In 2006 when I ran my very first Operating Partner search the environment around the role was markedly different from what we see today.  Back then, even getting a successful executive to consider taking such a role inside a “corporate raider” was a tall order. Many times when I called a CEO about an Operating Partner role their initial response to me was “Are you telling me that I’m washed up, and that I won’t be able to get another real job?”  My… how times have changed.

It wasn’t very long before the pivotal role played by Operating Partners inside private equity firms became institutionalized across the asset class. These men and women did the dirty work inside the portfolio companies to unlock the potential value and unleash the management teams’ innovation to win in the open market. Operating Partners became the catalyst of change and transformation across a wide range of businesses in both the bulge bracket and the middle market.

Ten years ago, for the most part, Operating Partners were project-based, point and shoot resources for the investment teams. They would take on troubled situations, embed inside a company, and disappear for a period of time. Interim portfolio company management roles were the norm, and in fact were a major driver in the investment teams’ decision to hire Operating Partners in the first place.

In those earlier days, if they weren’t sitting in an interim chair, Operating Partners were likely focusing their time on cost control initiatives. They would dive into specific portfolio companies in an attempt to “lean them out”.  Occasionally they might also create some cost focused portfolio-wide initiatives to implement across all companies, i.e. buying cooperatives, vendor management strategies, etc.

Next we saw an evolution (post 2009) when there were simply less opportunities around for cost related improvements, and people’s attention focused on commercial initiatives to build the business’ top line.  The spec for an Operating Partner focused more on sales force effectiveness, pricing, and new product introduction strategies.

If I step back now and compare the Operating Partner of the last 10 years with the role as I see it today, we have some significant and frankly welcome changes to the way Ops Partners “create value.”  Hopefully you’re seeing these in your own personal experiences.

1. Operating Partners are now critical players in the fund raising process.

It’s been 7+ years since the crash of 2009, i.e. the point in time when LPs began paying more attention to a PE firm’s ability to transform a portfolio company’s income statement and not just its balance sheet.  Operating Partners were the centerpiece of this transformation capability, and the LPs wanted to see for themselves what a firm could do when times got tough.  All of the sudden, Operating Partners were flying to the Middle East to sit down with the managers of Sovereign Wealth Funds to pitch the story.  And as time went on, those Operating Partners started to get involved in fund marketing earlier and earlier.  This condition alone helped cement the role into the fabric of modern private equity as we’ll know it from this point forward.

2. Operating Partners take on fewer interim management roles.

It became apparent that having an Operating Partner disappear for 4 months during a CEO search wasn’t the best return on investment for their skill set.  For top tier PE shops, their portfolios were dynamic and required multi-dimensional care and feeding from the Operating Partner and his/her team.  Focusing all of his/her attention on one company killed their ability to leverage across the portfolio – and quickly became out of favor. Today’s Operating Partners are better served to understand the landscape of “interim operators” who go into crisis situations in a surgical way.  The Operating Partner who masters this element of the job is worth 10x’s their salary!

3. They’ve taken a seat at the table.

While every firm would pay this lip service, it was a rare occasion when an Operating Partner truly had a seat at the table.  The second class citizenry dynamic was (and in some places continues to be) real and troubling.  But thankfully, the most evolved firms are recognizing that having the Operating Partner involved in the most strategic elements of running the firm creates a more balanced and rational risk profile for when they put the money to work.  As Operating Partners have spent more time around their investment partner counterparts they have started to understand the art of what makes a deal successful… and they have abandoned their inherent need to “fix every broken situation.”  Some things just aren’t worth saving; and as the Operating Partners have become more savvy on deals, they’ve put themselves in a position to be a huge value add at the most strategic levels inside a PE firm.