Sales, Marketing, and Operations Executive Leadership for High-ROI, PE- and VC-Driven Companies
The acronyms PE and VC have multiple meanings. For instance, the former can refer to price-to-earnings ratio, which is a company’s stock price divided by its annual earnings per share. The The latter, on the other hand, can refer to variable cost, a company expense that fluctuates in relation to product output. More to the point, though, PE can mean private equity and VC can signify venture capital, two forms of company control that connote aggressive management and high expectations regarding return on investment (ROI). Providing such management and achieving such ROI is not easy, with the first typically being a prerequisite to the second. Accordingly, this article focuses on the traits to look for in marketing, sales, and general executives who can enable PE- and VC-backed companies to turn these lofty goals into realities.
Back in the Day, A Tale of Two Paradigms
Years ago, when both the PE- and VC-company-investment models were still comparatively new, the differences between the two were fairly clear cut. Private equity groups focused on the purchase of established but undervalued or underperforming companies and concentrated on operations optimization, organizational restructuring, efficiency gains, and, when appropriate, asset sell-offs to foster positive cashflow and increase EBITDA. By contrast, venture capital firms concentrated on acquiring sizable minority stakes in early-stage companies engaged in disruptive innovation that might lead to phenomenal top-line growth and a proportionate increase in value. Under both the PE and VC models, ROI was—and is to this day—realized via the PE group’s or VC fund’s “exit” — in other words, the sale of its ownership stake in the business.
Everything that Rises Must Converge—PE and VC Today
PE- and VC-investment still differ in marked respects. For the most part, PE groups continue to acquire going-concerns with developed products, defined markets, established customers, and on-going revenue streams, whereas VC funds remain focused on obtaining equity stakes in nascent, pre-revenue or otherwise early-stage companies that appear to offer considerable upside opportunity. Over the last decade, however, the means and methods that each undertake to increase the value of their holdings have become more similar. For instance, driven by economic factors and concerns about the limitations of cost-cutting as a tool for adding value, many PE groups are now also targeting top-line acceleration, and, as such, are now more concerned with obtaining high-performance sales and marketing management. Conversely, as VC-firms make more late-stage investments and start to favor M&A over IPO exit strategies, they increasingly recognize the need for top-notch operational leadership and are putting a heightened focus on greater efficiency, positive cashflows, and other elements likely to be subject to acquisition due diligence.
Consequently, not only are aggressive growth and operational excellence now important across both PE- and VC-backed enterprises, the anticipated length of PE-group and VC-firm association with a business has lengthened, moving from previous, respective averages of under 5 years and 3 years to somewhat longer periods, ranging from 5 or 7 years to over a decade in some instances. This in part because incremental sales growth — particularly if it involves entry into collateral markets and channel- or product-mix changes — can take more time to achieve in larger, established businesses like those typically owned by PE groups. Similarly, operational processes and disciplines can be harder to define and instill in the younger, smaller, and more entrepreneurial businesses that usually comprise a VC firm’s portfolio. In the first case, this has led to a need for more experienced sales and marketing leadership, and in the second case to a corollary demand for leadership with expertise in operations as well as financial management.
Deep Sales, Marketing, and Operations Leadership to Achieve Aggressive Growth
Private equity’s heightened concentration on creating value through top-line revenue growth has brought its leadership talent needs more in line with those of VC-funded companies. Whereas in the past PE-backed businesses might have focused on building strong operations-oriented executive teams experienced in leading process improvement and organizational optimization, today’s growth-oriented PE-backed enterprises also recognize the need for strategic marketing and sales management that can develop profitable customer segments, leverage existing brand equity to penetrate adjacent markets, and rationalize pricing against perceived value to optimize sales profitability. For their part, VC-funded businesses that formerly might have largely focused on acquiring marketing and sales leadership are now also concerned with finding senior management who can refine infrastructure, improve efficiency, and implement rigorous financial monitoring.
Hands-On, Team-Building Management for High-Expectation Environments
Despite a preference among some PE-groups and VC-funds for sales, marketing, and operations management teams with industry, big-company, or start-up experience, many observers think that management style and personality traits have a greater bearing on executive success in PE- or VC-backed companies, given their often limited resources, rapid pace of change, and aggressive IRR objectives (e.g., 35% for PE-backed enterprises and 30% for VC-funded entities, on average). Indeed, some experts believe that such high-stakes environments require marketing, sales, and operational executives to be “player coaches,” individuals with a strong sense of urgency who are capable of building, motivating, and leading teams while working alongside team members. In view of the ups and downs experienced in most acquisitions and startups, resilience (the ability to recover from setbacks and adjust strategy accordingly) is also very important. This might be especially true in the marketing and sales functions, which are charged with top-line revenue growth but, being subject to uncontrollable external factors, can’t always forge a straight and seamless path to their objectives, their best-laid plans notwithstanding.
A Question of Culture
Among the greatest challenges that marketing, sales, and operations executives of PE- and VC-backed companies face is culture — both its accommodation and its evolution. In PE-backed companies, this often involves transforming cultures to optimize performance without jettisoning sound institutional values and knowledge while doing so. By contrast, for VC-funded businesses, reigning in free-wheeling startup habits and introducing best practices are more often the challenges. To prevail in either situation, the executive teams of such organizations need more than a track record of success in major corporations. They must also demonstrate the emotional intelligence and motivational leadership necessary to evolve and foster cultures that promote aggressive growth, enable efficient operation, and facilitate the achievement of demanding IRR and ROI objectives while preserving the best of the original organizations.
How to Acquire a Good Executive Team
The unique combination of skills required to be an effective sales, marketing, or operations executive in a PE- or VC-backed company makes it inadvisable to select candidates solely because they’ve held comparable roles in competing companies or like industries. A candidate’s technical fluency or marketplace familiarity might not be sufficient if he or she doesn’t have the management style and interpersonal skills that are essential for success in fast-paced, demanding environments. It can prove difficult to assess if candidates have such abilities from mere résumés and can sometimes be hard to ascertain even when acting on professional referrals.
What’s needed is an onboard expert, such as a senior HR executive with a large and applicable professional network and deep and proven experience sourcing senior sales, marketing, and operations management positions in the PE- or VC-backed arena. If such an internal resource is not available, a good alternative is an external executive search consultancy with comparable expertise. While using such a firm might entail additional cost, it will decrease the search burden on the PE- or VC-investment company. Also, since good search firms are skilled in assessment methodologies such as personality testing and skills and values-based competency interviewing, employing one will likely increase the potential for a successful sales, marketing, or operations executive hire. And, after all, in the last analysis, successful executive hires for core company functions just might end up providing PE groups and VC-funds with the very best return on their investment.
For comments or for more information, please contact:
Customer and prospect contacts:
Ronald S. Torch, Founder, Chief Executive Officer, and President, Torch Group, firstname.lastname@example.org, www.torchgroup.com, 440.519.1822 x101.
Ronald-Stéphane Gilbért, Global Managing Director, Gilbért, Flossmann & Zhang Worldwide, email@example.com, www.globalmarcomm.com, 216.816.4947.
- Posted by Ilana Katz
- On July 9, 2018
- 0 Comments