A few weeks ago I attended Hunt Scanlon’s Private Equity & Venture Capital Recruiting Conference in San Francisco. The theme was centered around linking talent to growth – a timely principle, and core to where we are in business today.
As Hunt Scanlon describes it, there is a growing leadership dilemma unfolding at private equity and venture capital-backed portfolio companies and there is a widening war for strong leadership talent. From my seat, nothing could be more true.
In the last few years, we’ve experienced a significant increase in private equity and venture capital executive searches. Having dedicated the last 20+ years of my career to finding executive-level leadership in the human capital industry, I agree with the notion that identifying the right leader at the right time for the right company is vitally important and also not easy, especially right now. From the economy to globalization to technology to the unemployment rate – executives today are facing new challenges and an increasing number of them, making the need for the right leader more important than ever.
Linking talent to growth isn’t just good business, it’s a requirement to be successful.
From the Hunt Scanlon conference held last month, these are the talent themes influencing growth:
The Cost of Getting it Wrong
The economic cost of the wrong CEO appointment can cost a company several times over the executive’s annual compensation, not to mention the delay in strategy execution and the training and reallocation of internal resources that has to happen in order to attempt to cover such a big position. The cost is enormous, almost incomprehensible. In fact, people have tried to quantify the total cost, but to pin a tangible value to the cost of getting it wrong in the C-suite is tough. In 2015, PwC estimated it to be over $100 billion – a number I only image has increased over the last four years.
Narrowing Your Search for Key Leaders to People From a Previous Life
Leaders come into new positions and, most, immediately start seeking out past colleagues to fill their open roles. But when it comes to being in a position of leadership, referrals are just one source of candidates to consider. It’s important to be thoughtful and to include referrals as an important part of the overall search strategy but for it not to become the whole search strategy. Don’t be short sighted. When you immediately go for a person you have previously worked with, you simultaneously eject cognitive diversity. Meaning, you’re opting to go with what you know without leaving much room for what you need. Subsequently, you double your risk, because now if this person fails not only have you placed the company at risk but it comes at the sacrifice of a personal relationship.
Testing for Ambiguity
Particularly in the digital age, we need to test people, leaders too, on how they deal with ambiguity. The executive of yesteryear has not dealt with the same market or operated in the same environment, which is why it’s important to bake in markers to test for a good match, including:
- Do they have the right experience – not necessarily the same industry experience, but the right experience for the challenges and goals of the business?
- Are they able to look at themselves objectively, and are they able to talk about their challenges and lessons learned equally as well as their successes?
- How have they handled similar unknown situations and markets? Specifically for private equity-backed companies, do they have past experience with private investing?
Private Equity Growth
The last key takeaway for me was just how much growth is coming from the private equity sector. According to Pitchbook, in 1995 there was $81 billion in PE and VC funding and in 2015 it was up to $2.7 trillion. Of the private equity and venture capital companies represented at the conference, nearly all of them had made one or more investments in the human capital industry. The growth is incredible, and it’s really exciting.
“Together, VC and PE are driving growth at recruitment firms across the U.S. Last year, records continued to be broken as upwards of 40,000 deals involving venture capital or private equity financing, mergers or acquisitions were consummated across the country.” (Pitchbook)
But with this growth comes the opportunity to educate those new to private equity, and how it works. In my role, I am constantly educating and managing expectations. For instance, when executive-level candidates hear that a company I’m working with is private equity-backed – they automatically assume they’ll get a big piece of the pie. But at some point, there’s no more pie to give. I consider these to be champagne problems for those of us thrilled about the PE and VC investment happening in our space, but they are problems nonetheless.
For more information on linking talent to growth, purchase Hunt Scanlon Media’s latest report: Private Equity & Venture Capital Recruiting: The Widening War for Leadership.