Transformative CEOs: What types of chief executives are leading today’s private equity portfolio companies?
Perhaps no other role has more impact than the CEO for empowering a portfolio company to achieve the investment thesis of its private equity backers.
That’s why we’re constantly engaged with our private equity clients to identify and recruit CEOs who know how to execute on value creation plans for software companies.
These are transformative leaders who set and execute on aggressive growth strategies and who can assemble and inspire the teams needed to do so.
Of course, the last two years have produced some radical changes in how business is conducted in virtually every type of company. We have seen some distinct trends in what that means for the CEOs who are being hired to lead portfolio companies.
In this posting we will explore some of these CEO hiring trends and how they relate to the key success factors shaping portfolio company outcomes.
Go-to-Market Experience
No one is born into the position of CEO. Everyone who eventually helms a company cuts their teeth in various other business roles before they take the top job.
We have placed CEOs who spent the earlier parts of their careers learning the ropes in corporate finance, operations, information technology, human resources and a range of other disciplines.
But some of the most in-demand CEOs today are those who came up with a “Go-to-Market” orientation, progressing up the ranks through sales and/or marketing.
It makes perfect sense if you think about the value creation plan for the typical software company. Achieving an investment thesis is all about growth. To hit the desired valuation in the desired hold period, a portfolio company needs to hit aggressive revenue and profit growth targets.
We think this is especially important today in the software markets we serve because of the increasingly competitive nature of the software space. The amount of private equity and venture funding flowing into software companies has led to an explosion in innovation and new company launches over the last decade.
We find that CEOs with a “Go-to-Market” track record are in demand because they have hands-on experience with closing business, building channels to market, and generating and capitalizing on demand.
That’s not to say that CEOs with other backgrounds are not in demand or effective. In fact, we see that leaders from every business discipline can bring their own unique perspective and skillset to driving growth.
But in general CEO candidates with success in sales and marketing are attracting special attention for leading many of today’s portfolio companies.
‘Smart Growth’ Leadership
Closely related to the interest in Go-to-Market CEOs is the desire for leaders who can drive “smart growth.”
A couple of decades ago, a “grow at any cost” strategic mindset was popular in the software sector, especially among venture-backed company leaders. The theory was that market share was all that mattered because a land grab was underway as new software technologies opened new consumer and business markets. If you didn’t capture as much of the market as you could right away, then a competitor would grab it, leaving you on the outside looking in as the market matured.
This strategy dictated pouring massive amounts of capital into sales and marketing to capture customers at almost any cost and then worrying about profitability later.
Today’s software markets are much more about smart growth, which means growing aggressively but doing so while hitting profit targets. Profit can fuel more growth and, when a company can optimize for growth and profit, it can multiply the impact of invested capital. That in turn will maximize valuation and the probability of a desirable exit.
We see that CEOs who understand smart growth are very much in demand in today’s private-equity-backed software companies.
Leading the Virtual Enterprise
Perhaps no change in the business world has been more abrupt and more far-reaching than the shift to today’s virtual, distributed enterprise. Leaders who excel in such environments are in high demand today.
Companies around the world have adopted hybrid work models and are now permitting employees to work from anywhere at least part of the time when their jobs can be conducted that way.
The technologies and business practices that make up the virtual enterprise have actually been developing for decades.
On the technology side, powerful laptops and smartphones, video conferencing, remote access, and collaboration tools, coupled with high-speed Internet, make it possible for employees to interact and work together from almost any location.
Business practices have likewise changed over the past couple of decades. Virtually every part of a company’s operations has been digitized and many companies are almost completely paperless and streamlined. An entire generation of employees now in the workforce has never known a world without email or the Internet.
And these changes were vastly accelerated in the past two years by the forced cutover to working from home in response to the global COVID-19 pandemic. Companies had to quickly figure out how to make the most of the technologies and processes that enable effective remote working. Once these approaches were fully embraced, many companies realized they brought advantages in cost and efficiency and so would become the new way of doing business.
At Bespoke we are focused solely on the software sector, which has been an early adopter of virtual enterprise practices as you might expect. Developing and selling software is naturally easier to do remotely than many other endeavors. Now digital distribution of software and the rise of Software-as-a-Service (SaaS) have made the software business even more virtual.
CEOs who know how to lead in these virtual, work-from-anywhere environments are highly prized.
The virtual leadership skillset emphasizes flexibility and particular communication skills and some CEOs may struggle when that interaction migrates to video conferencing or a collaboration platform.
Likewise, a CEO who does not trust team members to be productive while working at home will be less comfortable in the new environment.
We see that leaders who are outcome-focused do better in leading the virtual enterprise. A leader who gauges progress by when and how long people are sitting at their desks will be quickly frustrated by remote workers.
Instead, the successful CEO in today’s world assesses progress by results and identifies problems when outcomes don’t meet expectations.
Similarly, successful leaders of virtual enterprises know they can often attract and retain the best talent when they take a flexible approach to working from home – even if home is on a continent five time zones away!
How do you find the fit?
We have mapped three of the trends we see as we find and place high-impact CEOs to lead our clients’ companies.
But, of course, these are just a few of the many factors that affect how well a CEO will perform.
Cultural fit, interpersonal skills, strategic thinking, and experience with exits and acquisitions are some of the additional aspects that need to be assessed in a CEO candidate.
Our search process captures these dynamics in a unique, groundbreaking way.
We call it Search 2.0 and you can think of it as “the science of search.” That means we bring management science and data analysis into search and use these techniques to identify the CEO candidates who are the best fit for a portfolio company.
In fact, the centerpiece of our process is the FIT Profile. That’s a framework in which we assess a candidate, the portfolio company’s health, and the leadership team to identify a particular CEO candidate’s potential to excel in the role.
Along with the FIT Profile, our search process uses techniques such as advanced scorecarding and Deep Validation, which is the industry’s most extensive backchannel referencing technique.
Altogether, these components of our executive recruiting service enable us to identify the CEOs with strong, proven Go-to-Market experience, for example, and those who will excel in leading a virtual enterprise.
Ready to find a transformative CEO to lead a portfolio company? Get in touch today and we will make it happen!
Liz Moses contributed to this blog posting.