The most important ingredient of success in private equity is not capital. It is people. After 40 years of working in mergers and acquisitions as a lawyer, investment banker and private equity owner I come back to people as the biggest variable in my success and failures. Why is it so hard to find good people beyond the small group you really know?
My brother had a career as a management recruiter and he had a good nose for a fraud. He would always ask me “if this candidate is so good why is he on the beach?” What he usually meant was the good candidates have a job and will always have a job. So if you want to recruit the person for your job try to recruit someone who is working.
There always will be exceptions like the CEO we recruited because there was a health problem in his family and he retired until it passed and we had the luck of landing him. Or the person who has experience and gas in the tank but he is forced to retire because of an age requirement. But my experience with finding good leaders has certainly been below .500.
We work with some of the best recruiters in the Midwest so I reached out to them to weigh in on this topic anonymously. Here is what they had to say about why getting the right people is so hard.
Retired VC Recruiter: “It’s an arduous task and necessity that consume the likes of Jeff Bezos and Tim Cook. They demand they meet the right people quickly and don’t have time nor interest with process and details. Usually, they make their decisions within 15 minutes. Nothing has replaced “gut” decisions. Having great “gut instincts” is an ART, not science and the very best hiring managers are more right than wrong.”
Cleveland Middle Market Recruiter: “It is a common fact in PE; the “win” moves with the executives, and candidly does not stay with the business. Today a challenge is more and more executives are making “life changing” money, and are very reluctant to take a next assignment, unless the payday is outsized. This will continue to be a major problem in attracting experienced C-suite executives, and lead to a dwindling talent pool.”
Chicago Middle Market Recruiter: He wrote a thoughtful memo about the funnel for getting to a successful candidate as requiring the timing to be right. Then the prospect has to have the right location, fit and experience and specific industry experience. Finally, the compensation and equity package has to be compelling and the candidate has to survive an arduous interview process: “Through this process you can see how hard it is to find the perfect executive and why it can take time to do so, and then think about not only the top executive, but then all their direct reports. You have to go through this process on every search.
Getting and keeping talent is one of the unrecognized attributes of successful private equity firms. Those with a record for fair dealing, good communication and management support get most of the good candidates and a track record of successful exits does not hurt.