Private Equity's Guide to Strategic Talent Management

[00:00:00] Lloyd Metz: Get ready to peer behind the curtain of the private equity universe with each episode of best, but never final. Hi, I'm Lloyd Metz joined by Doug McCormick and Sean Mooney. Together, we'll navigate the quarters of private equity, revealing the uncommon knowledge, challenges, successes, and lessons that drive the world of private equity and business forward.

Let's go.

[00:00:37] Sean Mooney: All right. It is great to be back with. Doug and Lloyd. Lloyd and Doug, how are you guys doing? Hey, Sean.

[00:00:44] Lloyd Metz: Hey, Doug. Great guys. Good to see you. Likewise. Good to be back.

[00:00:49] Sean Mooney: It's good to be back with you all. I'm super excited. I've missed you. And today we've put on the docket one of the most important questions, a topic that constantly evades my understanding.

It is the art of hiring and the complexity of humanity. In a world of IQ and the private equity sphere, we're talking about EQ and humanity and all these good things. But it's probably one of the most important things in the modern era of PE.

[00:01:19] Lloyd Metz: I'm game. I'm up for it. Let's go.

[00:01:21] Sean Mooney: So are you ready? Are you in a safe place?

Are you ready to kind of like peel back the onion? Go be

[00:01:26] Doug McCormick: vulnerable.

[00:01:28] Sean Mooney: Let's do it. All right. So now that we're all ready, everyone take a deep breath in, deep breath out. This is going to be an important topic because it is. And I think all the data does show that the most important and largest trend in all of PE is what's been coined in private equities, human capital.

And it's interesting as I just reflect back on blue, I mean, you look at all the data that comes in from all the projects from you all in 2018, 18 percent of the projects were related to people today. It's close to 50%. And so it's just because it's so important to building value, transforming companies and.

letting these companies become the best version of themselves. And I think what a lot of people miss is that private equity is absolutely about a hiring and adding game. It's not that 1980s movie that people think about. Does that sound like a good preamble?

[00:02:20] Lloyd Metz: Yeah, I definitely want to hear more about what you're seeing at BluWave.

And I say that because business leaders and business books and the academic world of business, they've been talking about people and people matter. for decades, right? So I'd be curious to see or hear what's different today. So we'll talk about that. I'll share Doug will too, but I would love to hear Sean, what you guys are seeing.

That's different.

[00:02:45] Sean Mooney: And maybe before we even jump in, we can talk about at least what we're seeing and this will establish the why of our conversation here. And if I reflect PE, it was an arbitrage game. You're buying low, you're selling high. It was still really hard because there's information asymmetry.

But there were room in the returns to kind of add a kitchen or a bathroom to the business, if you will, proverbially, but you didn't have to transform it. And then as it got more competitive, you had to buy at a fair price, but you weren't going to buy low so much. And then you had to transform these companies.

And what that means is you got to bring all these skill sets that weren't resident and you got to top grade and upgrade all these skill sets. And then you got to keep your good ones and then you can't afford to do midstream changes because you got to do all this in three to six years. And I think as that became more and more established as like this financial arbitrage was gone, everyone realized you got to do people.

So what we get called for every single day is specialized recruiters because you got to get to the right person faster. You got a lot of interim executives because if you have to make a change, you can't have an empty seat for six months in a three to six year hold. And then the biggest thing that never really existed was lots of organizational effectiveness, voice of the employee, coaching, all of this stuff has come up in a big way that really was never part of the toolbox, certainly 10 years ago.

Does that kind of align with what y'all see?

[00:04:16] Lloyd Metz: Yep. That's helpful. Thanks, Sean. Where do we start, right? I think at a big picture level, having the right people in the leadership seats at your portfolio companies increases the likelihood that you will be successful with the investment, that they will execute well, hit the growth plans well, take the necessary steps to grow the organization, to support the growth of the business.

They're culturable, right? So they listen to the board, take direction. Those are sort of key basics that you look for in the leadership team. And the fact of the matter is, And at the lower middle market, maybe it's more acute than it is in the larger organizations, but oftentimes the skills that got you to build the company to whatever level or Doug or I, or any other private equity firm meet you, you have to figure out, can that leadership team, can those individuals continue to scale and grow the business or have they sort of reached, or are they close to reaching?

The extent of their abilities and skills and so you got to figure that out pretty quickly and accurately.

[00:05:31] Doug McCormick: I'm really compelled by the term that Sean uses, which is this kind of human capital concept versus team building or, you know, maybe hiring and firing like hiring is a specific thing we're gonna talk about today, but it really has become kind of a strategic element of business, I think.

And so human capital implies a lot more than simply putting the right team on the field. I Organizational design, it's team and individual development, and it's the compliment of then how do you give your team additional tools that they can effectively use? So I do think it's become just much more strategic if you're good at it.

And the more competitive the market gets, I think this is like the unlock that gets people to be able to continue to add value. And I would say like, we'll probably talk about it. We all talk about it in the positive sense of, you know, This is how you create value, which I believe it's true, but it's also how you mitigate risk.

