people are well informed and understand the basis for the decision this can avoid negativity and have a greater chance of success

5.  Get your operating model and governance structures right

I find that people frequently underestimate the importance of having and using clear governance models in business.  This is closely aligned to the RACI model as it’s about having clear accountability across the business.  Setting appropriate governance steerings, forums, meetings etc with the right attendees and right input ensures that key decisions can be made by the right people, at the right time.  I’ve been at too many meetings with too many people who really had nothing valuable to add to the agenda (and my patience for these long, unproductive meetings is pretty low to be honest!)  Everyone attending the meeting should have a reason to be there so that they can contribute meaningfully to the session. 

Once appropriate governance routines are in place, and the business operating model is established, this allows for clear accountability in decision-making. The process is clearly laid out and communicated to all.

While it’s not rocket science, I’ve found this way of working useful for me across the various businesses I have led.  In tandem with trying to maintain a healthy work-life balance (which I frequently struggle with!) these structures and disciplines really help to make the most efficient use of my time and allow me to effectively lead large teams and businesses. I hope you find them helpful and insightful.    

Consumer Card Spending is finally getting rewarded in Ireland

For years, the Irish market has lagged behind the UK market in terms of consumer and credit card reward schemes.  It’s common practice in the UK for consumers to get rewards every time they spend or use a particular card, be in from a bank or other card issuer.  For example, Amex runs a cash back incentive scheme with a range of credit cards, where consumers can earn rewards every time they use the card.  Nationwide offer the ‘Select credit card’ which gives unlimited 0.5% cashback on all UK spending and has no exchange fees on overseas transactions.  Both Asda and Amazon also offer rewards linked to spending.  The ‘Asda Money card’ gives 1% 'cashback' on shopping at Asda, including online and fuel, and 0.5% back everywhere else.  The ‘Amazon  Platinum card’ gives 1.5 in Amazon Reward Points for every £2 spent at Amazon and 1 point for every £2 spent elsewhere.

However, this has not been a feature in the Irish market to date.  There was one strong Tesco Credit Card reward offering - the Clubcard Credit Card -but this is not currently available to new customers as they have just announced they are leaving the market. 

In the past few months, the two major banks AIB and Bank of Ireland, with circa 35% market share each have both announced new card schemes for different spend types and levels.

BoI’s ‘Rewarding You’ is their new loyalty programme.  They have teamed up with SuperValu so that when consumers use their personal credit cards for purchases anywhere they can earn SuperValu Real Rewards points.  This applies for purchases both at home or abroad.  It has been heavily marketed by both parties and is clearly a key offering for both for 2017.  Interestingly this doesn’t appear to have any wider commercial arrangements; it is limited purely to credit card spend and can only be redeemed in SuperValu outlets.  This appears to be an attempt by BoI to incentivize cardholders to spend more on a day-to-day basis using their credit cards.

AIB has a taken a different approach, in that they are enticing customers to spend using both debit and credit credits.  Their ‘AIB Everyday Award’ scheme rewards consumer spend with cash back in a range of outlets.   This is in partnership with Visa, so AIB can offer a broader range of offers as they are using the Visa reward platform.  Consumers receive cashback from a range of large household brands such as Lidl, Topaz, Easons, H&M and Boots.

For both AIB and BOI, these are clearly designed to attract market share in terms of new credit card customers, as well as encourage spend amongst their existing cardholders.  BOI is focusing solely on credit cards, which limits the offer somewhat as traditionally Irish consumers would not use credit cards for everyday spend.  AIB’s offer gives greater flexibility, in terms of card usage and in terms of the choice of retailers that are involved.  Consumers can recoup their rewards in more than just a grocery shop as with the BOI offer -this will appeal to a wider demographic.

Other players also have more limited offers in this space.  For example, with a KBC credit card you get 1% cash reward on grocery and online purchases however this is quite restricted. 

