Working with Founder CEOs: Dan Hawkins Featured on Hunt Scanlon’s ‘Talent Talks’ Podcast
In a recent episode of Hunt Scanlon’s ‘Talent Talks,’ Summit’s President and Founder discussed the ongoing challenges founder CEOs face after a private equity investment and offers up some techniques to help them during this transition. Here is a summary of the exclusive podcast interview.
Tell us about Summit Leadership Partners experience working with founder CEOs.
I wouldn’t say we work exclusively with founder CEOs, but we do so quite a bit. Probably 65-75% of our business is with private equity and venture capital investors. Most of the investments that PE and VC makes tend to be with founder-led companies. Working with founder CEOs can be a tricky scenario when it comes to scaling the company and getting their return.
What are some of the unique characteristics of founders?
Founders tend to be very passionate about what they do. They’re often visionary, ambitious people who have identified a market or customer cause to champion and were able to rally resources, people and, eventually, capital.
Why are founder led companies often attractive investments for PE and VC firms?
Private equity investor and venture capital investors have one clear goal – they’re looking for great returns. Research suggests that founder-led companies outperform publicly traded companies and those owned by other entities. Founder-led companies tend to have good track records and typically have a long-term vision and aspirations for solving market or customer needs, but with the bias for action and the ability to mobilize people, make decisions that yield exciting returns. They tend to be able to cut through the bureaucracy that larger, more established companies historically have in place. Founders are often able to grow the business to a certain point but needs both capital and expertise to get it to the next level. Investors see this as something they can provide.
How important is it for private equity firms to offer more than financial support to their portfolio companies?
It’s really becoming a differentiator in private equity and venture capital. PE firms are popping up all over the place. It’s a seller’s market because capital is cheap and interest rates are fairly low. If you’re a founder looking for investors, you’re going to look for a partner that’s going to bring something more than just money. A lot of our private equity clients will come to the discussion sharing their expertise and where they can help the company grow. It’s not just a financial engineering exercise anymore.
Where do founders fail or tend to struggle following a PE investor entering that scene?
Taking an investment can be a very emotional decision for the founder. When the founder CEO stays in place, a tension can emerge as the CEO must start letting go of daily decision making and ensure that the company is hitting growth goals. Founders also struggle when it comes to holding onto loyalties to people who have been there since the formation or early days of the company – people who may not be growing fast enough as the company scales. Investors may want to make changes and bring in higher grade talent, and this can be difficult for founders. Elsewhere, founders often have a hard time leveraging some of the new resources that are available. Finally, founders struggle with the degree of transparency that’s expected from the new investors. If you’ve been running your company a certain way, and all of a sudden you have a board and you’re expected to share your financials and progress on strategic initiatives, that can be a tough adjustment.
What suggestions do you have for PE investors and human capital experts working with Founder CEOs?
For Founder CEOs, taking investment from a PE firm is an emotional experience. Investors need to understand this and find ways to deliver early wins that support the Founder’s success and ensure that the Founder experiences the value the PE firm can provide, beyond capital alone. Ideally, that process should start before the investment is made. Investors should ensure that there is an agreed-upon plan with the Founder and an understanding of how the partnership will work, available resources, communications expectations and barometers for success. After the transaction, investors can support Founders by understanding what they are most passionate about and engaging them in those areas as well as by providing resources that can help them develop professionally. Finally, investors should act as a partner to the Founder, as opposed to a manager or controller.
Can founder CEOs really change and how do you get their attention?
It’s not easy. It’s really tough to tell a newly minted multi-millionaire that it’s time to change. Founders typically have a huge emotional attachment to the business they’ve established. They believe no one can understand their business as they do and they are the only ones with the vision and passion, knowledge of customers, people and product. It’s an uphill climb to get founders to change, but it’s not insurmountable. Trying to tell a founder CEO who has been super successful that they need to be better at this or that is tough sell. Rather than trying to improve a weakness, play to their strengths by determining how and where they have the most passion and can create the most value. Double down on those areas and encourage them to be more involved in those areas.
Click here to listen to the entire podcast interview.