5 Strategies for Winning High Impact Leaders in a Tight Talent Market

Private equity firms are navigating a perfect storm: recruiting high impact leaders in one of the tightest executive labor markets ever. A new report from Bespoke Partners outlines five successful strategies for mitigating the leadership talent crunch. Eric Walczykowski​ and Ross Kinnaird join Hunt Scanlon for a discussion to kick off the week.

January 31, 2022 – Companies of all types are dealing with talent shortfalls across the spectrum. But private equity firms, in particular, are navigating a perfect storm of landing high impact talent in arguably the tightest labor market seen in decades. Hiring key leaders has never been more critical for many high growth portfolio companies, yet a spike in competition for talent is making it harder to do than ever before. “The good news is we see several strategies for adjusting the search and recruiting processes for portfolio companies that help to mitigate the leadership labor crunch,” said Bespoke Partners’ Eric Walczykowski​ and Ross Kinnaird in a new report. “We work with private equity-backed software companies, and the competition for seasoned leadership is fierce. It is only getting more competitive as the red-hot private equity industry gets even hotter.”

PitchBook analysts report that record-setting deal growth in 2021 is driving the growth of “mega-funds” that exceed $5 billion. An increasing number of technology-focused private equity firms have raised mega-funds, the analysts say. At Bespoke, a third of its clients are in this mega-fund category. All the capital flowing into tech has sparked a record-making frenzy of deal-making, topping $1 trillion in the U.S. alone in 2021, according to PitchBook research. “The result is extreme demand for an increasingly scarce resource: seasoned portfolio company leadership,” said Mr. Walczykowski​. “But at the same time, the need for recruiting high-impact, proven talent has never been more critical,” added Mr. Kinnaird. Human capital management is now the most important factor in creating value and achieving an investment thesis for a portfolio company, they said. The traditional levers of value creation – such as financial engineering – have become table stakes. “Simply put, the right leadership will make or break an investment thesis,” said Mr. Walczykowski.

In the study, Bespoke Partners outlined five strategies for mitigating the leadership talent crunch. Among them: Know the end before you begin; consider step-ups; ensuring transparency about the opportunity for the candidate; embracing the virtual enterprise; and streamlining the process. Let’s take a closer look:

Strategy No. 1: Know the End Before you Begin

The best deals make human capital central to the investment thesis. “In fact, some of the best deals we see involve planning leadership transformation long before the deal is even done,” said Mr. Kinnaird. “We call this ‘no surprises’ human capital due diligence because it should take place during due diligence for a prospective portfolio company,” he said.

Related: Strong Resurgence in Search Activity in the Private Equity Sector

Bespoke Partners notes that best practice requires three steps:

  1. A rigorous organizational health assessment identifies strengths and weaknesses of the company in relation to the investment thesis.
  2. A leadership team assessment pinpoints gaps in skills needed to achieve targeted growth.
  3. Leadership changes and additions – and even identifying candidates who are best suited to help – should be mapped out as much as possible.

This adds up to knowing the end before you begin. How exactly will leadership achieve growth and the investment thesis? “Our private equity clients using this strategy navigate the tight labor market because they have much more time to analyze company leadership needs and plan how to address them,” said Mr. Walczykowski. “Buying that time mitigates the urgency to address leadership needs right after a deal closes, when options are limited, and the tight market creates long search times. By making human capital planning a core part of due diligence, you open up a wealth of options that can cut the risk of making leadership mistakes,” he noted.

Eric Walczykowski​ is president of Bespoke Partners. He is passionate about building high-performing teams that value doing their best, work together, overcome adversity and learning. He has served as CEO, president, board member, investor, and advisor for technology companies that achieved over $4.5 billion in successful exits. He brings to Bespoke Partners significant professional services experience from Deloitte and Andersen, as well as the high-growth client executive perspective for private equity-backed technology companies.

