In this forthright episode, Kit Lisle, Founder of The Operators, shares how he helps to empower Operators in their roles as executives of private equity-backed portfolio companies by enabling them to find the answers they need

You will discover:

– The three types of PE backed execs and the challenges they face

– Why alignment around the investment thesis is essential

– How PE Culture Shock impacts everyone

Episode Transcript

Scott Ritzheimer

Hello, hello and welcome. Welcome once again to the secrets of the high demand coach podcast, and I am here with you. Got it yet another high demand coach. It is the one, the only Christopher Kit Lisle. Now Kit recently formed the operators LLC, and he’s also a founder of aro Growth Partners, a decision support and growth strategy consulting firm, kit is actively involved in planning and preparing for clients around growth strategy and moderating groups of C level executives seeking advice and counsel on cases related to growth, mergers and acquisitions and business optimization. The operators is a collaborative community serving those involved in the middle market, M and A ecosystem. Its goal is to facilitate cross pollination for those involved in the middle market private equity ecosystem. So Kit, so excited to have you here. Love the opportunity to jump into this really dynamic world private equity and just all the different moving pieces. I’d love to hear what was the genesis of this? Why start the operators?

Kit Lisle

Yeah, thanks, Scott, thanks for having me. I you know, I’m a former Army officer, and for anybody who’s in the military, if you’ve been around people that are super high performing, elite level performers, they often are quiet and humble. And the same is true with the operator to private equity backed executives. They work under tremendous time pressure with some very difficult bosses, and they’re they’re responsible for generating value, increasing value in a short period of time, and yet they remain humble. So I’ve always sort of had this curiosity, interest, intrigue around private equity backed executives. So I thought to ask them why there is no community or association or society to support them and facilitate practices. And turns out, you know, I asked them, Is it because you don’t need it? You don’t want it, or maybe something like this already exists. And those who reach back out to me said, No, it does not exist. We do want it. We do need it. Please make it happen. So.

Scott Ritzheimer

Wow. Fantastic. And I’m interested. The name fascinated me. I got a little stuck on it. You see all kinds of names for coaching operations come through. But why the operators. What was the meaning behind that?

Kit Lisle

So private equity professionals, those who work for private equity fund, the investors, they will refer to the executives and running their portfolio companies in several different ways, some of which are a little bit more respectful than others. So if they simply say management, management will take care of it. Management can grow this business. We’ll get rid of them, and we’ll bring in management that can that’s a little bit disparaging, but the most respectful way they refer to their C level executives is their operators. So I like that term, operators.

Scott Ritzheimer

Yeah, it’s fascinating. Most of the folks listening to the show are familiar with our model, with visionaries, operators, processors and synergists, and there’s very much an operator element to that that’s often missing in entrepreneurial organizations, and would prove to be quite the source of tension in a PE type relationship. So it’s fascinating to me. I want to look at PE because we’ve got a lot of founders. We have a lot of executives as well, but I kind of want to start looking through the lens of a founder. And what would you say are some of the unique challenges that a PE back PE backed founder faces. Let’s assume, for the sake of this question that they have stayed on particular as CEO. In this respect, it’s not always the way that it happens. But for for a founder now, CEO PE back, what are some of the unique challenges they face?

Kit Lisle

Well, there are two, two very obvious ones. The first one is that the founder believes they’ve chosen the clearest, most obvious, most effective path to growth. After all, they’ve been successful, so successful, in fact, that their business has been acquired by a private equity group. And yet, by definition, the job of the private equity group is to figure out ways to make that business grow even more rapidly, take advantage of opportunities that had not been taken care of to date, make the business more efficient, more effective. So there’s a natural tension that exists between a founder who thinks I’ve done everything right, you know, what could you possibly do differently than I’ve done today or to date, and the private equity team that feels a responsibility to their investors to make this business perform even better. So that’s the first one. The second is that I think there’s a natural feeling of that the founder must go through of the sort of the mom and pop nature of building a business. So it’s my baby. It’s always been my way. There’s never been anyone. It’s had the opportunity to say no, and all of a sudden, not the one at the helm. You’re not the one making all the decisions the board is, and a lot of the decisions are, let’s just respectfully say improvements or fix it, so that can be difficult. I think you know, in the investment thesis stage, when you’re when you’re being courted, having that conversation with a founder or a founder, kind of negotiating, trying to figure out where the business is going to go. It can be tenuous, but then a couple years in, three years in, as changes continue to be made, it can be hard on the ego of a lot of founders,

Scott Ritzheimer

Right, right? What would you say are some things, some adaptations that you’ve seen founders make to really not only survive that stage, but thrive in it.