  

PTSB has a general ‘GoREWARDS’ loyalty programme however it is multi-product.  This offers consumers cashback on a wide range of popular high street and online brands, such as LIDL and M&S.  As with the AIB offer, this is in partnership with Visa.

Overall this is a welcome development for Irish card consumers.  They are getting something in return for spend, and this will offer an incentive to use cards more often.

For the banks, clearly there is a cost involved, especially for AIB and BOI, however it offers them a strong customer retention tool.  Notwithstanding the lower Interchange environment, they have clearly decided that card portfolios are worth investing in. As the dominant players in the market, this will surely lead to challenger brands upping their offering to mitigate this. Interestingly, Chill Money has just launched a new credit card, in association with Avantcard, however it does not have a reward offer at this stage.  

For the financial services market in general, it’s a positive development for the Cards market after a period of little competition over the past 6 to 8 years.  It will be interesting to see how other competitors will react in coming months.

The countdown to SEPA and E-Day: Key deadlines for Irish SMEs

For Irish businesses, there are two key milestones over the coming months, both of which hugely impact their payment processes and systems, namely SEPA deadline and national E-Day. 

For SEPA this date is the 1^st August.  According to the European Central Bank (ECB), the majority of businesses have completed the migration to SEPA.  In February 2014, SEPA direct debit transactions were at 80.3% and already 649.82 million transactions have been processed in the new SEPA format.  Furthermore, AIB are claiming that in excess of 90% of Irish Payment files are now processed under SEPA.  So clearly the majority have moved ahead and are implementing the changes required, which is a good thing.  However, for those who are not, and with just 3 months to go, this is a crucial time.  There will definitely be no further extensions to this date! 

At this point, businesses should certainly have aligned and upgraded their internal systems and began the process of communicating BIC & IBAN business account details with customers and suppliers alike.  In my earlier blog I’ve outlined the main actions required by businesses to get SEPA-ready.

Under SEPA, banks are subject to stricter data checks in processing existing payment files so compliance is more crucial than ever.  While companies are auditing their systems in preparation, it’s also timely to examine pci dss compliance.

Meantime, in accordance with the National Payments Plan (NPP), government departments, local authorities and other state agencies will stop sending and receiving cheques from businesses from 19th September this year.  This date has been branded e-Day, and actually launched in September last year to allow businesses and public sector bodies the year to prepare for the transition to e-payments.

It’s all part of the NPP plan to reduce costs and improve cash-flow in the Irish economy and encouraging SMEs to move away from cheque usage.  Currently SMEs contribute to more than 60% of all cheques in circulation in Ireland.  Although cheque usage has halved in Ireland since 2005 it remains a key payment method for many Irish businesses, amounting to a total of 33 million cheques every year. It is ingrained for many as a fuss-free method of paying suppliers or contractors. 

According to the NPP, savings of up to €1 billion per annum can be made if Ireland were to match best practice in Europe by migrating away from cheques and cash in favour of electronic payments.  The challenge for businesses is to ensure that they have the right financial management tools and processes in place to manage transition efficiently. 

In order to prepare for e-Day, businesses should discuss and agree new e-payment solutions and carry out the steps required so there is minimal disruption to regular trading eg online transfers will need to be set up to ensure payments are made in a timely manner.

Certainly the business benefits to both SEPA and e-payments are numerous, however there will be short-term pain in this preparation and transition phase.

We’re currently working with a number of companies to prepare them for both the SEPA and e-payments changeover.  For more information on how these will affect your business and how best to prepare and align your payment processes, get in touch with us here at Colthurst Card & Payment Solutions (www.colthurst.ie).

Contact Johngavin@colthurst.ie or Kevin@colthurst.ie

Acquiring market in Ireland – primed for a shake up!

At the moment the Irish acquiring market is undergoing some significant changes, with new contracts and moves across the industry.  It is certainly poised for a shake-up of some sort.

