Practical tips to help you think and act like an owner

When you have skin in the game as a PE-backed CEO, it’s vital to behave as the business owner you are. We look at some practical tips you can take to create real value and build a bigger and better business.

In this article you’ll discover:

  • What drives the typical Private Equity investor
  • How to deliver against your investors’ expectations
  • Top Tips to help you maximise returns

The key to achieving any objective is understanding what drives it, and feeling ownership for the delivery process. So let’s start by looking at what makes your investors tick.

Private equity investors are driven by success

That sounds obvious, but it’s not just about the size of the financial reward. At any one time your investors are balancing a portfolio of investments at different stages of the funding cycle. They need to demonstrate that current investments are on track in order to secure funding for the next one.

During a typical ten-year funding cycle, investors spend the first five years investing and the second five years selling. Progress against business objectives will be closely tracked and delays will not be tolerated. Developing strong relationships with your investors is critical if you are to unlock all available potential and drive value. Jim explains, “your ability to do a good job is a function of your skills for sure, but it’s also dependent upon the relationships you build, not just within your executive team, but with the board. And that can’t happen just in a board meeting – if your only interaction with your PE investor is in the board meeting, you will struggle.”

“Your ability to do a good job is a function of your skills for sure, but it’s also dependent upon the relationships you build, not just within your executive team, but with the board. And that can’t happen just in a board meeting – if your only interaction with your PE investor is in the board meeting, you will struggle.”

Excelling under private equity ownership

Simply put, if you are part of the equity, then you too are an owner of the business. The focus has shifted from ‘just’ fulfilling your corporate role in return for a good salary and rewards package – you are invested in the success of the business, in every sense. Your responsibilities now are to think and act like the owner you are, namely:

  • Quickly increasing the value of the company by building a bigger and better business
  • Obsessing over cash management, growing EBITDA and improving the multiple
  • Maximising return on investment for every pound you spend, evidencing how it adds value and over what timeframe

As Jim puts it, “If you’re not generating cash and working out how to generate more, if you’re not talking about profit improvement, and if you’re not talking about building a better business that someone is going to pay you more for, why are you even talking about it?”

“If you’re not generating cash and working out how to generate more, if you’re not talking about profit improvement, and if you’re not talking about building a better business that someone is going to pay you more for, why are you even talking about it?”

As a CEO, you remain responsible for developing and delivering growth plans. Your investors bring funding and strategic input, but you know how to deliver. And as an owner, you directly benefit from that delivery. Remember that whilst your investors are super-smart, their expertise and experience do not lie in business management. The funding they inject into the company, the fresh eyes and questioning approach they bring, along with the strategic direction they set will all add value to the business. But, they are no substitute for your day-to-day management.

Ultimately the end goal is to maximise the financial return not only for your investors, but also for yourself and the management team. This can have two outcomes, so you need to be clear about what you’re driving towards:

  1. Another round of PE investment, driving further growth (and value)
  2. Exiting to a trade buyer (with a corresponding potential exit for you and your team)

Ultimately, if you want to deliver a step change in performance, you need to do things differently. Do what you’ve always done and you’ll get what you’ve always got. With more than ten years in the Private Equity sector, sitting on both sides of the table, Jim concludes that, “the really good returns are where you fundamentally change the business. But you don’t just turn the handle and do what you did before, slightly faster or slightly better – you’re doing something fundamentally different. And you get there by focusing on a few things and doing them really well, rather than ten things done in a mediocre way.”

“The really good returns are where you fundamentally change the business. But you don’t just turn the handle and do what you did before, slightly faster or slightly better – you’re doing something fundamentally different. And you get there by focusing on a few things and doing them really well, rather than ten things done in a mediocre way.”

Jim’s top practical tips to help you think and act like a business owner

  1. Understand your investor’s objectives. As a PE-backed executive you are in the incentive scheme, and are therefore a part-owner of the business. The key responsibility of any owner is to create value through:
    1. Growing EBITDA
    2. Building a bigger, better business that will sell for a higher multiple
    3. Generating cash to pay down debts
  2.  Focus. Prioritise three clear routes to value creation, building the right team to help you deliver them

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