Making Billions: The Private Equity Podcast for Fund Managers, Alternative Asset Managers, and Venture Capital Investors
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Making Billions: The Private Equity Podcast for Fund Managers, Alternative Asset Managers, and Venture Capital Investors
5 Disciplines That Separate 6x CEOs from the 50% Who Get Fired
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Unlocking Private Equity Alpha requires more than just capital; it requires a CEO who can double industry benchmarks.
How to achieve Private Equity Alpha through CEO performance?
In this episode of Making Billions, Ryan Miller sits down with Taavo Godtfredsen and Samantha Allison to discuss why 50% of PE-backed CEOs fail during the hold period and how elite "6x CEOs" achieve a 6.2x return on invested capital.
This discussion provides a blueprint for fund managers to audit their portfolio leadership and implement a proven five-point framework for outsized returns.
[THE HOST]: Ryan Miller is a fund manager, capital strategist, and former CFO turned angel investor in technology and energy. He is the founder of Fund Raise Capital and Aequor Capital Partners, and has mentored over 1,000 fund managers across private equity, private credit, venture capital, real estate, and alternative assets globally.
[THE GUESTS]: Taavo Godtfredsen and Samantha Allison are the co-founders of AdvantageCEO and the authors of The 5x CEO.
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Half of every private equity backed CEO you place in your funds will not survive the whole period. That's not an opinion. That is data. But the researchers behind me studied over 50 PE backed CEOs who averages 6.2x return on invested capital, nearly double what the industry benchmark is. And they found the exact five disciplines that separate the CEOs who print money from those who get replaced in 10 months or less. So if you invest in hire or operate a private equity backed company, what you are about to hear is the difference between your best fund and your worst. All this more coming right now. Here we go.
Taavo, Sam, welcome to the show.
Great to be here, Ryan.
Thanks so much for having us. We are really excited to be here and to share how private equity backed CEOs made double their returns using a proven five point framework that came out of our research starting today.
Oh, wow, that's amazing. So let's dive in. I know from your book, The 5x CEO, and all of your experience in executive leadership coaching, your CEOs, and from your research, are showing the what is it, the six plus x return. So the the results that you get, all research backed. I'm so excited to get into this, I absolutely love your book. So you guys have studied over 50 PE back CEOs who've averaged that, I don't know 6, 6.2x, return on invested capital, nearly double what most private equity firms target. So my question for you, tell me, what is the single biggest differentiator between the CEOs who hit that number and maybe those who do not?
Ryan, it's a great question, and I would say, you know, as we look through the research, if you had to just point to one thing, it was really about the these top CEOs behave more like less. Well, I'd say less like problem solvers and a lot more like chief systems designers. Think of them as like architects. So they'd architect out decisions, talent, execution, flow through the business. And what they really did was they institutionalized accountability inside the organization. And so when you looked at these CEOs and you looked inside these organizations, they made performance. a performance challenges like almost impossible to miss. And so what may be helpful is, just to give you a few examples of like, what do these CEOs look like? You know, I think you'll appreciate some of these.
One of the CEOs in our study created what he called the Reverse Executive Session and where that came from was he was the first time CEO. He was in a board meeting. The chairman of the board said, okay, we're gonna go to Executive Session now. And he sat there and didn't move. The board member said, look, this is where you have to leave the room and we talk about you and so he said, oh, okay. He got up, left the room, and said to himself, what, this is what great CEOs do as well, right, like the what if question. What if I take this and apply it within my own company for myself and so what he did, he called it the Reverse Executive Session. And so what he does, what he's institutionalized is twice a year he kicks himself out of his weekly leadership meeting, has this HR leader facilitate a feedback session on what the CEO is doing well, suggestions for improvement, like how the meetings are going? Just feedback that any blind spots, any feedback the CEO needs to hear. And so that's just a really simple example around creating an accountability mechanism that makes the truth unavoidable, even for the CEOs themselves and so that's just a really kind of simple example. I'll give you one more, which is around so many CEOs talk about the importance of collaboration and teamwork. Another CEO in our study actually does this twice a year as well, he has his executive team force rank one another on how on team play and being an effective collaborator on the leadership team. And so this gets sent to the CEO. And what he does is he praises the individuals who are at the top of the list on the leadership team, and then he confronts the ones who are at the bottom of the list on this. And so if you could think about it, that how much time can a CEO spend on talking about it, trying to coach his leaders on, you know, playing well in the sandbox and being aligned? So this is a great example around how, in a very simple way, they simplify complexity, but they create a great process that helps drive the outcomes they need to get to.
Brilliant. So when, when they're driving that, it sounds like there's a lot of review and feedback based on your example. What about things like, I don't know, mindset, vision, all of that. How does that, how did that play? Did anything like that show up in some of your research?
So you're absolutely right. There's the mindset piece of this, and to Taavo's point where they're trying to really architect structure and process instead of leaving it loose. And so one one point that I'll add, and then we can talk a little more about our model, is as private equity firms are looking at CEOs to place into organizations, I think it's a great opportunity to try to ask them, what is your playbook? And how would you adapt your typical playbook to this context, this industry, this setting, based on the dynamics that we're facing as part of our investment thesis? And so as we dug into our research, the pattern that we really saw about these CEOs and what set them apart was really addressing five key areas. So our five point framework, it starts with strategic clarity. And so the notion of strategic clarity is, how are they articulating the vision for where they want the business to go, what that looks like, building that alignment with their board, with their leadership team, across the employee base, and making sure that everybody understands, here's where we are today, here's where we need to be tomorrow. Here's the path that is going to get us there, and here's what your role is in that relationship. So that's the first step. Second is scalable talent. So what are they doing to make sure that they have A player talent in their most critical roles? So if you think about the value creation plan, what are the roles that are going to create or enable that value to come to be, and can you get A player talent at least in those roles? Because, you know, ideally, have a plan, A player, talent everywhere, but we're realists, right, so get it in those 10 to 20 critical roles that are really going to move the business forward. Third is relentless focus. So one of the biggest problems we see is the companies are just trying to do too much. And so what are you doing for the organization to make sure that you stay focused on just a handful of priorities that are really going to drive the value creation process. Fourth is disciplined execution, and so instituting a management operating system that provides visibility the accountability to the Taavo mentioned. Using dashboards, using KPIs, to really track and assess progress against your strategy and your priorities, and to be able to adapt quickly when needed. And then fifth is energized culture. So what are you doing to set the tone in the organization around your expected behaviors and results, so that you're balancing both and making sure that your culture is really enabling your strategy? So when you think about where a CEO is starting, that's really important. And the CEOs that we found in our study, had a pattern of demonstrating those five things really well, and that's what helped to drive their outsized returns.
If I could add one thing, Ryan, I think, if you don't mind, I think it's important, which is, for those that are listening or watching this, right, you may be saying, okay, strategy, talent, focus, execution, culture. Okay, you know, maybe tell me something, of course, those things are important. Where's the aha in your research? And what we would say is the degree of mastery that these CEOs achieved in each one of these disciplines was extraordinary. And so that's what we really discovered, was the extraordinary mastery that they had in each of those five disciplines.
Brilliant. So, so then let, let's just imagine new CEO comes in. Walk me through exactly what a PE backed CEO should prioritize in their first 90-100 days.
