Geoff Smart's Blog, page 8

Do Less, Make More

Would you love to do less work, and make more?

Make more impact.

Make more money.

Make more people’s lives better?

Here is what average to below-average business leaders do. They personally involve themselves in a lot of details. They get “busy.” And they achieve mediocre results.

My colleagues and I have had the privilege of advising self-made billionaire entrepreneurs, S&P 500-beating Fortune 500 CEOs, and heads of state. What to know what the cream of the crop leaders in the world do differently?
They hire and lead through others.

That’s it. For our Who book, John Malone (whose business TCI Cable was the top-performing stock in the U.S. for a decade) told me, “I like to supply a little direction, but I expect everybody on my team to supply the energy. If you feel you have to ‘motivate’ a manager or employee, you have the wrong person.”

And for Power Score, we followed entrepreneur Jeff Booth to his expanding office in Vancouver Canada. We asked him whether he is busier and miserable, now that his business BuildDirect had achieved scale, and had grown over 7x in four years (from $20m to $150m). How did he do that? He radically upgraded the talent on his team. That was what made the difference. His power score rose from 60 (out of 1,000) to 729. Without the right who, he is certain he would not have achieved that success. Jeff told us that he is enjoying his life more, and that he has more time to be creative and strategic, because his team is so strong. He personally does “less,” and his business makes a ton more impact and money.

Download the SMARTtools for Leaders™ WHO Tool. Click HERE.

Participate in SMARTfest 2016 to master the #1 skill in business – hiring talented teams. Register HERE.

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The Top 3 Reasons PE‐backed CEOs Fail

By Alan Foster & BJ Wright

The sad irony of the PE industry is that while it catches a lot of flak in the media for slashing and burning people and being too tough, in reality most PE investors wait two years too long to upgrade a CEO. So they (and their investors) are paying the price twice: their public image is poor no matter what and they lose a key opportunity for maximizing returns.

Most experienced GPs will say that getting the right CEO in every portfolio company is critical. Many have conducted internal analysis that conclusively proves it. They tell their LPs that their approach to helping management teams to create value is distinctive. Yet behind closed doors they lament that their actions do not drive the results that they want. In fact, they will confide that they are not always on the front foot with CEO changes or have the language or approach to convince CEOs that they will help deal with talent in a systematic way.

Over the last 20 years, we have worked with >200 private equity and alternative investment funds in both pre‐ and post‐close situations, representing roughly half of our business as a firm. We recently collaborated with Professor Steve Kaplan at the University of Chicago, whose team coded over 3000 of our CEO and C‐suite SmartAssessments®. Each assessment was an in‐depth, one‐on‐one, five‐hour interview that generated hundreds of data points per leader, enabling us to compile the largest database and study of its kind. We analysed millions of data points to understand the most common risks across

>850 private equity CEO candidates whom we have assessed over the last ten years.

So what did we find? Most CEO candidates considered by private equity firms exhibit at least one of three common risks that seriously damage investor returns.

First, CEOs do not build the right team fast enough, costing their PE sponsor hundreds of millions of pounds in lost opportunities and mistakes. A hefty forty‐three percent of CEO candidates we met had a repeated pattern of either hiring poorly or not removing underperformers quickly enough. Some executives make painful hiring mistakes early in their career and learn from their mistakes. But many do not. Executives who have grown up at well‐run companies are often the most complacent and least appreciate the importance and urgency of hiring well. After all, a high‐functioning HR department did this work for them in the past. Often it is a lack of skill (most have never been taught how to hire) or will (they fear confrontation or prefer a warm body in the seat). Yet the best CEOs will quickly evaluate the hand that they have been dealt and move quickly to course correct on mis‐hires. One successful CEO we worked with sat down every quarter with a pencil and blank sheet of paper. He sketched out his leadership team as if he could only have 80% of his existing team. This prompted him to get out ahead of changes. If you do not have an understanding of how a potential CEO has built past teams and what process he/she uses beyond gut instinct, then you are flying blind and leaving value on the table.

Second, CEOs frequently struggle to set clear and correct priorities that reflect the investors’ deal thesis, leading to confusion and wasted efforts. This shows up in more than one‐third of CEO candidates. One reason is the CEO’s instinct to push too much onto the business – often dozens of initiatives destined to distract the organisation. We have found the more successful and seasoned the CEO, the fewer priorities they are comfortable having. It is also critical to ensure there is not a mismatch between the CEO’s playbook and the business requirements. We recently worked with a PE investor in an industrial company seeking steady organic growth, but they inherited an incumbent CEO with a career pursuing aggressive M&A. After 15 months of miscommunication and frustration on all sides, they parted ways. This mis‐hire hurt their IRR and was knowable ahead of time. We often support GPs when they realize the importance of investing more time and deploying proven approaches to understand how their CEO is going to set strategic priorities and drive financial results.

