Written by Kevin O’Neill
Gone are the days when private equity firms charged operating partners with merely managing portfolio companies. To drive returns, OPs are now tasked with pre-deal analysis, due diligence, value creation planning, and so much more.
They must relentlessly pursue the best path forward, seeking new strategies to improve the value chain through operational improvements that will ultimately lead to fund outperformance. A tall order, no doubt, that often requires one distinct characteristic: impatience.
Used wisely, impatience is a positive quality that presents as curiosity and tenacity. It pushes OPs to ask the right questions, uncover truths, and drive results. After all, PE is a competitive, fast-paced environment with no signs of slowing down. In 2019, the median holding period dropped to only 4.9 years — the lowest since 2011, according to PitchBook’s annual PE breakdown. Impatience is the key to delivering the most private equity ROI in the shortest time.
Impatience And Private Equity Executives: A Fine Line
While impatience lends itself to getting things done, it must be coupled with its mirror opposite to be truly effective. The operating performance of a portfolio company certainly can be improved by a set of rapid and directed changes. But rushing into those changes too fast can lead to second-rate execution and unrealistic expectations — both of which can give way to disruption, disengagement, and chaos. As you well know, uncertainty often comes at a cost.
As is the case with most things, it all comes down to balance. Operating partners must possess the willingness and confidence to make speedy, calculated decisions with the depth of experience and proven track record to back them up. There’s a fine line between strategy and execution. You may need to pull the trigger in an instant and then work to convince others to wait patiently for another six months to a year before an investment reaches operational success.
Impatience does not have to be synonymous with careless decision-making and skimping on due diligence. OPs can indeed excel at both, using impatience as a tool for getting to the bottom of things with speed and surety. Knowing when to exercise either impatience or patience is what sets successful OPs apart from everyone else. A balance between these two “virtues” can lead to competitive execution, operational improvements, profitability, and successful exits.
Finding this balance can be a challenge, of course. Here are a few examples of times when a good mix of impatience and patience will serve OPs and their businesses well:
It’s tempting to attribute operational inefficiencies to leadership. If your gut and the numbers are telling you that certain people are to blame, then it’s good to be impatient. You don’t want to have leadership dragging the rest of the company down, but it’s not always the best plan to dismantle your management team hastily. Remember, all decisions should be informed ones.
Establish a detailed understanding of your operational structure — all the way down to the most granular, atomic level. Then, use this information to either confirm or debunk who should stay and who should go. At this point, impatience comes in handy since you’ll want to make the decision quickly and without the back-and-forth that often accompanies important choices.
Most people are susceptible to “shiny object syndrome,” especially when it comes to résumés. It’s great to see candidates with Ivy League schools or blue-chip companies on their CVs, but those aren’t the be-all and end-all.
With hiring decisions, these shiny objects can cause you to rush toward a certain type of talent — usually candidates with more generalist backgrounds. As a result, you have to dig deeper. It’s good to trust your judgment of talent and sense of urgency, but remember you are hiring a person rather than a résumé.
A patient examination of a portfolio company’s operational gaps often reveals which skills, competencies, and past experiences will make for the ideal fit. These prerequisites can then become a roadmap and scorecard for talent selection, which makes sourcing more targeted, assessing more objective, and hiring decisions better.
3. Stakeholder Communication
The transformation process, by definition, brings disruption, friction, and frequently a crisis or two before things level out. Creating value takes years rather than days, after all. While you’ll most likely be leaning heavily on impatience to lead the company, rely on your patience when communicating difficult issues to stakeholders.
An air of patience and confidence — even if you’re feeling impatient at the time — can trickle down to team members at all levels of the organization, curbing fears and waylaying a change in course before improvements can come to fruition. It’s all about setting the tone from the outset, which can help guide wary stakeholders through the ups and downs of transformation.
4. Digital Transformations
The speed of digital disruption has placed an increasing amount of operational pressure on global firms, forcing companies to restructure and evolve continuously to remain competitive. It also has increased IT operating costs, with an average of 40% of technology spending going toward digital transformations, according to CIO Magazine.
As digital becomes a more important lever for value creation, OPs need to keep pace. Impatience can help you evolve and deliver with the speed and flexibility required. Remember that exercising patience — and a fair amount of discretion — when beginning the transformation process sets the tone for the team, though. It prepares people for the difficult road ahead, while still allowing flexibility should you need to pivot.
Impatience has its place in business. It can be a tool to get to the bottom of things quickly and confidently. Once there, however, patience should take hold and help you execute major transformations and ensure the expected results. Impatience might lead you to the right choice, but patience ensures that your plan has the space it needs to succeed. Finding the right balance is the key to increasing ROI.
Originally published in:
Never miss insights
Stay in the know with our thought leadership
How to Foster Epic CEO Performance in a Private Equity Ecosystem – 2021 PEI Operating Partners Forum Recap
Jan 14, 2022
ESG, the Ultimate Purpose Playbook for Private Equity
Aug 30, 2021
Dr. Drew: Caring Makes for Better Leaders and Better Living
Aug 26, 2021