private equity

Gallup has extensively researched the relationship between employee engagement and company profitability, and they showed that engaged employees are 22% more profitable than disengaged employees. 

The tides of the economy seem to be shifting, making this a time when it is even more critical to focus on culture and employee engagement. Many companies, especially private equity-backed firms, have responded by laying off employees rather than investing in them. I was curious to know, “Why are private equity-backed firms more prone to layoffs in a down economy compared to private or public companies?”

I reached out to my network to learn more. I interviewed multiple employees, leaders, and professionals working for private equity, and their consistent answer was that “They are seeking an exit – at any and all costs and that part of achieving an exit is showing numbers that your costs are down and revenues are up.”

Ryan, a former VP of Operations, was recently laid off from a private equity-backed firm. He proposed some ways for the company to consolidate its overlapping expenses. They loved the idea so much that after consolidating those expenses they consolidated him…and replaced him with a junior middle manager to take his role at a fraction of his salary. 

Don’t get me wrong, I am all for eradicating inefficiencies and driving profitability. 

But can the short-term focus of achieving an exit coexist with a thriving company’s long-term goals, especially when these goals require an engaged employee base with a great culture?

I would imagine that most private equity professionals land somewhere on this scale from unapologetic to compassionate. The unapologetic professionals don’t care about the people because revenue growth reigns supreme. On the opposite side, compassionate professionals care about building a sustainable business and invest accordingly. In between these two sides, many professionals will say all the right things but their actions will reveal whether their true focus is sales and reducing costs to show short-term metrics.

Another focus of my interviews was on the reputational cost. I was curious to know if there was any reputational risk for offloading a company that looks great on paper but is a dumpster fire internally. I'm envisioning a prospective investor checking something like a Carfax to find out if they are working with somebody that has a history of leaving others to hold the bag.

Unfortunately, I haven’t received any great responses so far. 

And until we have a way for companies to assess the reputational risk of how private equity firms treat their acquired companies' employees, there is nothing to stop these private equity firms from propagating bad cultures to dump onto somebody else’s plate.

The issue with all these scenarios is harm done to the people at these companies. Hundreds of thousands of professionals work for private equity-backed firms, not realizing how little security they have in their role or the value they have in the minds of the owners. 

Or worse, many professionals end up working for a company and feeling trapped because of economic worries or personal constraints. These workers end up miserable, and the whiplash effects from ownership changes only exacerbate these effects. Imagine starting with an executive team that cares about you (e.g. the founders), and suddenly you find out that the new private equity owners want 120% more revenue but for 30% less pay. These paradigm changes wipe away years of work building company culture and leave a hollowed-out company in their wake.

Research has shown how powerful investing in culture and engagement can be for profitability. But until we have a way to hold private equity firms accountable based on their reputation for either building great companies, inside and on paper, or mirage companies, great on paper but awful inside, it will be difficult for private equity and company culture goals to align.

Private Equity is a high-stakes arena known for its rapid decision-making processes and unforgiving nature, where fortunes can be won or lost in the blink of an eye. In such an environment, resilient leadership is not just a valuable trait; it's a critical factor in navigating crises, market downturns, and unexpected economic shocks that can disrupt the markets. This article delves into strategies for effective leadership in the fast-paced and high-stakes realm of Private Equity, addressing various facets, including emotional resilience, strategic thinking, adaptability, and risk management skills.

In a private equity environment characterized by rapid decisions, the urge to make impulsive choices can be overwhelming. However, taking a step back to gain perspective is important. Consider your long-term career goals and the organization's objectives. Resilient leaders in Private Equity understand the importance of putting their organization's mission at the forefront of decision-making. In times of crisis, the mission provides a North Star, guiding actions and strategies. 

2. Stay Educated on the Private Equity Industry:

Private Equity is influenced by many factors, including economic conditions, regulatory changes, and market trends. Stay informed about these external factors and adapt your strategies accordingly. Being proactive and agile in response to changing circumstances can set you apart as a leader.

3. Utilize Tools and Resources: 

Private Equity thrives on data-driven decision-making. One key aspect of utilizing data is understanding how to benchmark performance effectively. Benchmarking highlights areas for improvement and showcases successes, enabling leaders to compare their achievements against industry standards and organizational expectations.

4. Find the Cause of Your Setback: 

Private equity professionals often have high expectations for themselves and are driven by a desire to succeed. When setbacks occur, it's essential to explore what went wrong. Seek feedback from colleagues and peers. Encourage honest feedback, as it can reveal areas for improvement and personal development. Use this feedback to create a concrete action plan for enhancing your skills and competencies. Consider participating in a horizontal mentorship program, where all participants communicate and learn from each other, regardless of age or experience. A horizontal mentorship program encourages asking questions and sharing past mistakes, creating a two-way communication process that stimulates mutual growth within your team.

5. Use Disappointment as Motivation:

Use setbacks as fuel for personal and professional growth. Set new goals for skill development, leadership qualities, and innovation. Focus on continuous self-improvement and show a long-term commitment to learning and growth. In the private equity world, adaptability and resilience are highly valued traits.

6. Acknowledge Your Emotions: 

Just as in any career, it's essential to acknowledge and process emotions. The private equity world can be incredibly unforgiving, and setbacks are not uncommon. Emotions such as disappointment and self-doubt are natural reactions. Embrace these feelings without judgment. Creating a safe space for emotional processing through confiding in colleagues and mentors, or even seeking professional guidance can help maintain emotional well-being. 

