Private Equity Judgment and the Art of Business Building

In private equity, judgment is everything. Private equity judgment—the ability to apply frameworks under pressure, evaluate people accurately, and hold course when everything breaks at once—is what separates investors who consistently compound value from those who get lucky in good cycles.

That's the central insight from Episode 135 of Karma School of Business, where BluWave CEO Sean Mooney spoke with Geoff Faux, Partner at Clearview Capital. Faux has spent 13 years at the lower middle market firm, growing alongside it from a significantly smaller operation. His conversation spans deal evaluation discipline, a portfolio company crisis that nearly destroyed one of his first investments, and the people-assessment skills the industry consistently underbuilds.

Four Variables. Two Non-Negotiables.

When Faux evaluates a potential investment, he organizes his analysis around four variables:

1. Market and industry favorability — demand growth trajectory, cyclicality, and competitive intensity
2. Competitive advantage — the magnitude and durability of the company's differentiation
3. Management team strength — assessed against a minimum threshold, not a maximum
4. Entry price — valuation discipline given the risk/return profile

Simple on paper. The discipline is in how he applies them.

Two of the four function as absolute gates. If either fails, Faux won't proceed regardless of how compelling the rest looks.

The first gate: industry stability. "When an industry experiences challenges, it's really hard to overcome," Faux explained. Even a market leader with strong competitive positioning and talented management can find itself unable to create value when tailwinds reverse. At the lower middle market, where operational levers are everything, sector headwinds compound fast.

The second gate: baseline management competency. Not necessarily a world-class team—Clearview often brings in additional talent—but a floor below which no deal works. A company with structural advantages and favorable industry dynamics still requires people capable of executing the value creation plan.

The sweet spot, in Faux's framing: "industry dynamics that are good, but stable," paired with strong competitive advantage and a management team that clears the minimum bar. That combination typically allows for reasonable entry pricing, which makes the math work across a range of exit scenarios.

This isn't a novel framework. What distinguishes its application is using these factors as actual decision gates—not inputs to weigh against each other until the deal looks better. Most investors can rationalize away a weak management team if the industry and price are attractive. Faux doesn't.

When the Framework Gets Tested: A First Deal in Crisis

The most instructive part of Faux's conversation isn't the framework. It's what happened when reality violated it.

His first significant deal was a market leader in what appeared to be a declining-perception industry. The company had clear competitive differentiation and was growing quickly—but carried one notable risk: customer concentration. One customer represented an outsized share of revenue.

Six months after close, that customer's management team turned over. The incoming team replaced all existing vendors. The revenue stream disappeared entirely.

Then COVID hit. The business served industries forced to close. Additional revenue streams—plural—collapsed to zero.

The CFO and CEO brought in to drive the value creation plan recognized they weren't equipped for a crisis of this magnitude and exited. Faux found himself, at 29 years old and with no operational background, serving as interim CEO.

"The value of the business was so far below zero it was hard to even see the light of day," he said.

What followed was a methodical approach to crisis management. Faux made biweekly cross-country trips during a period of restricted travel. He held the employee base together—navigating "an extremely difficult balance of trying to convince all of the employees not to quit while at the same time making sure that they were still motivated." He worked through problems systematically: "one problem at a time, one day at a time, one week at a time."

The turnaround worked. A new CEO came in, strengthened the talent base, and maximized the company's existing competitive advantages. The business became Clearview's best-performing portfolio company two years in a row and has nearly tripled in investment value since the original entry.

The failure condition this experience revealed: customer concentration was a known risk, but the compounding of adversity—customer loss, pandemic, and leadership departure arriving simultaneously—wasn't modeled. The lesson isn't that concentration risk is always disqualifying. It's that crisis scenarios compound, and resilience in the investment team matters as much as resilience in the operating company.

The Value Creation Playbook: "First-In Institutional"

Clearview's positioning is deliberate. The firm targets businesses early in their institutional maturity—companies with real competitive advantage and growth potential but with the operational infrastructure of a smaller, earlier-stage business. The thesis: help them double or triple in size by professionalizing what they've already built.