Kit Lisle

Yeah, that’s a great question. Scott, I think it really all boils down to the investment thesis. So at the very outset of negotiations that are taking place, when a letter of intent is being signed, the founder can say, hey, I want to understand what your thesis is. You know, where do you see this business today? Where do you want to take it to, and what’s the path to get there, and why? And there has to be some level of alignment. I think many founders might sit, might react to that thesis statement by saying, that’s interesting. That’s novel. That’s not something I would have considered. Now you just sort of have to ask yourself, Does this make sense? You trust the private equity group to drive the bus from here to there? Maybe in ways that you wouldn’t have considered, if you feel comfortable culturally, if you feel confident with their skills and capabilities, you feel like the plan makes sense, then by all means, it’s, it’s there to grow. You’re taking basically two bites of the apple. The first bite is when the business is originally acquired. The second bite is 345, years later, when it’s acquired again. You know, if you’re sticking around, it could be significant, but it really has to be a conversation that takes place at that investment thesis stage.

Scott Ritzheimer

Yeah, yeah, yeah. It actually brings me to my next question, and that is, who should and who should not pursue. PE, so at that stage, who? How do you know if it’s the right fit for you?

Kit Lisle

Well, it another good question. Scott, there’s a, there’s a concept called Private Equity culture shock that, well, haven’t heard it before. The first time they hear it, it often resonates, and it it happens. You know, I, I mentioned to you, Scott, we got three different types of members. There’s founders, there’s incumbent members of a management team who’d been there previously, before at acquisition. And then there are those who are recruited. Let’s start with those who are recruited, if you’re recruited into a private equity backed business, you’re usually coming from a very large, very successful organization. Let’s just say GE. You’re expecting that systems, processes, people, communications, to everything, it’s going to be about the same as it was in your previous company. Well, guess what? Small or middle market businesses are not like GE secondly, if you are an incumbent, your expectation is that the business will be run pretty much the way it was before, when Bill, the founder, ran the company, and it’s not so the shock starts with acronyms, expectations, timelines, improved processes, communication and protocols, and then, as the founder, the private equity culture shock kicks in, as I said earlier, because your expectation is that you’re still at the helm, or your expectation is that the business will be grown sort of in the way you’ve wrote it before. After all, there was that vote of confidence in acquiring you, and it’s not so. I think the most important thing to recognize is it’s natural to feel a degree of private equity culture shock. The most significant risk or change or impact that people feel is that pressure to perform in a very short period of time, you’re not just showing up for work every day the way you were before you were there to build and grow a business more rapidly than you ever have before, and that’s the expectation.

Scott Ritzheimer

Yeah, yeah. It feels to me a little bit like going out and playing golf. You know, I’m one. I’m terrible at golf, but I enjoy it, right? But the moment, you like, I would have to hit the shot to get paid. It would take all love out of the game. And I think for some folks, it can be a little bit like that, especially when they reach a level of success that they can start to tease this out, is, to a certain extent, it’s fun, right? For some folks, there’s a kind of, almost a flippancy to it. It’s not the right word for it, but there’s a you can blow in and blow out. You know, it’s pretty cool. Now, all of a sudden, there’s deadlines and and there’s this massive, transformative process that you’re going through, I can imagine the amount of change that would be imposed on executive in that space. Now I want to shift our attention just slightly here to not just the founders, but to the executives on their team. You had a stat that actually shocked me the first time I read it and said the. Average tenure of a PE backed executive is only three years. And I know that, you know, there’s a lot of the especially post covid, is a lot of movement in the workforce, but three years is not a very long time, especially on average. Why is that so short? And in your opinion, is it a good thing, or is it a bad thing?

