Private Equity firms purchase Portfolio Companies with the intent to add value and maximize their growth potential, but it’s no surprise that achieving successful growth is complex – oftentimes accompanied with unforeseen challenges.  

Portfolio companies today are under enormous pressure to achieve hyper- growth, sustain constant innovation and successfully execute their business strategies – all while maintaining existing operational efficiencies and costs. But once you acquire a new portfolio company, where does your growth plan start? What needs to be addressed immediately? What are your long term goals? How much can you fund? What has been working?In a series of blog posts, we will address the four challenge areas that have the most impact on a portfolio company’s success and the best approaches to address them head on.  The first area that we will explore is the company's leadership. 

1. Leadership
2. Innovation
3. Strategic Plan
4. Operations

Challenge One: Will the leadership team in place be able to take your company to the next level?

It’s essential to have the right leadership in place in order to sustain your portfolio company’s growth initiatives. As the company grows, changes in leadership will need to be formally established at a rate that is commensurate with your new advancements. Leaders also need to be aligned with the vision, mission and values of the organization. Without the right management team, your company will struggle under the weight of its own success and fail to reach planned goals altogether.

Leadership capability is essential in sustaining high growth initiatives - and successful private equity firms need to know how to hire, assess and manage their portfolio company’s leadership team. A good place to start is by using scientific assessment tools which help organizations understand the key motivating factors of their current leadership team and potential new hires. Understanding what stimulates an employee and what gets them excited to go to work every day will help create a more balanced leadership team that aligns with the direction and culture of your company. In addition to reviewing the education, skills and experiences of your team and new candidates, assessment tools also allow you to quickly identify an employee or applicant’s natural ability to perform in the position, which helps to predict their future success within your organization.

Despite efforts to build a strong management team, tough decisions are required, particularly when members aren’t suited for their roles. If a leader is struggling or lacks expertise in key areas, think carefully about restructuring or replacing them, especially if it will help your organization in the long run.

The development and leadership of the management team is the foundation for sustained growth and needs to remain a top priority.

With a newly acquired portfolio company comes new ownership, new board members and a host of ideas for maximizing the growth of your organization.

Here are a few guidelines for creating synergies across the leadership teams within your private equity firm and portfolio company:

• Get on the same page with the management team regarding the private equity firm’s role, level of involvement, and most importantly…exit strategy.
• Develop a strong operational understanding of the business and be sure to have access to advisers with relevant experience.
• Allocate sufficient time to understand business drivers, competitive landscape, current strengths and weaknesses. All good inputs for the strategic planning process.  
• Allocate time for understanding the portfolio company’s current planning process and look for opportunities for improvement.
• Identify a limited number of KPI’s, cut back on the rest, and identify the key levers which really drive the business.
• Add independent directors who are operators with relevant experience to the board.

Once the leadership teams are aligned, private equity and portfolio companies can begin strategy development - starting with innovation.