Delivering in the first 100 days post MBO
It’s late November and we are hosting the last of our 2013 CEO/Chairman breakfasts at The Savoy. This time, we are joined by a diverse group from a variety of sectors and business sizes. Our topic of discussion quickly zeroes in on the challenges CEOs face when delivering the 100-day plan.
We were not necessarily expecting to find commonality but it seems whatever the size of the business or the sector it sits in, the challenges faced post-MBO remain the same.
Everybody was in agreement that priority number one is for management and investors to be fully aligned in terms of their understanding of what makes the business profitable. Considering the courtship that goes on pre-deal this is perhaps surprising.
Getting the financial reporting right was next on the agenda. Management, especially the CFO/FD need to get on board and understand what the private equity firm needs and wants: they need to advise, contribute and be part of the process but then implement and deliver quickly. Getting the financial reporting wrong in the first few months wastes time and creates unnecessary anxiety, just at the point both sides are really getting to know one another.
Fixing any of the issues that were cause for concern in the due diligence process is next on the list and a number in the room recommended thorough vendor due diligence prior to taking the business to market. Make sure there are no skeletons in the cupboard and if you find any, fix them quickly!
However, it was the discussion on the balance between implementing management processes and good leadership that resonated loudest.
All agreed that developing and working with meaningful KPIs leads to better management control. However, those in the room felt that the mindset of 99.9% of private equity investors is to apply a metric and KPI to any business activity and, in some cases, this can then become overwhelming.
All businesses have a unique personality and culture. A good leadership team understands what makes this personality tick. They know how to inspire, cultivate and redirect if necessary but few investors have absolute faith, especially in the early years, in leadership. So to compensate, they tend to hang too much emphasis on business metrics.
How a portfolio company strikes a balance between management and leadership depends on the environment in which it operates. If the world is not changing, the business is hitting its numbers and an exit is on the horizon then management is essential and leadership less so.
However when trying to deliver change and professionalization good leadership is everything. Leadership is not about mobilizing people to do what they’ve always done well, it’s about getting them to do something new or different and to see their world in a new light.
The 100 day period is all about driving business change and building on the accelerators for growth. Perhaps investors, instead of over worrying about business metrics, should ask themselves if they have a good leader. If the answer is yes, then let them crack on!
Sam Smith, Managing Director
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