Finally, CEOs are often unprepared for the high expectations PE investors have with respect to understanding the business financials. About 20% of candidates simply lack the financial acumen required in a leveraged environment. Often, this is because the CEO comes from an environment where their role involved managing a P&L, but not a full business. Other times, the CEO candidate is being considered because of expertise in a functional area other than finance, which may be critical to the success of the portfolio company, but under representative of the breadth of skills required to partner with a PE‐backed board. In most cases, you can mitigate the risk with the right CFO/Finance Director, assuming the leader has both the self‐awareness and ability to hire an A player who can complement this gap.

Over the last few years, private equity funds have begun to question their approaches to evaluating and holding accountable the CEOs at the helm of their most important investments. Embracing change is hard, however, and deal partners are cautious about anything that may disrupt their working relationships with their CEOs. With LPs increasingly paying attention and demanding results, more innovative (and prudent) firms are finding better ways to select and work with the leaders they know will determine their investment success. As a PE investor, evaluating talent with the same systematic rigor you use to assess every other aspect of the business will help you make significantly more money with fewer headaches.

About the authors: Alan Foster (avfoster@ghsmart.com) is a Partner and BJ Wright (bjwright@ghsmart.com) is a Principal, co-leading the European business for ghSMART. ghSMART is the leading advisor on the highest‐stakes leadership decisions, serving a large range of private equity and corporate clients. We have conducted over 16,000 executive assessments, worked with over 200 private equity firms, and helped hundreds of portfolio management teams over the last two decades. ghSMART arms its clients with rigorous analytical tools for analysing and maximising performance of management teams. We enable our clients to apply to management the same rigor and fact‐based approach as they deploy in other aspects of their business. Our clients have rated ghSMART with a 97% high satisfaction score (average over

the last ten years in our semi‐annual surveys).

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Mission: the essence of the job

The mission is an executive summary of the job’s core purpose. It boils the job down to its essence so everybody understands why you need to hire someone into the slot. Take a look at the sample scorecard on the next page. The mission for the VP of sales clearly captures why the role exists: to grow revenue through direct contacts with industrial customers. That’s it. It isn’t to build channel sales. It isn’t to seek new industry verticals. It isn’t to serve as an administrator. For a mission to be meaningful, it has to be written in plain language, not the gobbledygook so commonly found in business today. Here is a perfect example of what not to do: “The mission for this role is to maximize shareholder value by leveraging core assets of the NPC division while minimizing communication deficiencies and obfuscations.” That’s an exaggeration, but not by much. We bet you could find nonsensical statements like this floating around your company. And we bet further that whoever wrote them didn’t have a clue what the job really was or needed to be. Removing the clutter keeps your missions short, sweet, and, most of all, understandable. You’ll know you have a good mission when candidates, recruiters, and even others from your team understand what you are looking for without having to ask clarifying questions. In the case of the financial services company we cited earlier, the disconnect surrounding the strategic planning role never would have existed with a clearly articulated mission. It could have been something along the lines of this: “To serve as a visionary leader who helps the bank capture market share from the competition by analyzing the market and devising successful new strategies and product offerings.” That’s a mission anyone in the business can understand.

Smart, Geoff; Street, Randy (2008-08-19). Who: The A Method for Hiring (Kindle Locations 294-308). Random House Publishing Group. Kindle Edition.

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The first failure point of hiring

The first failure point of hiring is not being crystal clear about what you really want the person you hire to accomplish. You may have some vague notion of what you want. Others on your team are likely to have their own equally vague notions of what you want and need. But chances are high that your vague notions do not match theirs. Enter the scorecard, the method we’ve devised for designing your criteria for a particular position. Neville Isdell, chairman and former CEO of the Coca-Cola Company, offered an example of this concept at work from his own experience. “In hiring, everything is situational,” he told us, “and no situation is entirely replicable. You are going to need different types of leaders at different phases of organizations. “When I was coming into Coca-Cola as CEO, I needed to bring in a new head of human resources. We had been through significant issues with morale, and the HR function was probably ranked at the bottom in terms of respect and regard from the employees as a whole. I needed somebody who could bring about change by building coalitions, but who could still do it with energy, drive, and speed. That meant I needed somebody with high emotional intelligence, really strong knowledge of the business, really good interpersonal skills, and the ability to build bridges. That was one type of situation that required one type of person.” Having this kind of clarity about the situational need enabled Isdell to put Cynthia McCague in the position, who has succeeded for exactly the reasons Isdell had anticipated. The scorecard is composed of three parts: the job’s mission, outcomes, and competencies. Together, these three pieces describe A performance in the role— what a person must accomplish, and how. They provide a clear linkage between the people you hire and your strategy.

Smart, Geoff; Street, Randy (2008-08-19). Who: The A Method for Hiring (Kindle Locations 278-292). Random House Publishing Group. Kindle Edition.

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