July 11, 2017

All the Reasons NOT to be an Operating Partner

All the Reasons NOT to be an Operating Partner

“Sometimes I blow things up to be way more impressive than they actually are. The struggle is real.” These were the verbatim comments I recently heard from my college age niece as she was reviewing life after her highly anticipated 21st birthday. (Full disclosure: I had to look up “struggle is real” in the Urban Dictionary, but it’s pretty self explanatory.)

Interestingly enough, I think some Operating Partners feel the same way. It’s not all private jets, estates in Hawaii and lavish birthday parties. Though those things might grab the headlines, the day to day in Private Equity is real work; and it’s not right for everyone.

I spend my days (and well into the night) convincing executives why they should consider doing an Operating Partner gig. Ironically, in almost every search, once we hook their interest, we begin the schizophrenic task of questioning why the heck they’d want to do this in the first place. For a variety of reasons, this isn’t a career for which everyone is cut out.

  • If you’re a successful CEO, think it through very carefully. Sure, some of the best Operating Partners are former CEOs. As a generalization though, I’d actually say that successful CEOs more often make great “Senior Advisors” to PE firms. If their mandate as an Operating Partner is to get on the road 4 days/week, roll up their sleeves and transform multiple businesses, then the day to day might feel like a cold shower to a successful CEO. Executives who make it to the corner office, and then succeed there, have built their entire career around the idea of being in charge and calling the shots. As all you Operating Partners know, that’s not really the modus operandi for how you interact with the portfolio companies. In fact, you’re more often seeking results through subtle influence and cajoling the agreement of others, many of whom are far less talented managers than you. It can be maddening for a command and control guy.
  • Travel. I alluded to it above, but 4 days/week on the road is not an exaggeration. That’s why so many Operating Partners are former strategy consultants. The PE firms know that those executives truly understand the demands of constantly being out in the field. Their muscle memory from their consulting days kicks in. PE buys businesses in what I like to refer to as “exotic” locations. Can you see yourself happily grabbing connecting flights on a Monday afternoon so you can be at a manufacturing facility in Des Moines on Tuesday morning? If not, cut your interview short right now!
  • Compensation. This deserves its own dedicated blog post; and I will get to it someday. But for now just know that Private Equity WON’T pay you more than you’re worth on the open market, and it takes a LONG time to see the carry monetize. Aside from that, it’s a great wealth creation move if your expectations are set properly.
  • But I’ll jump to the deal side of the business… Ahh, no you won’t… at least not for a very long time. Maybe you’ll be one of the very rare and fortunate ones who are able to transition into some quasi-Deal Partner capacity. Please understand though, the Deal Partners have a very distinct skill set that might seem straightforward from the outside, but in fact is only mastered after having looked at literally thousands of deals. It’s going to take you a long time to catch up.
  • Am I willing to let go? You might be a world class change agent and turnaround artist, but once you’re inside the tent in PE you’ll need to dispassionately gauge the circumstances around you. Just because you have the capability set to turnaround a struggling business doesn’t mean that you should necessarily do so. Some companies just aren’t worth saving. If an Operating Partner has blinders on to that reality it will create conflict internally at the firm.



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