So really, for your PE CEO, it's about assessing the organization against that five point model. So as you come in and you think about strategic clarity, how do you validate the investment thesis beyond the work that you have theoretically done before you started? How are you engaging with your organization to understand what's happening and so you're using that, those first 90 days, really, as an opportunity to assess each of those pieces. And so by listening, right, first 30 days should be a whole lot of listening, spending time, both internally and externally. So I loved one of the CEOs in our research talked about meeting with customers and former customers, right? So going to former customers to understand what made them leave. And then another one spent, you know, a full day with a headset on in customer service, thinking about and listening to what was happening, you know, direct to get that true voice of the customer coming out. So you're doing a lot of listening internally and externally. Using that, you're starting to translate your investment thesis into a three year strategy, and through the course of engaging with your team to do that, that gives you an opportunity to assess your talent, right? So as you're asking questions and learning more and listening, you know, you really can start to gage pretty quickly who you know, who's going to help you move to that next level. And who may have plateaued, where you may need to think about either a different role or layering them or doing something else in the process. From there again, making sure in those 90 days that you get that clarity around the value creation drivers, what those key priorities are going to be for the business, try to eliminate some of the noise. But come out of the 90 days with a good understanding of where the organization is heading, and be able to communicate that out and build the alignment with your board, with your leadership team, and then start to deliver that message across the employee base. Taavo, what would you what do you want to add to that?
Yeah, a few things. I think this is such a great and important question. Ryan, one thing is, how I think everyone in PE understands how important the first year of an investment is and Sandy Ogg was, was a Blackstone partner. They looked at 80 their investments, and when they were on the investment case, at the end of the first 12 months, they had a success rate of about 80%. And so getting that first year right, and I think this is where we've been most valuable for our PE clients, when they bring us in early into the investment to help celebrate this success and work with the CEO and the leadership team. I would say that from a from a 90 day perspective, what the CEOs really need to do is kind of run two agendas at once, right, there's the business agenda that kind of Sam was talking about, also this learning agenda as well. They, it's almost like a honeymoon period. So the CEO really has to protect the learning part of it. They're not going to get another shot at it. So really protect it and really ask the questions, learn the business as much as you can. And I would say a few other things that I think are really important as part of the process itself. When you come in, just, I think for all these CEOs, just be very careful about any preconceived notions and really embrace kind of a learning mindset. And so you're also kind of assessing the state of the company, right, so you've come in, you've done some due diligence, and you're going to come into it, and typically what you find is the company's a little bit different than what you thought it was going to be, right? So there's going to be some added challenges that are going to go into the pot as well. A some of the, there's also just great questions you could be asking. As an example, as you're interviewing your leadership team, you can be saying you can ask this question, which is, what did you want to do under prior ownership that you weren't able to do. So if the handcuffs came off today, what would you do? And for a CEO, that really tells you how strategic is this leader in front of me, so you're doing a little bit of assessment as well. And I would say the other thing that can get missed as part of this 90 day process is the CEO is not sharing with others about who they are, what they expect, what they're not good at, and also these things hot buttons they may have. I think it's just really important for the team to know. Anyway, so I just want to add a little bit more color around things that are also kind of important as part of a process.
Brilliant. So, so when it comes in that you have these CEOs who are their PE back, you're saying one of the first things. So the first 90-100 Days. Some people, it's around the first three months, when you're new on the scene. What are some of those successful things? And one that really stood out, and I think this will stand out a lot to those who are listening, is and it gets missed, because if it's a CEO, he comes in and he looks down the org chart and everything. But what you mentioned, Sam is looking up the org chart. You didn't use those words but he was saying, you also have investors. You also probably have a private equity fund that is putting hundreds of millions of dollars on your performance and ability to do that. And you said, one of the first things you can do, and I love that you brought this up, is validate the investment thesis. And make sure that you align from there on out, is to say, it's cool to win at something, but we have investors we have shareholders, owners who are counting on us to win in a particular way. Maybe it's revenue growth, maybe it's market expansion, whatever that is. And so you said, hey, right out of the gates, yes, obviously, if you're if you're hired for the CEO, you know how to work an org chart and to build an organization.
But the one thing that I wanted to underscore, there was a lot, but it can't do it all, they'll read the book if they want to know it all. But the main thing is, what is it, is the CEO also managing up? And I don't know if up is the right word, but he's managing to those external parties that have donated $100 million and we're into a roll up strategy, or whatever it is, and validating the investment thesis and ensuring that that is shown throughout the rest of the fixes and the dials that you're turning and fixing all these things in the company. Making sure that that still goes to that true north of saying, hey, I also have people I have to report to in a board meeting, and they can get very awkward if they're counting on me to do X and I'm winning at Y. Yes, you're winning, but maybe it's important to validate that, to create that alignment between shareholders investment thesis, and then how do you percolate that throughout the entire organization? So I love that any anything else you can add to that?
It's a really important point. And through our research, we also discovered that not, not every sponsor shares the investment thesis, which is kind of mind boggling. And so, and through our experience with clients and so from a research standpoint, that was very much a part of the message is not just making sure that the CEO understands the investment thesis, but really taking some time to make sure that the leadership team also is privy to understanding what prompted your investors to come invest in this business in the first place. And so something that Taavo and I do with our clients is support that kind of a conversation where we ask the PE team to come in and talk with the management team about the investment thesis, what motivated them, what they see as the opportunity and the vision for the business, and have some Q & A around that. Because just that activity alone really brings a lot of clarity for the management team, and understanding what the main drivers are, and how that connects into the expectations and the strategy. And so translating that thesis into that three to five year strategy, and going deeper to understand, you know, who is our customer, what is our value proposition? How do we think about the vision? What is that North Star that we're aiming for, and how do we think about that path to get there. Keeping that thread between, you know, that original thesis of what started this in the first place, and then how it correlates into everything that that team is then going to drive forward for the next few years is really, really important.
Brilliant. You know, when it when it comes to that, and we're talking about clarifying and making sure the whole organization responds to the right things that the owners, the shareholders, the investors that are expecting out of the CEO. But one thing, and you brought this up earlier when you talked about your five step system, or your framework, something called strategic clarity. And so my question for either one of you is, how do the best CEOs create that strategic clarity and alignment with their board, leadership team and employees, right, so we're dancing around it. Let's go deep on this subject.
Yeah, I'll create a bridge for Sam, either she's she's gonna touch on this, but I think it connects to also the 90 day plan that we talked about, right, so. The CEOs is part of those, over those 90 days, they're not just listening, they're assessing, they're diagnosing. They're doing a 30 day read out 100 day, read out back to the board around what they're observing. And I think what's key, what we found was, as I mentioned, that the first year is so important that what we, when you talk about kind of speed at which these 5x CEOs operated, at that at the end of, Sam mentioned, at the end of three months, they've got a semblance of a three year plan already for the business, and they've already starting to look at talent that they're going to they're going to look to upgrade at. So they may have searches already going on. So they're moving as fast as they can to prosecute the investment thesis. And as I mentioned, it really does start with that kind of, that three year plan. And I'll let Sam jump in.
I think all of those things, and what the pattern that we saw in our research was also the the ability of the CEOs to really penetrate the organization with that strategic clarity. So when we see CEOs that struggle, it's often that the strategy is getting trapped at the top and it's just not penetrating. Where, you know, mid level managers and lower employees can really understand exactly where the focus is, what the priorities are, what they should be working on, and how they connect to it. And so the best CEOs have a really great ability as part of their communication efforts to make that very clear to everyone. And so in our case study in the book, we have a CEO who has a one page Strategic Plan format, and through that as a communication tool and an alignment document, he makes sure that every employee in the company understands. So, you know, I'm working on this initiative, and that connects to this strategy, and that connects to our goals and our vision of what is winning. And so I understand how I as an employee, and he talks about his receptionist, he's like my receptionist understands that she's working on this initiative, and that connects to really driving an energized organization, and that's part of our strategy to win. And so that's one of the unique things that we saw that really bring strategic clarity to life.
