Selecting the Right Sales Leader for Your Private Equity Portfolio CompanyBy: Michael Miller Private Equity
Part 1 of this series established a go-to-customer framework for private equity managers. Part 2, below, examines the leadership element of this framework: selecting the right leadership to drive top-line growth to the next level.
In due diligence, private equity investors thoroughly scrutinize the portfolio company’s executive leadership team. Investors often move quickly and make fundamental changes post-acquisition, ensuring the company has the right CEO and CFO. But do investors spend enough time finding the right sales leader? Not as much as they should. Choosing the right sales leader depends on the company’s investment strategy. Neglect this key role at your peril, especially if the investment strategy is organic growth.
One reason investors neglect the sales leader is an assumption that someone with a sales background simply isn’t capable or interested in understanding the investment strategy. Natural simpatico also plays a part: a PE investor’s educational and professional background is likely more similar to that of a CEO and CFO than that of a VP of Sales. Also, some PE investors are more accustomed to a “cash out” strategy, where the role of VP of Sales may be less critical.
What to Look for in the Sales Leader
Certain attributes are essential in any PE investment scenario: strong work ethic; ability to deal with ambiguity; and comfort running lean and mean, without excessive support from marketing and operations.
Beyond these essentials, the type of sales leader must be clearly oriented to the investment strategy. Depending on the strategy – “cash out” or organic growth – the sales leader’s personality, board relationship, teaming role and motivation must vary. See below a description of differences by investment strategy.
If the strategy is “cash out” – relying on financial engineering and operational improvements to reduce costs, improve near-term profit and cash flow, and create resale value – then your sales leader should be a reliable partner for a short holding period.
Working with the board is something that may be new for many portfolio company executives, including the sales leader. Many first-time sales leaders in a PE setting rely solely on the CEO and CFO to communicate with the board, except for tightly scripted sales slots at board meetings. In a “cash out” setting, the sales leader is compliant with the investment strategy and focused on executing a tight sales plan to deliver the number. Since “cash out” typically includes aggressive management of sales expense, it helps if this type of sales leader knows how to leverage indirect (less expensive) sales channels, can do more with less direct (expensive) sales channels, controls price discounting, manages sales incentive compensation payouts, and never exaggerates the health of the sales pipeline.
However, if the strategy is organic growth, then the sales leader must look quite different. Here, the sales leader also must be a reliable partner, develop sales plans and execute them. But a growth-oriented sales leader must be bolder in two ways.
First, the organic growth sales leader must be willing to make bets on revenue segments with the best growth potential. This means taking risks: “investing” in the best customers, products, and sales channels; and launching new value propositions for target segments.
Second, the organic growth sales leader must be bolder with the board. The sales leader must have a deeper relationship with the board and engage as a senior member of the team alongside the CEO and CFO. The sales leader may seek out a mentor on the board, either from investors or outside directors, and be open to more frequent, less structured, give-and-take discussions. Transparency with the board is key.
The growth sales leader must also make an equally strong impact in the sales organization. The leader must often build a new sales culture, articulate growth expectations, co-sell in the field as appropriate, roll up the sleeves to solve problems, develop talent broadly and identify and groom a successor.
Call to Action
PE investors should pay more attention to their sales leader if they have an organic growth investment strategy. The sales leader must be bold: bold about taking calculated risks, bold when engaging with the board, and bold when making changes and developing talent. Likewise, the sales leader must be ambitious and motivated toward personal development. This type of sales leader realizes the unique opportunity to expand leadership skills; learn from the CEO, CFO and board; and gain a deeper understanding of how to run a company. This type of sales leader also helps a PE firm develop its broader stable of leaders across the entire portfolio and informal talent network.
From this broad talent network, many PE firms select first-time CEOs to run a new portfolio company. It might sound crazy, but the person who came up through sales in an organic growth setting could be the right type of leader to groom into a CEO in one of your portfolio companies someday.
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