7. Grow your Network:

Building a network within and outside your organization is important in the private equity sector. Engage in conversations with colleagues who can provide guidance and insights. Networking can open doors to new opportunities and diverse perspectives, facilitating professional development. 

8. Set Goals for the future:

Refine your career goals based on your experiences and insights gained from setbacks. Create a plan for your short-term and long-term aspirations. Platforms like AIM Insights can help align your goals with your organization's objectives, fostering a mutually beneficial partnership. Consider getting personalized Executive Coaching from experienced coaches. An executive coach provides an environment for leaders to test their ideas, evaluate their concerns, and receive feedback before going live.

9. Develop Risk Management Skills:

Risk is inherent in the private equity world. Being able to assess and manage risks effectively is a valuable skill. Consider seeking additional training or certifications in risk management.

10. Focus on Long-Term Goals:

In today's fast-paced and high-risk culture, instant gratification is the norm. Adopting a long-term perspective can be a powerful competitive advantage. Resilient leaders in Private Equity have a distinctive ability to embrace the long view. While crises often demand immediate action, resilient leaders understand that focusing on long-term goals rather than short-term setbacks is essential for sustained success. 

In addition to the strategies highlighted in this article, leaders in the Private Equity sector must remain vigilant in adapting to the industry's evolving landscape. The global economic conditions, regulatory changes, and market trends are dynamic forces that continuously shape the environment in which Private Equity operates. Staying informed about these external factors and proactively adjusting strategies in response to changing circumstances is extremely important. Adaptability, combined with the leadership qualities discussed earlier, will position individuals to excel in the competitive and fast-paced realm of Private Equity.

Thriving in the cutthroat world of private Equity is no easy task, but success is possible with the right mindset and a commitment to continuous growth and adaptation. This demanding sector requires leaders to possess emotional resilience, strategic acumen, adaptability, and risk management skills. By applying the strategies outlined in this article, you can survive and thrive in the fast-paced and high-stakes world of Private Equity. Embrace challenges as opportunities for growth and development, and you will undoubtedly lead successfully in this dynamic industry.

Are company reorganizations (reorgs) bad?

It depends on who you ask and how the reorg was handled. 

Most people associate reorgs with negative experiences because they often signify significant changes to the business. For better or worse, people tend to resist change, making reorgs an uphill battle when it comes to winning hearts and minds.

Whether a company has determined a business unit is no longer profitable, their success metrics need to change, or that they are simply moving in a different direction, a reorg means that change is coming.

The challenge most companies run into when attempting to successfully enact a reorg is effectively communicating the strategy, getting buy-in, and achieving adoption of the new status quo. 

A typical reorg looks like this: 
The CEO, often under pressure from the board, decides to implement a change in how the business operates. Perhaps the company isn’t profitable enough, early indicators suggest the need for proactive adjustments, or a new strategy seems necessary. The CEO shares this plan with the executive team, expecting them to communicate and champion the change with the same enthusiasm.

In an ideal world, employees would immediately understand, embrace, and adapt to the changes.

In reality, direct reports—wanting to appear as team players—often say, “I’m on board and looking forward to this change!” whether they genuinely feel that way or not. This lack of transparency creates a false sense of confidence for the CEO, who believes their team is fully aligned.

But then... the wheels fall off.

And then…egg on his face (metaphorically). The proposed changes fail to gain traction. Confused and frustrated, the CEO demands answers: “Why isn’t everyone as excited about this change as I am?!”

The truth might eventually surface, often at great cost. A brave executive who explains the lack of adoption risks being labeled insubordinate—and perhaps even losing their job. Others in leadership take note and quickly learn that honesty about these matters is unwelcome.

So what actually happened when the CEO proposed these changes? 

First, his executive team who report to him, conceptually understand why the change is being proposed, but they aren’t fully sold on the solution. It wasn’t their idea and they haven’t had enough time to think through the ramifications and determine the best outcome. The change feels very sudden.

They then go to their next level of leadership and say “A change is being made. We are now transitioning from operating like xyz and are now going to be operating like abc.” The team asks “Why?” And those leaders say because the CEO has determined that we need to make this change.

That next level of leader now has to communicate down to their direct reports admonishing “I didn’t make this change! My hands are tied. I can’t control it but the executives at this company are now making us operate like this. Don’t kill the messenger!” You might have seen this exact scenario play out at your company on remote work policies as we get further from the pandemic. 

The individual contributors doing the work at this company do one of two things:

The result…complete and utter failure at worst, and a major distraction at best

But reorg’s don’t have to be this way. Shoot, if reorg’s were always failures, companies would stop pursuing them.

It is just critical that companies pursue reorgs in the right way.

Here are a few tips on how to successfully enact a reorg:

Ultimately, reorgs are hard but necessary things for companies to innovate and continue to grow. If a reorg can be enacted successfully, that company will be in an incredible position to thrive moving forward.

If you are interested in engaging further into this conversation, follow the Ambition In Motion YouTube channel and look for virtual Pre-Symposium Panels covering this topic (Pre-Symposium Panels are virtual panels covering relevant business topics). And if you happen to be in Austin, TX on 2/13/25, come to the Executive Symposium which will debate and discuss this exact topic - RSVP’s here: ambition-in-motion.com/events.