Brilliant. So bringing that, validating that thesis, having that communication document, earlier you mentioned the one where he was on customer service, talking to current customers, past customers, and really just understanding your value proposition in the market. And then also, what we talked about is, through this strategic clarity, is ensuring that, I call it the battle rhythm, or the beat, you know, the war drum, or it gets everybody marching in sync, and yeah. And so making sure we talked about, just a few minutes ago, about translating that from the shareholders, their initiatives, the board, what they want, then also what the CEO wants, and the strategy, and then making sure that everyone is stepping together and pulling in the right direction. How am I doing so far?
You're doing great, and that consistent communication is so important. I spent time working with an education company a few years back, and they taught me that adults need to hear things 11 times before they learn it. And so, you know, as we work with clients, that's a message that we deliver on a regular basis, because CEOs often feel like, gosh, I've shared that, you know, four or five, six times. They're tired of hearing it, and, you know, we're like, no, you're only halfway there. You've got to keep that very simple, very consistent rhythm of communication throughout the organization to make sure that everyone is hearing it. And the case study CEO that I mentioned before, he had that one page strategy, like a three year strategy on one page, and that's what he would use at every town hall meeting, at every board meeting, right? So from the board through the leadership team to every employee, it was the same vision, the same interpretation of what that strategy looked like, and that's what they were referring back to. So a consistent drum beat that was just easy for everyone to understand and connect the dots to their role and how it played in moving the organization forward.
Brilliant. Now, when it comes to so he was managing that team, he's getting everybody marching to the same beat when it comes to building a team. So this is something that obviously executives and PE funds, who hire PE CEOs, we want the CEOs to be wildly successful at building a team that can support them to execute, especially if there's hundreds of millions or billions of dollars in these deals that are on the line. This is not a company of one, maybe with AI that's going to happen soon. I keep keep hearing it, but until then, we got to have team. These are organizations with a lot of people with different ideas. It is not easy to be a people leader. But boy, is it impressive when you meet one who is, isn't it? It's phenomenal. It's like alchemy. I don't get it, but I admire it. Now most CEOs, they inherit a leadership team that they did not build. So based on your research and just your own experience, how do you quickly identify who stays and who goes without destroying culture in the process?
Another great question, Ryan, I guess we kind of take a step back right when you think about private equity, you got to buy the right company at the right price. I'm coaching the CEO of a private equity firm, and we sell when he tells you know, the deal teams is, look, is this a team that you believe that can execute this value creation plan? So it's not, it's the CEO, and yes, it's absolutely, and it's also the leadership team thinking about, you know, what's their confidence level that they can execute on this plan? And this question dovetails really well to your first question, strong strategy, because your people choices follow your strategic choices, right? And so as the CEO is coming in, if you've got an entirely kind of new IT strategy that connects to kind of your value creation agenda. Well, as you're, as you're assessing the team, and maybe, like for a lot of IT leaders now, you know, AI is quite important these days, and so that's a capability that you may need, that maybe the current IT leader doesn't have. So that's an example of just a really simple example, really thinking about, when you look at your value creation plan, you know the top three to five things you're driving at, do you have the talent that will enable you to move fast enough and achieve the investment thesis?
And so what we advise all of our kind of CEO clients in particular, is one of the first things they need to do kind of coming in is okay once they have the kind of the future state of the organization, what are the roles, the 10 to 15 most critical roles that will either create the value or enable the value? And when you you know, in the companies in the mid-market, PE, for example, you know those are the roles that are creating about 80% of the value. And so once you kind of understand those roles, and some of those roles may not exist. I've got a client right now who three of those roles don't exist, and he's trying to hire for now. And so one of the most important steps I think a CEO can take from there is for those roles. There's something called a role scorecard. It's a one page definition of what success looks like in a job. There's a great book out there called, Who, they do a great job of kind of walking you through that process. But really what you're trying to do is really think about what are the key outcomes you need from these roles, and you have the talent that will enable you to get there. So you have to go through a pretty diligent assessment process and at the same time, you can't switch everybody out at the same time. So you need to be thinking about a sequencing plan. It was vital as part of all of this is to be completely aligned with your board on these talent changes. And you know, I'm working with a client right now where the CEO is 100 days into the role, and I like to talk to them just around progress in the business, how he's worked, you know, how they're working with the CEO. And I can also assess board alignment as well, this talent was an area where the board was not totally aligned. They each kind of had a different perspective on how fast to move on talent inside the organization. So I was able to surface that to the CEO to just get total alignment with the board around those changes. Well, I'll pause there, and maybe Sam has a few things to add as well.
I would add I completely agree about that board alignment. And along with that, from a private equity and board perspective, is making sure that you're acknowledging with your CEO that they're, you know, not every hire will be successful. And so sometimes, you know, there's just a misfire sometimes. And so you're creating an atmosphere where a CEO can flag when they're seeing something that isn't working and and, you know, creating a safe space where they can acknowledge like this one didn't hit. And we need to make a change, because you really want to make that change as quickly as possible. You don't want the CEO to feel like because they brought this person in, they can't take them out. And now you're going to tolerate less than A player talent in a critical role. It's just not worth it. I think another nugget that came out of our research that I love is the notion of looking at the organization as it is today and the talent that you have, and this is a great tool to help that existing leadership team look deeper in the organization. And say, if you look at this role and what's needed over the next two to three years, would you hire the person that's in that role today or not, right? So again, it goes back to the person who got you here may not be the person to get you there. And so if you honestly assess the work to be done versus the skills that that individual is bringing to the role, is that the right fit, best fit, or do you need to make an adjustment? So it's another great way to help the CEO and the leadership team to think about what might need to shift.
You know, I love that. One of the things we you mentioned, tolerate less than A players. This is a, this is a, it's funny you use the word tolerate, because you're not the only one to tell me this, and sometimes you have to tolerate A players, so it depends on the manager as well. Now, one thing that I found, and I'd love to get your take on this, because this is an issue that many PE CEOs and even PE firms have to do, right? Which is, okay, we talk about this kind of trichotomy of A, B and C players, A, B and C leaders. and A players, what I found, and let me, let me wind this up for my question. So A players, we love them, right, you get like, a 10 to 1 return. You pay them, you know, 200 grand a year, and you make 2 million a year off of them, right, so they're great. Where they're not great sometimes, if you don't know that you've got yourself a wild stall in on your hands, is they tend to move fast, break things, or they realize that what you thought wasn't broken really is. And so sometimes that scene is making waves. So tolerating A players means you got to tolerate them bringing up a lot of stuff. If you have a good attitude and a great CEO, or whoever the leader is, they can say, this is great. We want to know where it's breaking. You're the tip of the spear in this particular area. You're an A player. Thank you. Please tell me that. Other people are saying you're dramatic, you're always bringing stuff up or whatever. I'm just making that and and so sometimes a players are not preferred, but I think my guess, and because you guys are the experts on this, going for less than A players also sometimes feels like at least they're not making waves.
