When evaluating an opportunity, the target’s leadership team should be your first priority. Can you see whether it works or not, both at-a-glance and in-depth? If you can’t, you’re investing blind.
You’ve profiled the customers, inspected the balance sheet, checked the P&L and searched the closet for skeletons. It’s all coming up clean. Only one thing remains: the executive team. And that’s largely a black hole.
Sure, you’ve got a bunch of resumés. You know how much the execs are paid. And you know what schools they went to. But that’s all individual data. That doesn’t remotely tell you whether the team FITS, whether it can leverage each other’s strengths, or whether it is unknowingly dysfunctional.
If you don’t know the answer to this question you’re walking into the dark. Here are a couple of examples of the problem: You could be buying into a company whose VPs are all recruited in the image of the CEO and therefore lack intellectual diversity. They’ll share a similar focus while being blind to glaring needs. They’ll pat each other on the back all the while being unable to execute a strategy. It’s like having a team of 11 quarterbacks and no-one else. This is extremely common and it’s one of the surest causes of business failure.
Or it could be a company who have the opposite problem: too many functional silos. The ideators can’t bridge their innovative ideas to the engineers and the engineers can’t socialise their products to get buy-in from the account managers and the account managers aren’t retaining customers because they’re too disconnected from the ideators.
Every team, that is EVERY team has severe problems like these. That’s why 70% of employees are unhappy at work and why Deloitte, Gallup and others say that most teams are barely 40% efficient. Is your private equity heading into a trap?
Conversely, if you do know where the TEAM’s strengths and weaknesses are, you can either pull out before you burn a lot of cash or you can invest with confidence knowing exactly what you’re buying into and how the inadequacies can be fixed.
Most PE professionals say that despite their due diligence, less than half of their investments pay off. They also report that most companies under-perform because of failures on the people dimension. Don’t let your next investment be one of those.
To get started with knowing your executive team, Contact Us.
