The C-Level Executive's Rising Role in Exit Planning
The best managers to increase your business' appeal in today's economy - and why.
If one looks at the spotty economy and also for a message or guidance, look to the sub-$100 million revenue company for clues. They have battled hard through the Great Recession, hired and fired, and tried to rebuild a business in the hyper-competitive world they now live in. Capital access, balance sheet development and process improvement have never been needed more for this business segment.
Post-Great Recession Management
For decades, sub-$100 million companies have led job growth and innovation, and have been rule breakers in markets led by much larger competitors. The upheaval from post-2008 left many damaged and in lockdown when it came to hiring senior management, expanding markets and making capital expenditures. Fast forward to 2015 and most of this lower middle market is in rapid clean-up mode. Many families and partnerships that have owned these companies are looking to exit while the market makes it favorable. Also to be included here are those “second-bite owners-turned-CEO.” Some were ready to go and some just stayed around.
The reality is that there are many underemployed senior executives now with permanent consulting roles that would make ideal candidates to run these companies to an exit. However, the challenge is to match the company with the executive. This is where company service providers should be making recommendations to get ready for growth and sale now.
Making a Positive Change
The PE owner should be better experienced at making these changes. But making them rapidly, correctly and with more recruiter resources than a well-worn Rolodex and LinkedIn search, is needed. What can owners and new executives do to make their relationship a positive one when they are put together?
Rolling Up the Sleeves
First, the executives need to demonstrate the desire and ability to roll up their sleeves. They would be well-served and ready if they had worked in similar situations before. Coming from large corporate America may not be the best training ground for this assignment. While private capital investors have loved the executive with large P&L experience for such opportunities, it may not work in this era.The modern operating partner must have P&L size experience more closely aligned with the assignment along with a growth functional expertise. That expertise could come from sales and marketing, international business, product development, or from the acquisition of smaller competitors or supply chain partners.
Getting the Right Tools (Management Dashboard)
The right executive needs the right tools. There needs to be an agreed-upon dashboard and tool set for reporting that are simple to interpret, vital to the business, and easy for all members of the management team to interpret and communicate down the line. Ownership and the new executive may require a third party, such as an outside corporate accountant or consultant, to get the metrics and dashboard worked out. The ownership can see the challenge and the executives embrace it, as it stokes creativity and new ideas to hit the numbers. The monthly or weekly calls will have more structure, metrics and offer real-time feedback on the numbers and what is going into them.
For the executive, this requires work, usually a legacy management team in some roles, to get buy-in and drive numbers for both a founder and perhaps a new equity or debt participant in the company. The executive in this transition role should be very careful in what they ask for when they say they want a challenging role and a smaller situation. Success requires vision, communication skills and thinking-on-your-feet abilities in meeting urgency and serving multiple stakeholders. Management dashboards can create the clarity and expectations. They should highlight the metrics they hit or they will not balance decisions that need to be made that allow the numbers to be hit. Serving the company makes the numbers; serving the numbers does not make the company.
Expectations of Effective C-level Executives
The Legacy Process
There is a dynamic that the owners/stakeholders and new executives must carefully discuss in order to navigate beyond the data metrics and dashboard. That is the role and place of legacy procedure. There will be managers that have been in the firm a long time and quickly eliminating legacy processes is not an approach that will garner trust and productive feedback. This is where the C-level executive with small company experience can read the psychology and gradually gain buy-in as all procedures are analyzed and validated along fair and consistent lines. A quick phase-out of legacy procedures will have some people asking: “Why do we need to change?”; “Was all of our work worthless?”; “Why are they right without any experience?”; etc. Legacy process has to be carefully preserved for vision and strategy purposes. Eliminating poor controls and phasing in stronger ones comes easier when more people have input. Buy-in is typically achieved more rapidly.
A CEO that can drive growth often exhibits the characteristics of a founder — taking the tough trips, the trade shows and the client visits; celebrating new victories as well as earlier ones; and, perhaps most important — demonstrating a commitment to sharing.
While a large company experience may be less available today for senior and C-level executives, a smaller company experience may offer more than they expected. Knowing when to play small and hands-on versus strategic is a challenge. Having to do more with less can be a culture shock. While large company experience is a great training ground and surviving in a large matrixed organization is to be valued, these benefits may be hard to frame in the middle market. For middle market companies, where their executives came from is generally less important than their abilities to fit in, communicate, serve many different constituents fairly, and create a new culture and process for growth. Let data create the accountability and embrace it as a company mantra and driver and let the culture translation and transition takes care of itself.
Written by John Bova
John Bova supports CohnReznick’s private equity and venture capital practice in a business development and strategy capacity on a national basis. Prior to joining CohnReznick, John led business development for a NYC-based private equity firm, MTN Capital.
Before working in private equity, John had a 20-year-plus career as a senior executive and C-level member in five privately held companies that were grown and professionalized during his tenure. Three of the firms were sold to industry strategics. John’s areas of function included add on strategy, JV strategy, global business development, sales team reorganization and strategy, product development and operational excellence.