But I see that as a horrible long term strategy, because you need high performers, but sometimes they could be perceived as everyone else is, like you're making us look bad, or, why are you always talking about what's wrong? I just want to come and collect my check, and I got, you know, Peter next to me and the stall next to me always talking about how everything's broken and it is, but nobody wants to fix it. And so hiring A, B and C players is there's a mix we would all love, we say we'd love A players. What have you seen as far as how they recruit? How do they manage A players like do you, has your research looked into that and that hiring and that culture and that high performance, all of that can be exhausting if you're not ready for it. So this is why it was so hard for me in the early time of my career to be led. Because I'm always like, I want to win as ethically, but as as I want the gold medal. No matter what you put me on, I want to win. And that can be exhausting if the organization isn't ready for it. And sometimes, and I'll end it on this, it might feel like an A player in an organization or leadership that's not ready for an A player. You drop 1000 horsepower engine in a 1982 Honda Civic. Right, you're like, well, the engine is impressive, but it's gonna rattle the bolts loose on everything else. It's not ready for that much horsepower. So how do the top performing CEOs? How do they recruit they do that, that training? How do they deal with bringing in these people into an environment where it doesn't feel like 1000 horsepower engine in a 1982 Honda Civic? No, offense to those Honda Civic lovers out there. They're great cars, but there's a mismatch in the horsepower versus what the organization can handle. Have you seen anything like that? Any advice on bringing them in and leading people who move fast and break things but overall are great for performance?
Yeah, it's a great question, and just a few things that Sam feel free to chime in as well. One, it goes back to kind of what I talked about earlier, which is thinking about the most critical roles inside the organization. You can't afford to have anything less than an A player in those top 10 to 15 roles. So having a B player or a C player just puts your whole agenda at risk. And so, by the way, those roles can be one or two levels down from the organization depending on, you know your you know your value creation plan, depending on what it is that's going to really unlock the value for the company. And so really important to kind of get that right. And the other part of your question too is just around coming from a culture fit, I bet, as well, right? Which is, if they're a core value violator, that is someone, even though they're an A player, you know your culture is what you tolerate, that will really get in your way of the entire team performing and and the organization. And so I would look at it kind of from those two perspectives. Sam, anything you'd add?
Agree with all of that. I think that to Taavo's point, those critical roles absolutely penetrate the organization. It's not just the C suite. You can't just say the C suite has to be A players, those are the most critical roles. That's not it when you think about who's really creating value or enabling value, obviously the C suite is helping to lead a lot. But there are very important other roles where you want to have those A players. And I think if you think about where, if you're a leader and you're having to do someone else's job right, that's a sign that something is wrong. And so and that's a sign that you don't have the right level of talent in place to enable you to do what you need to be doing as a leader. And so that's always a red flag if you feel like you're having to do someone else's job. And one of my favorite quotes from our research was the CEO who shared the first time you think about firing someone, just do it. Because throughout our research, the theme that we had, no one regretted making a change too fast. No one right. Everyone talked about, I should have moved faster on some of those. Which to your original question, Ryan, it's you do want to be thoughtful in terms of how you pace some of the changes that you're making, because just having good athletes does not mean that they'll be able to do everything you need. You've got to have the business knowledge and the understanding. And I think a lot of this conversation gets at, you can't leave too much of awake in the process. So you have to balance all of that, but at the same time, you want to make sure that you're not holding on to talent out of loyalty or just fear of the unknown. You want to make the moves and be thoughtful and intentional around that. And I think that goes back to this idea of doing a quarterly talent review of those critical leadership roles and other critical roles in the organization, because that helps keep it fresh and thoughtful and intentional.
I think the other side of this shows the CEO themselves, which is, yeah, every CEO has an Achilles heel, right, something that can get in their way of success. And so very important, the investors kind of know what that is, and to compensate for that on the leadership team. So, for example, I'm working with the CEO is very, yeah, very market facing type CEO, not great at the operational side. Okay, great. We need to get a rock star COO to support this CEO to cover for that. And so that's another way to kind of look at, you know, the team composition, and thinking about what the talent you need to drive success.
Okay, perfect. Now, early on, you mentioned that being focused and drilling that in and making sure everybody is on the same page, that requires a lot of focus. Sometimes we call it relentless focus. So my question for you then, what is the most dangerous thing that a private equity backed CEO can spend time on?
So the reality is that throughout our research, the CEOs that struggle are trying to do too many things all at the same time, and so that is consistently a challenge. So the best CEOs understand that they have to say no to good ideas in favor of the best ideas, and they're willing to make those trade offs and be thoughtful. And so where the danger lies is if they try to say yes to everything, and you end up spreading your resources too thin, both in terms of your people, your capital, you know, it just doesn't get you as much of an impact as you think it will, and you're not going to necessarily see the progress that you would like to have there.
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Yeah, I think it also comes back to the talent discussion as well. The short answer is, tolerating the wrong people for too long is also a huge challenge for these CEOs. And I think what can happen is, especially we work with founder CEOs, that there's like the loyalty effect, where they feel this person helped to get this company where it needs to be. But you know what? You know what got you here won't get you there. It's a different level of talent that's needed next kind of scale the business, or they fall into a trap around well, they're good enough, there's gonna be so much energy to recruit and bring someone else on the team, and those are just classic mistakes that CEOs can make. And as Sam mentioned, just to really assess, are you doing any of their jobs? And that's an indication that you've got the wrong person. And so for the CEOs, you know, time is their most precious commodity. And so kind of the guidelines that we give CEOs is to think about like, what's your ratio? You look at your time, what's your ratio of working on and in the business, which, what should be your ratio of working internal versus external, right? Because the CEO's job, you know, if they're not working on strategy, or they're not bringing the outside in. No one is right, so they they have to be doing that. So it really requires them to kind of push down decision making into the organization and to take an honest look at their calendars, into their priorities actually aligned with how they're spending their time. And so I think the final piece to this, too, is some CEOs can have a real high need for control, almost too much, where they become a bottleneck. And so, as I mentioned, they really need to empower and push down decision making. And so one of the, one of, we asked our clients that you kind of do a decision audit, you know, are they making a lot of decisions that others can make the easy decisions, right? They should be focused on the hard and complex decisions. And so those are just some areas from a time perspective, that they can help assess.
To Taavo's point that was a red flag that we had. So as part of our research, we also spoke with PE firm, CEOs, managing directors, operating partners, and one of the questions that we asked them was, you know, what's a red flag for you in the first six, nine months that you see a CEO enroll that may cause concern. And Taavo just touched on it, and it was trying to control everything. So if they're doing all the talking in a board meeting, and they're either not inviting their leadership team, or the leadership team is just sitting there and they're not really allowed to talk, that's a red flag that the CEO is really just trying to control too much and not building a scalable team that can then help scale that organization.
You know, it's comical. So this is meant as a joke. And I wish I was was joking, but often, so there's a there's a movie, one of the one of the series in the Shrek movie, they had Rumpelstiltskin, and I remember he was like, this tyrant leader and this alternate, alternate dimension, bare with me. I am going somewhere with this. But he did one victory dance, and he was like, nobody's smart, but nobody's smart but me. And so you got to be careful that although by the time you're at the executor, ELT, as many companies call it the executive leadership team. And you're in these meetings, and sometimes it's that Rumpelstiltskin leader that you're talking about is like, nobody's smart but me, therefore I shall talk. And sometimes these magnanimous leaders, great, well intended, wonderful people. But sometimes, and you've underscored this a lot, both of you, and you do that in your book, is talking about a listening tour. And listening is actually one of the things, not necessarily speaking, but when they do, it's great, but not in the sense that nobody's smart, but me, like that's that's a very off putting hard to march to that wardrobe. But when you go on that listening tour and say, well, actually, we're all pretty smart, or none of us would be here, nor should we be, if we don't know what the heck we're doing. And so these these recruiting CEOs, I think what you're seeing is too much control. Nobody's smart but me, I control everything. This is a dictatorship, they don't say that, but the organization and investors and customers, they feel it somehow. They feel something's off, we have a competitor. And so coming in and listening and making sure that you're not coming across as this braggadocious type of leader, that nobody's smart but you anything else you can add to that? Or have you seen some of that in your research and maybe bring me up to speed on some of those, what I call The Rumpelstiltskin leaders.
