Sponsors require portfolio company leaders who can, at a minimum, deliver on the base case of an investment thesis. This is easier said than done given the degree of difficulty inherent in most LBOs. These solid leaders make good businesses better and bring poorly performing companies towards the middle of the bell curve. They are excellent stewards and good partners for their PE sponsors. However, among this group of reliable leaders are a precious few individuals capable of personally bending the arc of a business. They are the Transformational Leaders.
The difference between a reliably solid leader and the transformational executive can be boiled down to a key nexus: reliable leaders make relatively de-risked bets on the right portfolio company, whereas Transformational Leaders bet big on themselves. The latter often carries far greater potential for reward.
The manner in which executives evaluate a private equity opportunity can reveal where their leadership lies on the spectrum of incremental to transformational.
The first area of differentiation is risk assessment and perception. Although Transformational Leaders fully diligence the risks of a deal, they are often undaunted by more substantial challenges provided the peril is balanced by a proportional amount of upside. Transformational Leaders negotiate more aggressively for equity than they do for salary. These leaders expect to drive nine figures of value creation and want their full share of the proceeds. They actively seek the highest demand deals and gladly face more risk in pursuit of greater financial upside.
Another revealing factor is self-belief. Transformational Leaders see themselves as a lever that can dramatically enhance an investment thesis. Their confidence is anchored in humility and hunger that displaces any destructive arrogance. These leaders look in the mirror and see someone who can will a company’s culture, process, and profitabil...