High-Performance Coach & Transformation Consultant. Founder of (X)form Coaching+Consulting.
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Private equity has a problem. But Billions fictionalized character Wendy Rhoades is the answer. First the problem — then we’ll circle back to Ms. Rhoades. The problem with private equity is this: a nearly complete neglect of one of the most under-leveraged sources of alpha in any business they invest in. The people.
Carl Thoma speaks of three levers to pull in his contribution to The Masters of Private Equity and Venture Capital, “An assessment of the people and culture of acquired companies [is] just as important as [a] close reading of their financial statements. Costs can be cut and systems streamlined, but changing culture or improving management is not always easy to do.”
Cost-cutting and streamlining systems. This is private equity’s forte. People and culture? What’s the opposite of a forte? Private equity’s lack of investment in consistent, repeatable approaches to optimizing the people asset of any business is a major flaw.
Almost two decades ago, Harvard Business Review noted research that companies investing aggressively in employees could outperform on the S&P by 17% to 35%. This makes sense. If a market opportunity exists and the strategy to exploit it is sound, then it’s all up to the people of an organization to execute against it. The excellence of the people — starting with the leadership, then cascading down — is what will make or break any portfolio investment.
So back to Wendy Rhoades.
In Showtime’s television series Billions, fictional character Ms. Rhoades is an in-house performance coach for a hedge fund, ensuring portfolio managers and analysts are playing at the very top of their game. The fund’s CEO recognized it was so crucial for his people to perform at top levels that he retained a performance coach to help him build the firm and keep it operating with the sharpest edge.
Rhoades is not the "hired help" but an indispensable and powerful figure within the organization given her ability to read between the most important-yet-obscured lines of individuals, evoking from them entirely new and unseen paths to success. As the firm’s CEO states: Her value to the company is absolute.
This teases a model that every private equity firm should be putting into place: retained executive performance coaches. But not for the firm’s partners — for the executives and leadership of the firm’s investment companies.
Speed is everything in the private equity game. Speed in affecting change within the business. Speed in accelerating the growth of the business. Speed in decisions and actions amidst incomplete and ambiguous data. This is where performance and executive coaches can create the highest value.
The role of a coach is to challenge limiting assumptions, call out blindspots, elicit untapped creativity in problem-solving, create accountability in action and champion their clients through the most difficult of decisions. They do this through a disciplined process, data-driven assessments, experience-honed intuitive discernment and by leveraging tried-and-true frameworks for personal and organizational excellence.
How does the zeitgeist of an organization evolve from a den of mediocrity into a culture of excellence? What’s the fastest path to confirming whether an executive team member is truly disruptive to the business or just a bit rough around the edges? How do you ensure leadership is effectively stewarding employees through both the vicissitudes of change and accelerated growth efforts?
The answers to these questions and endless others related to the people of an organization will certainly unlock alpha. The answers to these questions are unfortunately not what portfolio company HR teams have the bandwidth to substantively address. The answers to these questions are often lost on the private equity firms. The answers to these questions are what executive performance coaches eat, sleep and breathe.
Further, there’s a select group of executive and performance coaches who were once operating executives themselves. These aren’t "therapists for unraveling high performers hoping to stave off burnout." They’re seasoned professionals who chose to evolve their careers beyond running a business and into the high art and science of change management. Coaching, at its best, is a disciplined process for successful individual and organizational change management.
Thus, it’s about time that private equity firms begin building their roster of in-house coaches dedicated to creating alpha within their portfolio companies. Working alongside the firm’s partners, their mandate would be to design repeatable frameworks for optimizing investments from before the letter of intent, during the crucial quarters following the transaction and through the scaling of each investment to the desired outcome.
This is the next frontier for private equity to mature into — and once there, the industry will wonder why it took them so long. Ironic, given speed is everything in the private equity game.
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