I think this goes back to where we started, actually and Taavo's comment about, you know, the best CEOs are those chief architects and really putting that systems and structures in place, and not just solving problems. And this reconnects to that where the best CEOs are positioning their leadership team to work the business. Right, so they are working in the business, they should also spend some time working on the business, but you really want to free up the CEO to work on the business, to have that open time for free thinking. You know, in our research, we asked what percentage of your time is scheduled versus unscheduled, and it ended up being about 50/50 obviously, there's a little ebb and flow, but it was about 50/50. So the best CEOs are leaving half of their calendar available to coach and mentor their team, to engage with outside parties, to bring external perspective back into the business. To have white space to think about where the business is going. And so that's where you want to really keep that balance and that means you can't be controlling everything. You can't be making every decision. You have to be able to step away and empower your team to be able to drive and execute against the priorities that you've set in this vision that you've created.
You know, I love that in you know, before my next question, I think the antithesis to the Rumpelstiltskin leader. It's almost like a watchmaker, isn't it, so you wind the watch, you build the watch, and then you click start, or whatever it is, and you let the thing run. So it sounds like you keep me honest. I'm just translating what I think I'm hearing, but you're the researchers. You guys are the experts. So it sounds like great CEOs are great at building the watch, letting it run and let all the pieces work together. But they maybe every once while, they'll open the back, take a look, make sure it's good, grease any gears, but allow that to go. And some of the worst ones are saying, I'm the gears, I'm the watch, I'm the I'm time itself. And you're like, whoa, this. This is not gonna end well. Is that, would you say that's a fair metaphor or personification of a great CEO is more of a watchmaker than kind of the I'm king and.
Absolutely and so another way, another lens for that, by the way, another way to look at that. The CEOs that you know are not going to make it, or is, is when the environment is controlling them, they're not controlling the environment, right? The company's controlling them, right, you know they, yeah, the firefighting versus, versus, they're really acting on the company and changing the business, you know, bending the growth curve for the business.
Right, so that goes right to the original question of, what are some of the worst things they can spend their time on? And then, so that would tie into it. I love that. That was really cool. I love that answer. Now, when it comes to execution, that's a big part that not only the CEO, but everybody in the organization, as I always say, and I say in my companies, we get paid to finish things, not to start them. So we have to execute, not just have good ideas that stop halfway to the finish line. So when a leadership team has the right strategy, but they do keep missing targets. What do you recommend CEOs or investors of those companies, where should they go looking first.
I start with first the leadership team, right, so do you have the right people in those roles? And that kind of goes back to the conversation we were having about talent, assuming that you do and the team is not hitting their targets. Then I think you have to look at your management operating system. So do you have the right meeting cadence, structure, you know, is everyone, again, aligned on the priorities are that they're moving towards? Do they understand what the goal is and the metrics for what success looks like? You have the ability to track and monitor progress over time and see whether or not you're moving in the right direction towards those goals, and so that you can be nimble and adapt as needed. Especially in the environment that we're in now right where so much is changing so quickly, and the pace of change is only going to continue to accelerate from here. You have to be able to assess where you are and be willing to adapt and adjust course when needed. And then do you have the right cadence of, you know, meetings, reviews, one on ones that allows you to balance that working on the business and working in the business? So that's you've got to consider those factors if a team isn't getting where you want them to be, of have you set them up for success, and do you have the right structure in place to help them get there?
I think a lot of CEOs miss this, which is not just you have the right talent in the right roles, in the most critical roles, but are those roles designed the right way? So sometimes at lead, and we've seen it, where a role can be designed so poorly, which it really should be two roles that no one can succeed in that role. So I think the first question the CEO has to ask, from a talent perspective on this, is, are these roles set up for success or not. Right, and so they go to look at the person, but let's Are they just designed the right way? And I think the other side of this, and this goes back to kind of the PE sponsor as well, which is, they need to take ownership as part of this as well. Like we've seen, you know, the old teams, they're over stuffing a value creation plan with way too many initiatives, and so there isn't enough capacity inside the organization or within the leadership team to actually really execute on all the things that they're asking them to do. And then they can also become a bit of a distraction. As well, where you're seeing junior team members maybe not coordinating with the senior leader. So the private equity firm aren't aligning internally before reaching out externally to the CEO and leadership team. And so there's a lot of noise and a lot of requests and reporting that they're asking for that just aren't moving the needle. And then what's worse is the leadership team may not hear back after they're sending them the information that they're asking for. And so where's the value there? So anyways, just a few more kind of another side of it that can get in the way of performance.
Okay, now, when it comes to a CEO we talked about earlier, about leading up that bridge between the the board, obviously but when you're PE backed. Especially if you've got institutional capital, they got investment committees, probably someone who just gave you a half a billion dollars is probably on your board. I would assume that would be an ask. But when it comes to that, what, what do CEOs do wrong most often in the relationship with the private equity sponsors. What have you seen in your research?
It came out of our research loud and clear that it's lack of transparency. And so the this, the investors want to know whether things are going well or not, and they don't want any surprises. And so for CEOs that you know, the mistake that we heard in the research was being hesitant to share. And lots of reasons behind that right, whether it's fear or wanting to try to get all the information and figure out a solution before they communicate the issue. But consistently and again, this goes back to the research that we did with the private equity investor side of our participants in our research was wanting to make sure that there was regular, frequent communication of both the good news and the bad news. And so highlighting when those issues came up as quickly as possible and so that they addressed.
You know, you bring up a good point. There was a friend of mine. He runs Origin Investment in Chicago. He was the trader of the year and great, great side note. So Michael Episcope, love this guy and he he said, you know, at our firm, they're a real estate firm now, he said, in our firm, we walk out good news, we run out bad news. And so that was a metaphor of just saying, like, there, there is a gut, and he was a trader, I think he was, like, the top trader in America for a long time, and then he told me the joke why he flipped to real estate is he didn't want to be known as the guy who used to be rich, so he got out of trading. All right, well, you know, you, do you, but wonderful guy, you could tell he's funny dude. And one of the things that, and I never forgotten that, that he talked and this was years ago, and one of the things when it comes to that, I think, what he's talking about, and as a trader, you would know, is that when there's that event, there's that initial reaction where you're like, oh, I got to tell this to my investors. And I know, I know I'm going to get skinned a lot, or you start playing this scenario out in your head. And I think what you're talking about that goes into the culture, and that goes into the different ways of how you do business as a CEO. If you already pre-decide to say, if something goes sideways, I'm going to run to the investors and tell them.
