Five Strategies for Winning High-Impact Talent in a Tight Executive Market
Companies of all types are dealing with the tightest labor market in recent memory. But private equity firms in particular are navigating a perfect storm of tight talent trends.
Hiring high-impact executives has never been more critical, yet a spike in competition is making it harder than ever before.
The good news is we see several strategies for adjusting the search and recruiting processes for portfolio companies that help to mitigate the leadership labor crunch.
Fierce Competition for Talent in Private Equity
We work with private equity-backed software companies, and the competition for seasoned leadership is fierce. It is only getting more competitive as the red-hot private equity industry gets even hotter.
The analysts at PitchBook report that record-setting deal growth in 2021 is driving the growth of “mega-funds” that exceed $5 billion. An increasing number of technology-focused private equity firms have raised mega-funds, the analysts say.
At Bespoke, a third of our clients are in this mega-fund category.
All the capital flowing into tech has sparked a record-making frenzy of deal-making, topping $1 trillion in the US alone in 2021, according to PitchBook.
The result is extreme demand for an increasingly scarce resource: seasoned portfolio company leadership.
But at the same time, the need for recruiting high-impact, proven talent has never been more critical.
Human capital management is now the most important factor in creating value and achieving an investment thesis for a portfolio company. The traditional levers of value creation – such as financial engineering – have become table stakes.
Simply put, the right leadership will make or break an investment thesis.
Below we outline five successful strategies for mitigating the leadership talent crunch.
Strategy #1: Know the End Before you Begin
The best deals make human capital central to the investment thesis. In fact, some of the best deals we see involve planning leadership transformation long before the deal is even done.
We call this “No Surprises” Human Capital Due Diligence because it should take place during due diligence for a prospective portfolio company. 
The best practice requires three steps:
- A rigorous organizational health assessment identifies strengths and weaknesses of the company in relation to the investment thesis.
- A leadership team assessment pinpoints gaps in skills needed to achieve targeted growth.
- Leadership changes and additions – and even identifying candidates who are best suited to help – should be mapped out as much as possible.
This adds up to knowing the end before you begin. How exactly will leadership achieve growth and the investment thesis?
Our private equity clients using this strategy navigate the tight labor market because they have much more time to analyze company leadership needs and plan how to address them.
Buying that time mitigates the urgency to address leadership needs right after a deal closes, when options are limited and the tight market creates long search times. By making human capital planning a core part of due diligence, you open up a wealth of options that can cut the risk of making leadership mistakes.
Strategy #2: Consider Step-Ups
The natural first step when recruiting leadership into portfolio companies is to turn to the seasoned veterans who have done it before.
But when each of those veterans has a dozen attractive offers to choose from, your short-list of choices can run out very quickly.
We see our clients overcoming this problem by considering high-potential step-up candidates.
Perhaps a senior operations executive is ready to take the reins as CEO. Maybe a VP of FP&A has the skills to become CFO.
“We’ve seen some very successful CEO step-ups in recent years,” says Brian Waivada, head of our dedicated CEO and board member search practice. “Most recently we have seen executives with extensive experience in go-to-market disciplines graduating to the CEO role and performing exceptionally well.
“That’s because software markets are growing increasingly competitive, so executives with deep experience in sales, marketing and business development have an excellent skill set for driving growth in those market conditions. A proven go-to-market leader with the skills for the top job can be an excellent choice to raise to the next level.”
Of course, the key to promoting successful step-ups is careful evaluation of the candidate’s readiness and the needs of the leadership team and company overall.
Our market positioning in private equity-backed software companies gives us a leg up in knowing which high potential executives are ready for a step up. Our functional practice experts keep a list of such executives at the ready for our clients.
Additionally, we do not leave evaluation of step ups to chance. We perform a complete analysis of an executive’s readiness. We provide that analysis with our FIT Profile, a framework for data-driven candidate assessment that builds a comprehensive picture of a step-up candidate’s potential.
Part of our Search 2.0 process, the FIT Profile measures the step-up candidate’s suitability for the more senior role. But it also reveals how that step-up would fit with the rest of the leadership team, and which leadership needs they could fill for the company as a whole.
Strategy #3: Transparency
One symptom of a tight labor market is that compensation levels rise sharply. A related symptom is that candidates frequently turn down offers because they have so many options.
While this bargaining power is great for candidates, it can cause portfolio companies to lose precious time pursuing candidates only to be turned down after a bidding war.
The simple way to mitigate prolonged but unsuccessful recruiting attempts is to make sure there is transparency about the opportunity for the candidate
This is why our FIT Profile framework actually can increase offer acceptance.
Facilitated by our Leadership Advisory Practice, FIT Profile uses state-of-the-art personality and work style assessments to measure a candidate’s fit for the role scorecard. But it also applies the same rigorous assessment to the rest of the company’s leadership team and the portfolio company as a whole.
The result is much greater transparency for both the company and the candidate about the potential outcome if the candidate takes the role and the precise fit across the board.
That eliminates a significant amount of doubt and uncertainty that leads candidates to decline offers.
If your offer to a candidate is being compared to one from a company that has no such clarity or openness, then your offer has an immediate advantage. If the candidate decides to bow out of consideration during the process, then at least you have saved potentially weeks of wasted time on an unsuccessful search.
Strategy #4: Embrace the Virtual Enterprise
The COVID19 pandemic led many companies to adopt remote working practices as mostly “virtual” enterprises. The software companies we work with can operate with employees working pretty much anywhere and in any time zone.
The pool of candidates available for a given opportunity gets much larger when you are no longer constrained by geography and relocation.
At the same time, the ability to work remotely has become an attractive benefit for many candidates.
Companies that embrace the virtual enterprise approach or a hybrid working model have an automatic advantage in landing and keeping top talent.
Strategy #5: Streamline the Process
Industry data indicates that searches on average are taking longer because of the tight market.
But data-driven assessments like our FIT Profile shorten the process by surfacing the best candidates much earlier and allowing the attention to focus very quickly on them. That means less time spent on interviewing candidates who are not really a fit. The entire process is accelerated.
The interview process itself can be streamlined. Instead of the traditional, sequential interview cycle, adopt more efficient approaches such as conducting group interviews via video conferencing.
Winning Talent with Data
In case it’s not clear from these five strategies, we are big believers in treating talent recruiting like the process it is. And as any process improvement guru will tell you, that means your process should be “data rich” and “data driven.”
Thankfully, the best practices are now proven and understood for making search and candidate appraisal very data centric, including using tools like the FIT Profile assessments that our Leadership Advisory team conducts.
Peter Jacks contributed to this blog posting.