The Monumental Costs of a Bad Executive Hire

Our most recent Private Equity Talent Benchmark Report reveals that almost every portfolio company that reaches the fifth year of the hold period is most likely to turn over every top executive role during that time, and by the time they have grown to 500 to 1,000 employees, most portfolio companies will have at least one C-level leader in all the primary functional areas.

If one of your hired executives turns out not to be an adequate fit for the company, it could damage any projected growth for the initial year to two years following it, but then ultimately it would damage its long term trajectory.

Let’s assume a mis-hired C-level executive will be in the role for at least nine months before the need to make a change is clear. During that time, the mis-hired C-Suite leader probably has implemented unsuitable strategies or broken processes. It’s a trickle-down effect of detrimental effects before the ability to turnover that executive. Once it is clear a change is needed, those ineffective strategies or processes need to be undone, which leads to staff confusion and lower morale.

In addition to going off course of its investment thesis, tack on the time to hunt for a new executive to replace the departing one, and you have lost a year or more of precious execution runway.

That has a massive impact on the investment thesis and the projected hold period for the private equity backers.

To make matters worse, if you mis-hired for the CTO role to eliminate the company’s technical debt, you are now a full year behind in that critical project.

If your CRO implemented the wrong Go-to-Market process and strategy, then you’ve lost a year or more of revenue growth.

No matter the role, the C-level mis-hire puts the company a year or more behind and the investment thesis in jeopardy.

Then, in addition to all the ineffective processes implemented by the mis-hired executive, you are now at a loss of several hundred thousand dollars in compensation, as well as tens of millions of dollars in delayed long-term growth.

Here is a refresh of our recent blog post on the four steps and techniques you can take during the hiring process to avoid the costly mistake of a bad C-suite mis-hire.

1. Analyze Broader Candidate Pools  

Indeed, finding an executive who has successfully performed the precise role in a private equity context would be ideal. But competition is stiff for these executives. By focusing too narrowly on this profile, you might miss a slightly different leader who will be extraordinarily effective in the role. 

That’s why we bring our clients access to the most extensive network of executives with private equity experience, but we also identify executives outside of the space with high potential. 

Our aggregated decades of experience in private equity leadership advisory enable us to find executives with skills that will translate into private equity. For example, an executive from a successful public company may have a proven ability to deploy the latest cloud or SaaS technologies to bring products to market faster for accelerated value creation. 

In addition, Bespoke has become known for its exclusive focus on private equity software executives. We are continuously in contact with recruitable leaders across the sector and will have insight into availability you cannot get anywhere else.

The goal is to widen the pool of candidates so you can lessen the effect of the tight talent market and can identify high-impact executives that the traditional approach to recruiting will miss. 

2. Utilize “Advanced Scorecarding”  

When scoping the role, it’s important to clearly define the specific skillsets and experience that will support your value creation plan and capture them in the scorecard.  

The approach we call “Advanced Scorecarding” will base these parameters on the skillsets necessary to execute a value creation plan to achieve the investment thesis. 

Maybe you need a finance executive adept at orchestrating M&A and navigating the complexities of rolling up multiple add-on acquisitions. Maybe you want somebody who has mastered Go-to-Market processes to drive revenue expansion. Or maybe you want a tech revolutionary, the kind who comes in and makes sweeping changes such as tech enablement of key internal processes and service delivery. 

Advanced Scorecarding is the process of aligning and prioritizing the desired skillsets and experience around the investment thesis specific to the private equity-backed software company. 

3. Employ Backchannel Referencing 

Backchannel referencing is the technique of digging deeper into the accomplishments and workstyle of a candidate. We call our approach “Deep Validation,” and we use our extensive network of software industry contacts to learn more about how candidates performed in prior roles. 

Did the executive play an essential role in the accomplishments they listed on their resume? 

How did the executive fit with the company culture and executive team?  

These are the types of questions backchannel referencing can answer, providing a level of insight that standard reference checks will not. 

4. Conduct Behavioral Assessments 

The “soft skills” of how a leader operates often are more critical to success than their technical knowledge of the role. A technically adept leader who fails to mesh with the rest of the executive team or who struggles to inspire others will never make the most of those technical skills.  

That’s why our FIT Profile process employs Hogan Assessments to uncover how candidates will fit with the company’s culture and the rest of the executive leadership team. 

Will a candidate be able to collaborate effectively with the other leaders? Do they have behavioral traits that complement those of their peers? Will the team be cohesive and execute together? 

Our data shows that executives who have been placed with our FIT Profile process are 20% more likely to be in the position for at least two years, a key sign of a successful placement and that the FIT Profile works. 

Working With An Exclusive Focus

The four strategies I mapped out have been proven to mitigate hiring risk across hundreds of placements. They are central to our 99% success rate in executive placements, which we define as a placed executive who has been in the role for at least two years. 

Not only do we identify the right leaders who will stay and execute, but we do so very quickly, typically closing searches in half the industry average time. 

This is possible because we focus exclusively on executive search and leadership advisory for private equity-backed software companies. No other firm can offer a better process for reducing the risk of a bad hire in our space. 

Learn From The Experts

You can learn more about these topics and hear direct experience from the experts themselves in the past webinar “Avoiding Bad C-Suite Hires in Private Equity Portfolio Companies.”

Bespoke Partners’ CEO, Eric Walczykowski was joined by panelists, Brian Kasser, Talent Partner at WCAS, Michael Song, Managing Director of Portfolio Operations of Providence Equity Partners, and Tess Fischer, Partner of the GTM Practice at Bespoke Partners, where they discussed the most common mistakes in costly mis-hires, and how you can recognize and strategize around them in the future.

Watch the recap now:

https://youtu.be/onIMWjsGcC0?feature=shared