And I think what it comes down to is a magical word that I love, it's called integrity. Because in high finance, and I say this all the time in the show, high finance is more about trust than it is transactions, right? You, me or anybody, we're not gonna give money to someone we don't trust. We're not gonna hire somebody that we don't trust. And so often, if you're in that role, and you hire a CEO, you've got the trust. Don't do anything to break it. So if something goes off course, investors know, like, we know what industry we're in. We understand that there's risks. But if one of those risks, the downside risk starts cutting in the wrong direction we don't like. We are counting on a CEO to be completely transparent, to have integrity, to run out that bad news and let your investors know you have to. You have to, especially in investing. And so when they run out bad news, although there may be a little bit of WTF moment that everyone gets together and we start talking about it at the end of the day, one of the greatest compliments I think that I could ever receive is that I may not like all the words coming out of Ryan's mouth, but I know I can always trust it. Even if it's I don't like what you're telling me right now, that you know I lost money, or what you know what whatever upsetting news is, but I know you'll never lie to me. And even the hard stuff you will tell me, and I might yell at you, but I will never walk away. I will never yell at you for lying to me. And that, I think, is the greatest compliment any executive with any amount of trust, whether it's investors, employees, partners, even marriage, spouses, is to say not everything comes out of my mouth is going to sound like a pleasant song. Sometimes it's going to be rough, but it'll always be true. And so I think you hit spot on Sam of lack of transparency is one of the most damaging things a private equity backed CEO can do? I got a little hyper about that, either of you?
You're, that's so critical, I think what you'll also see CEOs do is maybe they'll fail rewire a decision, with the board as well. But coming back to what we talked earlier, the most important recommendation I'd have here is within the first 100 days that, you want to get to extreme alignment, not only with your leadership team, but obviously with the board as well, around what you're trying to achieve. So in the spirit of extreme alignment, I would have an alignment session with the peak, with the CEO and the board. And so what you want to be doing in that session is just around expectations, around how we're going to be working together. Right and so if you're a CEO, you'd want to ask, okay, of the CEOs you've worked with. Like, you know, what's gone well, what hasn't gone well, right? Like, what would have been your best relationships, would have been some of your worst relationships and why? Help to understand kind of the chemistry around your own board, to understand kind of when things went well and when they didn't go well, right? So how do we want to communicate with each other? I just had to give feedback to a CEO client that the board would love him just to call them more informally versus just formally on the weekly. Like, just talk to them, brainstorm and so now we start to do that. But those are those are just simple things that are really important, just to learn upfront, so small problems don't become big problems. And I would also say one of the most important things to talk about is pushing back. You know, I'll talk to boards and they'll say, yeah, I wish that. I wish the CEO would push back more. Well, you kind of set expectations around this, and so it gets a little bit foggy. So let's talk about this upfront, like, what, when is it appropriate to push back, right? So let's, let's get clear about that. And overall, what you're trying to get to is what does a great collaboration look like, and what are expectations that we have of each other?
If I can add to that, I think part of what we're touching on is this idea of being collaborative and solution focused, and not blame focused. And so very much true that you want the CEO to be open and transparent with the investor, and that there's a level of speed around that, because you want to try to address issues as quickly as they arise. The same is true for the CEO and creating that atmosphere for their leadership team and penetrating that down into the organization. So as a CEO, you especially in private equity, where the pace is so important, and driving the value creation plan as quickly as possible is so important you want to make sure that your team is incented to actually raise issues early and often when needed, right? Because if people start hiding things, it's just going to fester and typically gets worse, right? And then it's going to be that much harder to fix. And if you have a culture of blame, people are going to be hesitant to surface those things early. Versus if you can create that team atmosphere of, hey, we're all in this together, and if there is an issue, we need to work together to figure out how to solve it. And then celebrate the people who you know are coding things yellow or red on your trackers you know. Don't just celebrate the people that are green, like acknowledge and recognize the people that are willing to step up and say, hey, we're red here. And you know, here's why, or here's where I need help, or I'm not sure what to do, I'm stuck, but so making sure that you have that atmosphere as well is just as important.
Yeah, I love that. You know that goes back to the A players that we're talking about. They're always making waves, and they're just saying, this is red, this is not good. And they're like, what now, yeah. But you can't have that attitude now, here's something, and I think it ties into this is it's something that's worked well in my marriage. I'm actually a happily married man. Those, those exist, who knew so I, um, I'm stoked so. But one of the things that works well, and I do this in my company, as well as personal relationships, like ones where there's some stakes on the line, right, like an investment or marriage, raise a kid like there's this works. So I'm giving a universal tip, hopefully, which is winners of any type of agreement or some kind of friction, right? Something we expected A, we kind of got B. What the heck happens, right? And then the finger, you're talking about, the blame and, you know, things start coming around. Now, one of the things that has worked wildly well, and I set this expectation in all of my companies that I run, which is, if there's ever a disagreement, please remember that it's not you versus me, it's you and me versus the problem. And so please, if, if I, if, look, if I pissed you off, please tell me, like, because I odds are very high that I did not mean to, and I'm just being that guy who makes waves and rocks your boat a little bit. Don't mean to. But please understand that if there's any issue, it's you and me versus the problem. Do not make it personal. Do not take it personal. But it doesn't mean you're not upset, and it doesn't mean change doesn't need to happen. But blame is not helpful. And so if you have CEOs that blame which is not great, I would assume. But if you have that culture which comes from the top that says, hey, look, it's not just me, it's not just the executives, that's just how we do things around here, is if there's ever an issue, just understand we get paid to solve problems. We say that. I say that in finance, we get paid to solve problems. And so as you fix things, as you renovate things, is probably why the investors invested in this company, because they're expecting us to solve a lot of problems, which can be a little upsetting.
Now, when it comes to my final question on investor relations, you mentioned something about a certain timeframe that PE firms tend to look for a new CEO. How long can a CEO underperform and you know, it's the whole company, but they look at the CEO. How long can that underperformance happen on average, before you've noticed PE firms look to replace that CEO. How long do they have to underperform before they're out?
It's in the introduction to our book and we found research that 10 months of underperformance the private equity firms, they're starting to look. And, you know, and as you know, you've got to make the change when you need to make the change, but it's also very disruptive. But there's a five year sprint to getting to a 3x return and so, you know, performance is that a priority.
So, so CEOs out there, or PE investors, just know on average, it's about 10 months. And if you, if your CEO can't turn it around in 10 months, sounds like you're right, you're in good company to say maybe, you know, we had high hopes, it's not working out, maybe we start recruiting another one. So I love that. That's really, I mean, that's that's not fun to experience that on either side, investors or the CEO. But the thing is, like I said, we get paid to get things done, not to start things and so getting things to the end zone is absolutely vital for a PE CEO. I love that.
And Ryan, it goes back to everything we've talked about, right? Of, how are you working to make sure you stay aligned with the investor in that original investment thesis? Are you being transparent around the status? Are you building credibility over time and confidence from your investors and your board that you're moving and heading in the right direction? And there's, there's a lot of warning signs along the way, as we've talked about, where you know, if they're not seeing that alignment and that traction and that momentum and the performance of the business isn't hitting expectations from a budgetary and other standpoint, then there's absolutely you can start to see a shift, and that's when the search happens.
Yeah, so speaking of maybe, as we say, tripping over your shoelaces, you said that 50% of private equity backed CEOs do not survive the hold period. What is it that kills them?
Another great question. So given those studies were the inspiration actually behind our book, because we were scratching our heads. Because, wait a minute, these private equity firms do a phenomenal job and an exhaustive job of vetting CEO candidates. And so they've got their investment thesis, they're looking they're looking at candidates who have a proven track record what they're trying to accomplish, and yet, more than 50% don't make it. And so what it tells you is, you know, a couple things. One is on the on the private equity side, you know, maybe, as we talked, maybe they're over stuffing the value creation plan, or they're not supporting the CEOs in a way that and the leadership teams that they should be. But a lot of this is on the CEOs themselves. You know, they're not adapting or evolving fast enough to scale with the business. And, and so one of the things that we've kind of observed is and a lot of the CEOs can't handle the pace of private equity as well. We have a line in our book about a leader, a CEO hired someone from a public company, and what they what they what they didn't understand, what they had to, kind of make this point clear, is what you needed to deliver in a quarter now you need to deliver it in an afternoon. That's like just trying to hit home the point around the speed and urgency of private equity. And so what we see is we see what I call, slow to slow twitch CEOs, or fast twitch CEOs, right? Slow twitch, they're not making decisions fast enough. They're not creating robust operating rhythms. They're holding on to the wrong talent for too long. You know, those are kind of the slow twitch type CEOs, and those are the ones that you know aren't making it. But for a CEO to really be thinking about making sure they're creating feedback loops of their adaptable, agile and they're going from 1.0 , 2.0 to 3.0 as part of own CEO leadership journey, along with their team.
