Is Your Leadership Equipped to Maximize Value Creation?

In the demanding, fast-paced world of private equity (PE), the pressure on leadership teams is immense. With a mere 16 quarters to effect significant transformation, leaders of PE portfolio companies often find themselves grappling with a vast array of new challenges. Once successful in meeting past expectations, they now face the daunting task of delivering to the new owner’s expectations of accelerated revenue and profit growth. Furthermore, they must align on a vision for the company’s future state and focus resources on a set of transformational projects and priorities to ensure the organization is making the changes needed to be ready to scale. The range of challenges to realize the desired future state of the company may include upgrades to systems, additional services, new products, mergers and acquisitions, integration activity, and, of course, the attraction and retention of key personnel to drive the strategies to make the vision a reality.

To ensure a leadership team can effectively navigate these complexities, evaluating that team against several key dimensions is crucial. Below, I list 10 areas in which leadership can be evaluated to see whether the team is well positioned to drive value creation.

1. Leadership Experience and Track Record: Do they have the right mix of skills and experience to get the business to a successful exit?
2. Strategic Vision: Is the vision clear, compelling, and aligned with the owner’s ambitions? Does the team have a clear roadmap for getting there?
3. Operational Excellence: Does the team know what good looks like in terms of driving results through others and embedding efficient processes and best practices to lead change and transformation?
4. Financial and Commercial Acumen: Does the team know how to make the best use of capital and other resources to drive revenue and EBITDA growth and pivot to take advantage of emerging commercial market opportunities?
5. Talent Management and Development: Does the team possess the skills to make sure they are surrounded by the right talent and have the ability to attract and retain the talent they need to deliver the value creation plan as well as develop a strategy-supportive culture? Is the depth of the talent pipeline and success plan robust enough to take the portfolio company beyond the next financial event?
6. Market Awareness and Adaptability: Does the team have a full and deep understanding of the market, its trends and competitive landscape, and a go-to-market strategy that will ensure the business has clear differentiation and competitive advantage?
7. Innovation and Growth Mindset: Does the team have a clear focus on innovation and the appetite and skills to adopt and exploit the potential benefits that new and emerging technologies might deliver?
8. Stakeholder Engagement: Does the team possess the presence, credibility, and communication skills to effectively engage, inspire, and win the confidence of key stakeholders, including staff, customers, and investors?
9. Risk Management: Can this team make the right trade-off decisions to identify and mitigate risks and meet governance and compliance requirements?
10. Performance Metrics and Accountability: Is this team measuring what matters and tracking progress in building value, and do they hold each other to account?

As portfolio companies scale, demands change and can outpace the leadership’s capacity to grow and develop. At each stage of the investment life cycle, it is important to make sure any skills, expertise, and experience gaps are understood and that plans are in place to support, develop, and augment leadership as the business scales, with progress regularly reviewed.

At RHR, we assist PE portfolio companies in stepping up to these leadership challenges. Our process begins with a thorough study of the value creation plan and investment theses and the development of a success profile. We leverage this profile to make a thorough, objective, and data-led assessment of C-suite incumbents to determine if the executive team is equipped for the task or if skill gaps and team dynamics need addressing. We also focus on enhancing team effectiveness across the organization to ensure a cohesive and dynamic approach. In some cases, we also evaluate middle management (and provide coaching where necessary) to ensure these employees can execute strategic directives effectively.

In sum, as the demands on PE portfolio company leadership intensify, it’s essential to evaluate and train leaders so that they can manage the complexity and scale of the business they and their investors are looking to build. Sixteen quarters go by in a flash, so early assessment is critical in helping to de-risk the plan from a human capital perspective.