Bain's annual global private equity report looks closely at the trends that are changing the PE landscape, and paying particular attention to how firms are identifying the talent required to successfully execute investment theses.
A Left-Brained Approach to Portfolio Company Talent Decisions
A core section of the report on portfolio talent really stands out, discussing how getting talent decisions right – especially at speed, across dozens of portfolio companies – is one of the stiffest challenges private equity firms are currently facing.
This is something we’ve been noticing at Talmix too – today’s valuations leave little room for error, as hiring decisions have become an increasingly integral part of Value Creation Plans, and firms are becoming much more disciplined about linking talent decisions to the explicit requirements laid out in the VCP.
Part of the reason behind this, is that the cost of hesitation is an extremely high price to pay. 92 percent of survey respondents said that waiting too long to take action on talent issues had resulted in major portfolio company underperformance over the past five years. Almost 70 percent indicated this happened in at least half of their deals.
Talent Marketplaces in the Value Creation Process
According to Bain, the solution for private equity firms is to adopt a “left-brained approach to portfolio company talent decisions”, linking value creation plans to the specific talent needed to carry out those plans – a process that should start in the due diligence stage – and then having the right partnerships in place to leverage that talent.
In evaluating the talent they need, firms should go beyond past successes to consider the experiences, capabilities, and motivations each executive needs to execute and generate the required results in the context of their particular portfolio company.
They should also adopt a flexible talent strategy. The opportunity cost of time is now too great for management teams and GPs operating under sky-high valuations. In the first 100 days, rapid speed of deployment is crucial to kickstarting critical projects within the VCP. Often, the meticulous nature of executive search can mean lengthy timelines until new leadership is on the ground. Furthermore, the time needed to ramp-up, orient themselves with their management team and build foundations for the coming years, can mean further delay to kickstarting key areas of the VCP.
It is the same for the hold period; it is vital that GPs and portfolio companies have partnerships in place which allow them to apply resource to growth opportunities as they materialise and quickly plug talent gaps as they arise.
Talent marketplaces like Talmix afford operating teams this flexibility. Matching technology and rich talent data now mean that speed is a partner to precision, not sacrificial to it.
On top of this, developing proprietary investment theses and generating strong deal pipelines will increasingly depend upon using wider Talent Marketplaces like Talmix to access specialized industry knowledge and to nurture proprietary, extended networks of critical talent.
This will require a rigorous analytical process similar to the processes private equity firms follow to make investment decisions. Otherwise, private equity firms risk hiring the wrong talent and failing to optimize their investments.
“A rigorous, analytical approach makes talent decisions easier on everybody because it eliminates ambiguity about what’s required to win”
This is why more and more firms are partnering with digital staffing solutions like Talmix – to accurately fill in the analytical piece of the jigsaw, relying on its sophisticated searching and matching algorithms to guarantee speed, convenience and precision to the talent acquisition process.
For Bain, the most effective deal teams begin to think about the talent a company will need during the due diligence stage. The VCP will then confirm any requirements, forming an essential link between the full-potential strategy and the talent strategy. Teams should already be using the plan to create detailed role profiles and scorecards that give the company (and its advisers) the information they need to make the right assessments.
Our role at Talmix is to provide the access to the required mix of experience, capabilities and motivations, and provide critical speed and precision within the hiring process, which makes all the difference. Funds come to the Talmix Talent Marketplace in order to replace gut decisions with a systematic, analytical approach to filling talent gaps, and to quickly and flexibly bring in the right talent to create better value.