Brilliant. So you know, when it comes to CEOs and working with people, and you working with them, what do you do in a coaching system that most CEO executive coaches never do?
So there's a lot of great coaches out there, I think, in terms of how we approach our work, our work is really focused on accelerating value creation. We work very closely with the CEO and the leadership team, oftentime we're brought in by the PE firm to bring that support. And so I think we're uniquely positioned, in part because of our past experience and all this research that we've done to bring a lot of experience and examples and ideas to the table. And so as we engage with the leadership team and strike a balance with the PE firm of identifying the friction points and where, where there may not be alignment, and helping to reconnect that alignment, Taavo touched on it earlier about, you know, where the board and the CEO were in terms of some of the talent decisions. And so, you know, we are not a mole, we make that very clear. There's a level as a coach, there's a confidentiality responsibility that we take extremely seriously. But at the same time, because we've worked on both sides and been operators ourselves, we have a perspective that I think is somewhat unique in the coaching arena that can really help bridge the gap and create some of the alignment that might be missing. Taavo, would you want to add anything to that?
Yeah, couple things, as Sam mentioned, right, we've done kind of the research around the formula for CEO success in private equity. So we bring a lot of that data into not only our relationship with the CEO, but also the private equity sponsor and also the leadership team as well. And we built an assessment that helps us to understand to uncover the friction points in an investment. And a lot of these things can be very opaque to the private equity sponsor. Just around you know, they're not sitting in the weekly leadership team meeting, right? So there's a lot of things that they're not seeing with the investment that we're helping to identify and rectify. And I would also say, I think what's unique about our work is we work kind of on both sides. So we coach the CEOs of private equity firms partners, and we're also coaching portfolio company CEOs. So like, you know, we sat in partner meetings at private equity firms, and so we see both sides, so we really understand, you know, what's really needed to be effective and successful?
Okay, brilliant. Now when, so you've seen that firsthand. So my question for you is, when a CEO has to make a high stakes call with incomplete information, because, yeah, that never happens. What framework would you give somebody or recommend that a CEO would follow for them to make a high stakes call with incomplete information?
For me, it starts with first understanding what's the problem they're trying to solve, and how much time do we have, right? Like, do we have five minutes an hour a week? And so that's really important to first understand that, and then based on the problem you're trying to solve, in trying to clear away the rest of the noise and thinking about, you know, who are the stakeholders that need to be involved in solutioning that? And how do you sort of assess your different options and prioritize so there's, there's a lot of options around that, in terms of frameworks. I'll pass to Taavo to add in some more perspective on some of the different frameworks that we like.
Sam said, CEOs are just too insular, right, they're not bringing in the right people to help solve the problem is a big challenge, and the ones that don't make decisions fast enough. But at the end of the day, you have to be anchored to the investment thesis. That's the North Star and so that's how CEOs need to be thinking about decisions they're making. And again, as I mentioned earlier, they should be focused on the hard and complex, not the simple. And so you have to also be thinking about, you know, what's the risk associated with the decision? Is it irreversible, right? And I think what can happen to CEOs. Can make a lot of assumptions and leadership teams, and so you have to really focus on facts and data. But really good CEOs focus on facts and data. They do not allow opinions or assumptions into the room. That is the, really, the foundation to making really good decisions. And also for CEOs, we'll often ask them, like, what's your decision making lens? Like, what's your frame, what's your framework for decision making? And just a really simple example of that would be CEO we work with with every decision that he makes, he thinks about the impact to customers, employees and also the shareholders. And so if all three are, you know, benefit, great. If it's if one is impacted out of the three, okay, we have to take a harder look at this. If two are impacted, okay, no, we're not moving forward.
Brilliant. So, so, and you reminded me of, there's two CEOs that most people heard of, Elon Musk and Steve Jobs. So two CEOs that most people heard of are Elon Musk and Steve Jobs. And one of the things that very different, not even universally loved, some people think they're not great people. Okay, sure, whatever, I'm not going to discuss that one, but one of the things that they do have in common that I've heard many people agree on is their ability to cut through the noise and get to the signal. And I think that's exactly top of what you were talking about, is to say, hey, we do in this I'm not, and I say this all the time because I, you get opinions that are stated as fact. And I just say, look, I can't comment on hypotheticals, not, I'm not going to comment on hypotheticals. And so you almost in your responses, you reinforce the discipline of how we make decisions. So I was like, not saying it's not going to lead to something. I'm saying maybe you need to bake that idea before we cover it and so you make that decision. But the ability, and I love that. So the signal to noise ratio is there's a huge differential, huge Delta, in those two and I think that's a little bit I'm using my own words to translate what your research and what you're teaching is to say that is really important. And some, if you're a CEO that is so widely known and Sam, you spent some time at GE under Jack Welch, which is that must, maybe one day we'll go out for coffee you could tell me all about what that was like under Welch. But some of these legendary CEOs, they put in a relentless amount of work on making sure they understand the facts and getting rid of the noise. Which would you agree, did your research bring up that that finding?
Absolutely, I think, I think that goes back to the relentless focus. How are you eliminating the distractions, and not just for the CEO, but for the organization as a whole? How are you making sure that you are just ruthless in terms of what takes up, time, energy resources, and being very intentional about how you best deploy what you have at hand to get the best result.
Brilliant. So my final question for you, as we round third base, we're bringing it home. What do top performing private equity CEOs do every day that average CEOs simply don't?
Yeah, I would say they really are the standard setters for the organization. We haven't talked a ton about culture today, but I just they every day, every minute, they are the standard setters for the organization. What's interesting too about these CEOs is they really simplify complexity. So every every single day, in terms of how they communicate the systems that they built inside their organizations, what you see from these CEOs is they're able to remove the clutter, to simplify so people can do their best work. And you talked about some of those legendary CEOs, and it's something that we found in our study as well. And I, when I say this, I almost cringe a little bit, but, but it's just, I think it's just accurate, which is in many ways, the CEOs in our research were relentlessly intolerant, like you talk about high standards. They took high standards, I think, to another level and but they did it in a way where they still created followership. There's just a real honesty about performance, about if people are doing things right or not. And so I'll give you just a really simple example that kind of combines kind of simplicity with kind of this high standards perspective. I was doing a 360 for a client, one of my most successful clients, and the executive was sharing with me how he just received an email from the CEO, and the email read, the your work on the CRM is not meeting my expectations. It needs to change. That was the email. And so I said to the executive, he's like, I know exactly what he means. I know exactly what I need to do. And he made the changes that week. So that's just a really simple example of just like how the CEO operate every day.