Kit Lisle

Yeah. So first of all, the three years. It doesn’t almost matter. It could be three years. It could be four years. It’s crept. The timeline has crept up a little bit in the last couple of years, because there’s been fewer acquisitions taking place. But the reason for the short timeline of hold periods is that private equity groups really don’t make any money while they’re holding a business. It’s increasing in value. The profitability is there, and the profits are increasing. But if you think about it, those profits are almost entirely used to pay down debt. So the only time a private equity group actually makes any money for its investors is when they sell. So they’re motivated to sell as rapidly as possible and then raise their new fund. So that’s the reason for it. So you have to have the mindset going in. Well, this is going to be a three to four year ride, and then we’re going to be done. A founder, however, may be asked, especially if their founder, becomes the CEO of the business after it’s acquired. May be asked to stay on as the CEO by the acquiring business, although that is somewhat rare.

Scott Ritzheimer

Got it. Got it. So I’m wondering. We’ve covered a lot of ground here, and I would just like to put a bow on things. So there’s a question I like to ask all my guests, and it is this, what would you say is the biggest secret that you wish wasn’t a secret at all? What’s that one thing you wish everybody watching or listening today knew.

Kit Lisle

Well, I think we all agree that it’s lonely at the top, for senior level executives, for founders, for C level executives. Secondly, we talked about private equity culture shock. Third is the notion of imposter syndrome that a lot of the executives face. Am I really the right person for this job? Can I really do this? And I just wanted to make sure that everyone’s aware that these are feelings that every C level executive experiences at some point or another, particularly those that are private equity back. And the solution is a peer advisory group, a roundtable, a mastermind group, something where there is a facilitated or moderated cadre of peers who are there to solve up at night dilemmas? Because who, whom will you turn to, if not for a good group of peers? When you’re the founder or CEO, they’re very, very few people you can.

Scott Ritzheimer

Yeah, so true. The first stint of my career, we myself and my team around me really is our culture, collectively, to do the lone wolf kind of thing, right, like we kind of invented the industry they were in. We thought, if we couldn’t figure it out, nobody can. And I learned a lot of lessons the most painful way possible, you know. And I realized, looking back on those 1314, years that alone takes a long time is like, yes, you can do it. Nobody’s saying that you can’t. Just why would you, you know, why would you do this thing alone when there’s so much support around you? And I know that’s a big part of what you guys do. So folks are listening to this. They’re either a founder of an acquired firm, they’re an executive, someone who’s been recruited in or someone who’s one of the incumbents, and they’re sitting there thinking, I need this I need this support. Tell us a little bit about what the operators does and how they can get in touch with you?

Kit Lisle

Well, the operators exist for four different reasons. We’ll just, we’ll limit it to a couple here today. The first is career support. So finding your next job in private equity, landing in that role more effectively, growing value, and then finally, preparing the business for exit. And then secondly, we have a group called Strategic Growth Council that’s all about solving those “up at night” dilemmas, what we call case so strategic or value creation or interpersonal dynamics. How do I do this? How do I say this? Those are all solved by that group of peers. So if anybody has a thought that they might be a fit for one of those types of groups, www.theoperators.pe, and then just click on Join us, and it’s free to join if you think you’re a fit. And a fit is a founder or a private equity backed executive.

Scott Ritzheimer

Fantastic, fantastic, well Kit, fascinating episode. So glad to have you on your show. It’s really an honor having you here. And for those of you watching listening today, you know your time and attention mean the world to us. I hope you got as much out of this conversation as I know I did, and I cannot wait to see you next time. Take care.

Contact Kit Lisle

Christopher “Kit” Lisle recently formed The Operators, LLC. He is also a founder of Acclaro Growth Partners, a decision support and growth strategy consulting firm. Kit is actively involved in planning and preparing for clients around growth strategy and moderating groups of C-level executives seeking advice and counsel on “cases” related to growth, mergers and acquisitions, and business optimization. The Operators is a collaborative community serving those involved in the middle market M&A ecosystem. Its goal is to facilitate cross-pollination for those involved in the middle market private equity ecosystem.

Want to learn more about Kit Lisle’s work at The Operators? Check out his website at https://theoperators.pe/

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