To my mind this market broadly divides into three – physical, DCC and online. I have blogged before about DCC and will discuss the online world shortly; my focus in this blog is the changes in the physical acquiring market. The main players here include AIB Merchant Services, Elavon, Streamline, World Pay and Barclaycard.

Market share stats are hard to come by for the Irish acquiring market, however it is likely that AIB MS and Elavon have the largest share of the market between them – somewhere around 70%-80%.  These market positions are primarily driven by the main bank partner business banking shares – AIB are JV partners in AIB MS and Elavon have had a 11 year exclusive referral deal with Bank of Ireland, since BoI exited the Euroconex JV back in 2003.

The big development this year is the retendering of the BoI merchant acquiring business to the market. Should Elavon not be successful in winning a renewed contract, it’s likely that this reasonably static market will see some significant change. BoI will be very careful about who they grant access to their business banking base so that rules AIB MS out straight away.  If Elavon don’t win this business again there will be change. 

At AIB MS, a JV between AIB / First Data, there are plans to drive the business more aggressively. David Courtney, an experienced financial services executive with a strong marketing background, has recently taken over as GM and is likely to be instrumental in driving this business forward.

Other niche players are also starting to make some inroads. For example, Irish company Blue Sky Payments, which is gaining market share on the domestic front by undercutting competitors and offering something different. Earlier this year, they announced a strategic partnership with VeriFone Systems to provide VeriFone payments terminals to businesses in Ireland.  The partnership will also involve collaboration in terms of offering customer services and support for the payments terminals, as well as support with sales, marketing, provision and procurement.

Similarly, Irish-owned Stripe Payments, which launched in Ireland at the end of last year, offers businesses an instant setup and straightforward pricing model for card processing services with no monthly fees, minimums, or any other charges.

However, there are areas that require further development and could definitely be exploited. Change from the customers’ perspective would be refreshing- the market is suffering from a lack of innovation and new products.  For example, the whole area of smartphones and credit cards.  It never fails to surprise me that we still don’t have a robust offering where consumers or sole traders can process credit card transactions through their smartphone.  I have yet to see any mobile merchant, like a plumber or gardener be equipped with hand held acquiring devices, which are common in the UK.  With smartphone penetration in Ireland at 57% and on the rise, this would offer an ideal hassle-free, low-volume solution for smaller retailers and consumers.

In addition, the quality of acquiring terminals in many locations leaves a lot to be desired (as a card nerd I check these things!).  There are plenty of opportunities for a new or dynamic incumbent to chase market share via the BoI business.

The market is attractive.  Figures indicate positive and continued growth with card usage increasing globally and projected card transaction volumes to reach US$21.9tn by 2015.  I believe that the credit card market will start to grow again after the retrenchment of the past few years. With moves afoot to also launch some mass market prepaid cards, this market is ripe for growth.  In the Irish context, there has been massive growth in debit cards over the past few years  - a 10% growth to 341 million purchases and a 14% rise in the value of debit card sales to €17.6bn last year — up from 309 million and €15.4bn respectively in 2012. 

One of the big strategic challenges facing the industry is the proposed EU regulations on interchange.  Issuer rates are due to fall substantially over the next few years, I strongly believe that this income will primarily migrate to acquirers … if their pricing and structures are smart enough to capture it. The question remains, who will seize these opportunities amongst existing and new acquirers, and how will this impact the industry overall?  Will the gap resulting from the end of the Elavon/BoI deal entice a new player into the market? 

I’ll be watching with interest to see what emerges.

To discuss any payment related issues, you can contact me on kevin@colthurst.ie or + 35386 2319 484

Sources:

Nielsen Report Issue 983, Forrester e-commerce research and

http://www.creditunion.ie/communications/news/2014/title,8023,en.php

http://www.wolfgangdigital.com/blog/research/irish-e-commerce-study-online-retail-revenue-increases-25-cent/

http://www.ipso.ie/?action=statistics&sectionName=IrelandStatistics&statisticCode=IE&statisticRef=IE08