Yeah, for me, it comes back to the 5x model and what we've been talking about, right, so first is strategic clarity. So every day those CEOs are making sure that people are aligned, that they understand where the business is, where it's going, how they're going to get there, and how they play a role in that. And then two is scalable talent. So every day, the CEO is thinking about where, you know, where is my talent deployed? Do I have the right people in the right roles at the right time, and are they positioned for success? Third is relentless focus. So every day, are we really paying attention to what we should be paying attention to, or are we getting distracted by something that we shouldn't right? So what are we saying no to is just as important as what are we saying yes to. Fourth is disciplined execution. So do we have the right cadence and structure to support everybody in understanding, you know, where are we, what's our status? Do we need to adapt and adjust? Do we have that cadence around our efforts? You know, are we working, balancing working on and working in the business appropriately? And then fifth is energized culture, which to Taavo's point. You know, what? What behaviors are we tolerating in the organization because that matters just as much as the results, and how do we make sure that we're really leveraging the organization to drive ourselves forward?
Brilliant, you know, you reminded me of my my last assessment. So they the company, I was a CFO. Wasn't CEO, and that you guys know my personality. I like being the ghost in the machine, but, but I can't. I can step up and do it if I need to, but preferential, I'd let someone else do it and I'll back them up. But one of the things that came in is they were getting ready to sell, and they wanted leadership training, culture training, and this is a story, you remind me, I totally forgot about it, and they interviewed kind of mid-level managers and kind of save the executives for last. And so by the time they got to me, they'd interview a lot of the managers, the vice presidents and everything, and I was running like five divisions. It wasn't just finance, it was HR, it was it was back end customer, it was legal, it was lots and finance, and I had to transform all of it. And then I walked in and they said, Mr. Miller, we're excited to talk to you, we've heard a lot about you. And I said, oh, this doesn't sound maybe this is good or maybe it's bad. And so we walked through, and they asked me a little bit about what I do. How do I handle situations and just just talk. It wasn't high pressure at all. But this was commissioned by the acquiring firm to be you like I knew what it was. And so they want to understand how do things work, and is this the kind of company we want to buy into and so they hired this HR leadership type of company. And I remember that they leaned one, there was two guys, and they one leaned over and I heard what he said. He said, oh, he's definitely a level five leader. And I did not know what the heck that was. I was like, I look, I got, I got month ends, I got to do. We got this, we got, you know, vendors. And so I was like, you know, cool, appreciate it. Maybe I don't know what that is, you know, may I be excused? I don't know, I was asking to be dismissed and so when he said a level five leader, I actually went out. This is not being on my chest, I'm making a point on it. So I met him on his office, because I take my leadership very serious, and I want to make sure that if I'm put in a position of trust, like we talked about that, that trust is reflected regardless of where my career goes. I just want to make sure me, if you put me in the seat, can I perform and get the job done well?
And he said, what a level five leader is. I asked him about it, and I may have bribed him with a coffee. So, you know, I got him caffeinated and I got him talking. But he said, a level five leader, as they would describe it, is somebody that people follow based on who you are. So there's different levels, right, they follow you because they have to, and they don't want to get fired. They follow you because they're just, like, actually afraid of you, I don't know. So there's many layers. And they said level five leaders are that. And so what that does is not, I'm using that as an example, not to self promote. But what that talks about that was the first time, because you just do your best, you don't know if you're doing any doing well. But what that talks about is that goes back into the culture and the values that have to start at the top. And so I guess, according to their research, and maybe some of yours, is that some of those people who are great people leaders. They used to call me the internal Tony Robbins, so I host these town halls and like, why is the CFO doing? And I'm like, right, maybe I'm being rumpled, still skin, I don't know, but hopefully not. And so what, when it comes down to it, is putting those leaders in place that who they are at the core is someone that people want to follow, not have to follow. Yes, we all know you have to follow what your boss tells you. That doesn't end well, but it's seeing like you as a person is someone that I want to follow. You actually listen. You don't make me feel stupid, but you also set yourself at a high standard and I'm kind of into that. I you know, I want to have those high standards and so developing that. And you talk about implementing those those strategies, and having that culture in that alignment, and it really comes down to something that taught, someone taught me early, early in my career, like early 20s, when I was just dreaming of being investment banker, but not even close, was you can't push string. And he was a comment on leadership is to say, try pushing a string from the back, right? It just bunches up. It doesn't work. You got to pull it. And so that leadership is to say, you know, let me go out in front. I can show you. I will build you, and I will make you competent, because I believe in you as a person. And when you have that culture, this, this, I've thought about, I thought about this for years after this was a while ago. But when you're shaping that and you have those leaders, those culture movers, now we're starting to create, hey, we lead and follow by our standards, our virtues, our qualities not do it or you're fired. Have you noticed any difference?
I'll tell you one example that I think ties this the last part of this conversation all together. One of the CEOs in our study, this connects to simplicity, culture, followership, level five, you name it, this story will connect it all. One of the CEOs at our study talked about they had two core values. So simple, right? So one of them was competence, one was kindness. So if you wanted to work inside of our organization, was very clear, you had to be competent and you had to be kind. And so there are moments of truth that happened as part of the that journey. So it was their whole, you know, their the whole recruiting process was connected to confidence and kindness, but also performance management as well, and so he had hired a new sales executive who was on the executive team. And about two weeks into the role, he had found he found out that he berated all of these employees, and so he wanted to have an open mind. So we talked to the executive and said, look, I heard this, but I'd like to hear your side of it. And the executive basically described that, that the people deserved it, and here's why. And so in that moment, the CEO said, look, we told you, coming into this organization that there are two core values that really matter, competence and kindness, and today is your last day.
Good for him. He held the line.
He held the line. And he said that that had one of the biggest impacts on his culture of all the things that he did symbolically, right just around, you know, the zero tolerance for, you know, you know, core value violators.
That's, that's a very nice way of, I would have used more explicit terms of no A-hole rules, but you know that it's for we're all professionals here, but yes, for sure, you're spot on is is really tempering a lot of that. But sometimes, in I have a strong opinion that under adversity, you're introduced to yourself. And so sometimes stressing out executives, because they're never stressed, I'm kidding, yes, they are. But sometimes that brings up things that you just you couldn't have known. And so some couldn't have known when you hired that person, but sometimes when they're under that stress, back to Sam, you were talking about finger pointing and all of these less effective things that go on. So these are massive problems.
All right, so before we wrap things up, final words, ways people can get in touch with you anything at all.
We would love to hear from people. We have a website advantageceo.com and we wanted to offer an appreciation for having the opportunity to talk with you, Ryan and all of your listeners. For the first five people who reach out to us through our website, we are happy to send you a free copy of our book, and if you want a signature in there too, we can do that. But So yeah, we really appreciate the opportunity and welcome connecting with your audience and sharing more information.
Awesome. So the first five people that go to that website, you'll be able to find it, you can apply and get that copy of that. That is very generous of you. Love you guys. Thank you so much. I know our fans were in like 190 countries, so there's people all over the world that would love to hear from you guys and your research and what you've been able to do in The 5x CEO, and if you're number six and later, Amazon is the place to go. Where do you where do you get that book?
Amazon is the place to go. There's both paper versions, and there's also an audio book on Audible.
All right, perfect. So just to summarize everything that we talked about, create clear guidelines when you come in as a CEO or you hire someone, if you're a private equity fund manager, and you hire a CEO to lead that make sure that there are clear guidelines, both from you and as well as to you. The other one is practice that radical transparency and ensure your strategy aligns with what your investors need done. Yes, lead your organization, but you as the CEO in that organization, you're part of someone else's organization, known as a portfolio. So you got to make sure that you are also hitting the mark from that and so that radical transparency needs to be there. And finally, lead from the front, and seek to get people to follow and lead from who people are at their core. You do these things, and you too will be well on your way in your pursuit of Making Billions.
Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better, and make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.
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