Strategy No. 2: Consider Step-Ups

Bespoke Partners noted that the natural first step when recruiting leadership into portfolio companies is to turn to the seasoned veterans who have done it before. “But when each of those veterans has a dozen attractive offers to choose from, your short-list of choices can run out very quickly,” said Mr. Kinnaird. “We see our clients overcoming this problem by considering high-potential step-up candidates. Perhaps a senior operations executive is ready to take the reins as CEO. Maybe a VP of FP&A has the skills to become CFO.”

Bespoke Partners Recruits Chief Revenue Officer for SpaceIQ

San Diego, CA-headquartered executive search firm Bespoke Partners has placed Jeffrey Longoria as chief revenue officer of SpaceIQ. Bespoke Partners, an executive search and leadership advisory firm, partners with top private equity firms, including Francisco Partners, Clearlake Capital, WCAS, Insight Partners, GI Partners, General Atlantic, CVC Capital Partners and TA Associates, among scores of others, to recruit software talent and assess and evaluate teams at every stage of the investment lifecycle, from growth equity to buyout.

The search firm has completed over 600 searches since its inception a decade ago. Its expertise includes all C-level searches across multiple functional domains, including financial officers, HR and people, marketing, and technology, as well as board of directors and internal private equity operating partner searches. The firm’s expanding leadership advisory platform includes organizational due diligence as well as executive assessment and coaching.

“We’ve seen some very successful CEO step-ups in recent years,” said Brian Waivada, head of Bespoke Partners’ dedicated CEO and board member search practice. “Most recently we have seen executives with extensive experience in go-to-market disciplines graduating to the CEO role and performing exceptionally well. That’s because software markets are growing increasingly competitive, so executives with deep experience in sales, marketing and business development have an excellent skill set for driving growth in those market conditions. A proven go-to-market leader with the skills for the top job can be an excellent choice to raise to the next level,” he said.

Strategy No. 3: Transparency

One symptom of a tight labor market is that compensation levels rise sharply, said Mr. Walczykowski. “A related symptom is that candidates frequently turn down offers because they have so many options,” he noted. “While this bargaining power is great for candidates, it can cause portfolio companies to lose precious time pursuing candidates only to be turned down after a bidding war. The simple way to mitigate prolonged but unsuccessful recruiting attempts is to make sure there is transparency about the opportunity for the candidate.”

Strategy No. 4: Embrace the Virtual Enterprise

The COVID-19 pandemic led many companies to adopt remote working practices as mostly “virtual” enterprises. The software companies Bespoke Partners works with can operate with employees working anywhere and in any time zone.

Ross Kinnaird serves as a principal for Bespoke Partners. Before joining the firm, he was an associate brand manager for Dr. Pepper at Keurig Dr. Pepper. Prior to that, Mr. Kinnaird spent time at 7-Eleven, Inc. as an analytical resource working on the frontlines of the company’s digital transformation efforts.

“The pool of candidates available for a given opportunity gets much larger when you are no longer constrained by geography and relocation,” said Mr. Kinnaird. “At the same time, the ability to work remotely has become an attractive benefit for many candidates. Companies that embrace the virtual enterprise approach or a hybrid working model have an automatic advantage in landing and keeping top talent.”

Strategy No. 5: Streamline the Process

Industry data indicates that searches on average are taking longer because of the tight market, according to the Bespoke Partners’ report. But data-driven assessments like the firm’s FIT Profile shorten the process by surfacing the best candidates much earlier and allowing the attention to focus very quickly on them. “That means less time spent on interviewing candidates who are not really a fit. The entire process is accelerated. The interview process itself can be streamlined. Instead of the traditional, sequential interview cycle, adopt more efficient approaches such as conducting group interviews via video conferencing,” said Mr. Kinnaird.

“In case it’s not clear from these five strategies, we are big believers in treating talent recruiting like the process it is,” said Mr. Walczykowski. “And as any process improvement guru will tell you, that means your process should be data rich and data-driven.”

Related: How On-Demand Talent is Unlocking Value for Private Equity Investments  

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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