Private equity sponsors require strong management teams who can create value inside their portfolio investments. Identifying this special grade of executive necessitates a detailed and thorough evaluation process designed to separate the exceptional from the ordinary. In this Q&A, Falcon’s Lindsay Guzowski details a favored interview question for aspiring PE-backed executives.
Is there a specific interview question you find particularly revealing for aspiring PE-backed executives?
‘Tell me about an instance where you noticed something – an opportunity or a problem – nobody else saw. Talk me through what it was, how you found it, and what you did about it.’
I’ve asked hundreds of candidates interviewing for portfolio company C-suite roles that question.
The query probes what we call an executive’s ‘stretch-drive’ performance, which is their ability to truly make a company better. While an executive can improve a business simply by achieving what crosses their desk, portfolio companies require leadership who will identify opportunities and issues that have otherwise been overlooked.
To use a baseball analogy, sponsors cannot afford to trust the fate of their investment to a ‘replacement level’ executive. The aforementioned question helps discern whether a leader has the unique DNA required to propel a leveraged buyout to a rewarding exit.
What major indicators do you listen for in an answer?
I’m first assessing how ‘hands-on’ they’ve been. If a candidate’s answer is about improving something someone else brought to them or making a marginal upgrade to a system their team was asked to implement, I’m not all that excited. It tells me they might be a great manager, but it doesn’t paint them as a leader who is capable of elevating a business to an entirely new level.
Candidates’ answers frequently reveal the mindset with which they approach their operations. Leaders tend to notice opportunities in areas about which they are naturally passionate. When a Chief Revenue Officer or CEO says she noticed Region C brought in 18 percent more revenue than Region D even though the former had 12 percent fewer customers, it hints that she’d likely bring the perspective of an analytically-oriented salesperson to a business. Alternatively, if a potential CFO talks about noticing piles of sand in the corner during their daily walk around the factory floor, that indicates a certain unique disposition.
These insights inform how a leader engages with their daily work, what’s important to them, and how they would likely add value to a portfolio company.
The aforementioned question also helps reveal whether the candidate has a bias for action. Many CFOs talk about finding something in the numbers, but unless they followed up with decisive action, such as building a SKU-by-SKU model that empowered rationalization decisions, they come off as less transformative. An individual who took action but was ultimately stymied by the stubbornness of an executive above them is certainly superior to pure passivity, but funds value leaders who can sell their ideas to the board and their management team in a manner that makes things happen.
What details can make an executive’s account of past value-add activities more compelling?
I want candidates to quantify impact with hard figures, but it’s even better when an individual can pair that data with a description of the higher-level impact on the culture or strategy of the business.
Operational improvements rarely occur in a vacuum. Hearing how an initiative both improved revenue and also created greater transparency across the business, for example, can be compelling. It indicates the benefit of a certain project wasn’t limited to its most direct outcome but also contributed to the overall effectiveness of the organization going forward. Candidates who struggle to detail both the quantitative and qualitative impact tend to be less successful in private equity-backed roles.
If the candidate refers to a recent initiative, I often follow up by asking about the next steps in that process. About half the candidates I interview, even if their original anecdote was impressive, are dumbstruck by that question. Because they delivered on their original intentions, they often believe their involvement with the initiative is done. In private equity, you’re never done.
Even if next steps have yet to be decided, I want to know that they’ve at least thought about it. Executives build credibility when they can thoughtfully outline what else can be done to drive improvement or how they plan to monitor progress moving forward. I love hearing there is a plan in place to ensure continuing and lasting effects. That type of management is critical in portfolio companies where exit value is largely determined by positive trends and the overall organizational durability. Long-lasting change is far more accretive than short-term improvements that ultimately fade over time.
Falcon provides C-suite talent solutions for middle-market private equity firms across North America. Follow us on LinkedIn.