Recently, the deal market in the world of Private Equity has become increasingly competitive and the focus has been taken away from financial engineering to instead focus on driving operational value growth. As a result, Operating Partners have become key components in the deal process and the role has risen to a new level of popularity and prominence. There has yet to be a unified view of what makes a good operating partner; however, you will normally hear the usual suspects when the conversation pops up: the perfect mix of analytical,experiential, and the right temperamental qualities.
As the go between for the private equity firm and its portfolio companies, an Operating partner is crucial to ensuring the portfolio’s executive teams have the right people, processes, and tools to meet the objectives set by their investors. Aside from having extensive operational experience in the same industries as the company, an operating partner must be able to assess, oversee, and communicate business objectives to multiple parties. Misalignments, or poor planning can lead to executive turnover which will cause costly damage to the businesses’ growth plans.
Needless to say, you’ll want to get this hire right. Here's some advice to do exactly that:
To best advise your portfolio company CEOs an operating partner should have spent time in a similar role. After all, it’s much easier to advise when you’ve been in the person’s shoes. Former portfolio company CEOs who now work as operating partners know what it’s like to be on the receiving end of poorly communicated plans from investors or unreasonable demands, and this experience will help them prevent this from happening to your portfolio companies. This person will have concrete examples to draw from and will be able to connect with your portfolio company leadership teams (building better working relationships).
So,are there any negatives? Any time you bring a seasoned leader they will have their own way of doing things. Make sure you align the right operating partners to the right portfolio company teams, otherwise tension may arise.
Even if they began their career in consulting then transitioned in-house, results have shown that consulting experience translates extremely well into being an operating partner. Why? Well the role is not that different. As a consultant your role is to advise and influence, rarely execute. As an operating partner,you don’t want someone to come in, roll up their sleeves, and get into the weeds. That just isn’t scalable or effective. They need to be able to advise leadership teams on better processes and influence their behaviors to fit the new strategy. This works even better when the consultant has some operating experience as well; however, this may be getting into Purple-squirrel-unicorn territory…
Having board experience is a fantastic asset to being a private equity (or venture capital) operating partner. Their understanding of corporate leadership through influence and experience advising CEOs translates beautifully into the needs of the operating partner role. Why is this? First, operating partners who have board experience have a toolset that will provide great value to portfolio CEOs, and second, board members will have a Rolodex of valuable contacts that they can lean on and leverage to get things done.
Additionally, Board members, like operating partners, are tasked with assessing executive teams,ensuring that the CEO and management are up to speed on the firm’s strategy, and that they have what they need to get it done. This experience will make the “settling-in”period very brief and allow them to hit the ground running when they start.
If you’re looking to hire an operating partner, be patient until you find the right one. It will take time to find someone who fits the needs of your firmand getting this hire wrong is just too costly. You want to have a clear image of what is needed and what challenges your portfolio leadership teams are facing, then find someone with the right experience to come in and help. Try to move beyond your own Rolodex and network. No matter how well connected you may be, that is still far too limiting if you actually want to find the best person. Use tools that are out there to expand your network and think outside the box. There are a ton of networks, communities, and platforms you can leverage to help with this. As a matter of fact, the best platform for finding this level of talent is the same one that published this blog post. Let’s find you some great talent!