The firm's interventions cluster around four common bottlenecks:

• Management capacity — founder-led businesses often hit a ceiling where the existing team can't execute the next level of growth
• Systems and infrastructure — processes and technology that work at current scale but break under growth pressure
• Business development — informal or immature commercial functions that need professionalization to scale revenue predictably
• Strategic expansion — greenfield geographic moves or add-on acquisitions that the business is hesitant to pursue without institutional backing

Importantly, Clearview doesn't operate with an embedded operating partner model. Faux describes an approach that respects founder management while bringing outside resources where appropriate—but requires the internal team to execute and sustain improvements independently. This distinction matters. A portfolio company that performs well only with an operating partner embedded isn't building durable value. The goal is permanent capability uplift.

For PE firms navigating this challenge in their own portfolios—finding the right operational support without creating dependency—BluWave's 100-Day Value Creation Playbook and resources on building high-performing teams in PE offer complementary frameworks from operators who've solved similar problems at scale.

What PE Investors Get Wrong About People

One of Faux's sharpest observations targets a skill gap the industry consistently avoids discussing: people evaluation.

"Almost nobody focuses on developing people evaluation skills," he said. The industry trains intensively on valuation, financial modeling, and memo writing. Those are teachable. Evaluating whether a management team will execute—under pressure, across a four-to-seven-year hold—is treated as intuitive when it's actually a learnable skill most investors never deliberately develop.

Faux has developed specific indicators he looks for:

• Depth and detail in how someone discusses prior experience — polished executive summaries indicate a different relationship with the work than granular ownership of outcomes
• Obsessive pursuit of external hobbies — high achievement orientation tends to manifest across domains, not just professionally; it's a durable signal
• Individual motivation — understanding what drives each person informs how to structure incentives and what circumstances bring out their best
• Cultural fit — even technically excellent candidates with real drive can fail if they don't integrate. Faux calls it "organ rejection": the company's immune system pushes them out despite their credentials

This is consistent with the broader shift in how PE firms think about human capital versus traditional human resources—treating people decisions as core investment levers rather than administrative functions. The firms that develop institutional people-evaluation capability have a durable edge.

The implications extend to lower middle market investing specifically. At this end of the market, management team quality is often the primary differentiator between a good investment and a great one. Market dynamics are frequently less differentiated than in the mid-market, so the team variable carries disproportionate weight in the final outcome.

Resilience as a Learnable Competency

The through-line of Faux's conversation is resilience—not as a personality trait but as a professional competency that can be deliberately cultivated.

The competitive swimming background is more than biographical color. Training at 4 AM for a sport where "you only have two meets per year that really matter"—two chances to convert years of preparation into performance—builds a specific relationship with delayed gratification and sustained effort under uncertainty. That relationship translates directly to an investment holding period.

The motivational framework Faux carries from those years: "Excellence is the capacity to take pain." Not the capacity to avoid pain, or minimize it, or endure it stoically—but to use it. The near-zero portfolio company crisis wasn't an aberration from the job. It was the job, in concentrated form.

For younger PE professionals, Faux's advice distills to three things: embrace the team dynamic over solo excellence, develop people evaluation skills deliberately, and understand that progress in this career often feels nonlinear. "Sometimes success means being able to withstand feeling like you're getting kicked in the teeth over and over again," he said. "Eventually you step back and realize you have something pretty good."

For PE firms navigating current uncertainty—deal activity headwinds, portfolio company margin pressure, repricing across sectors—Faux's framework applies directly. Use instability to expose operational sloppiness. Right-size teams before you're forced to. Build internal efficiency before the recovery. Position for acceleration when conditions improve. The firms that use adversity as an operating audit emerge with stronger businesses.

Is Your Portfolio Management Team Ready?

The principles Geoff Faux describes—disciplined deal evaluation, early operational intervention, strong people judgment, and sustained resilience—are the inputs to value creation in the lower middle market. The people-evaluation piece is often the hardest to get right, and the most consequential.

Need help assessing management team readiness in a portfolio company? BluWave can connect you with PE-specialized executive assessment experts in 24 hours. No search cost. No false starts. Just the right resource for the specific situation.

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