So it's kind of like a double edged sword in my mind. It's you get the right human capital and you can drive growth. The right human capital also helps you mitigate risk in the context of COVID or other things that are exogenous factors. You can't really

[00:06:44] Lloyd Metz: underscore what you're saying, Doug, even calling The executives who are typically over this sort of function or these roles, HR, I generally don't even like that term and don't even use it.

It's definitely more about talent development, talent assessment. It's absolutely more about that.

[00:07:04] Doug McCormick: And we'll probably leave this behind, but it's like, in my mind, HR 20 years ago was thought about administrative support to make sure people had Appropriate benefits and access to the basic resources and everybody's keeping calendar on vacation type stuff.

And now it's become much more, if you're good, much more strategic.

[00:07:24] Lloyd Metz: Yeah, I would argue it's a completely separate function.

[00:07:28] Sean Mooney: It's really interesting, even just talking about human resources and as human capital evolved as the term of art and private equity. At first I was like, does that diminish the humanity of it by calling it human capital?

And I was like, Talking with a friend of mine named Joelle Marquis, who is the president of Arsenal Capital. And she has a really interesting background in that she was one of the first heads of human capital in all of private equity. She rose to one of the most senior positions in the firm as the president of the company, being their human capital person.

We were talking, and I was like, I don't know if you should call it human resources or human capital. And kind of building on what you were saying, he's like, she goes, I really don't like human resources as a term, Because a resource is something you consume and deplete, you know, whereas capital is something you invest in, you grow, you make better.

And when she said that, I was like, that makes a thousand percent sense and something I never really connected. Maybe to structure this, Let's talk a little bit about, we've talked about kind of the why. Let's talk about your approach to hiring and maybe some of the things to kind of foreshadow for our listeners.

We'll talk about how do you prepare for hiring? What's the process of hiring is kind of onboarding and then maybe tips and pitfalls that you've learned over time. Does that seem like a good agenda?

[00:08:48] Doug McCormick: Yeah, Sean, it does. And I think there's important context though. We're going to go deep on hiring, but the context here is a lot of really good decisions are made.

Or not made by the time you get to the hiring decision. And so in many cases, the magic is determination of the need. How quickly do you identify that? How quickly do you act on it? For me, it's much more about being forward looking as opposed to rear looking and isolating what's in the market versus what is a management challenge.

And then I think there's a lot of good work around org design and clarity of role. In the terms of job description, and you got to get those things right as Foundations. Before you can actually go get the good hire. And that's hard in and of itself too. If you don't have a clarity around org chart, job description and the need, you're sure to fail.

[00:09:40] Lloyd Metz: Particularly in smaller companies that may be closely held, family owned and operated or founder run. A lot of what Doug's describing is arguably a big part of diligence before you are actually making the investment, trying to get that figured out.

[00:09:56] Sean Mooney: I think those are both such really good points. It's this whole, like, if you're failing to prepare, you're preparing to fail kind of mindset in so much of the success of not only the hiring process, but your strategy comes from that work up front.

That's the hard kind of unglamorous. Kind of unfund stuff, but sets everything else up for success. So idea like what you're saying is like, you got to be a chess player, not a checkers player. And if you're just hiring without a broader vision and plan, that's good luck. I think it's a great way to kind of frame before you even get to hiring.

You really got to be thoughtful about where do you want to go and then tying your human capital strategy to your overall business strategy.

[00:10:39] Lloyd Metz: And Doug's touched on it. Maybe we'll get to it in a little bit, but a big part of our diligence involves human capital assessment, talent assessment, personality assessments, because you need to know one who you're about to partner with as best you can, and two, to the extent that org diligence or the growth plan dictates hiring new people or promoting people from within, you need to know what The existing leaders are like as a group.

So when you're hiring in, you want to know, is that candidate going to fit and how they need to fit? So it actually informs part of your criteria for hiring, knowing who the team that they're going to be joining, what their makeup is like, but we can talk about that as long as you want, whenever you want, but that's something that should not be overlooked.

[00:11:35] Sean Mooney: Once again, I think it's so important that you're pointing out in this evolution of kind of like approaching hiring. I'll use my former self as like what not to do. And I really do that. It's just a lot of things. It's been a journey, not a destination for me, but it's just like, I used to say like, Oh, we're going to get the closest to an A in an equal coefficient in each of the C suites.

And what means we're going to average down to a B plus in every seat. Cause that's what we can afford. And so, one, it's like, no, in some places you're probably going to go for an A, and then you're okay with a B in another place, so it doesn't have to be equally spreading the chips. But, secondarily, Lois, you're talking about, it's like, you also are, have to hire in the context of the entire team and how it works well together.

It's not just these kind of like, put someone in the seat and they exist in their own individual orbits. And so I think that's a great kind of foundation for, before you even talk about hiring, you have to do all of that work first. And so now you've done that work, you've got your business strategy, you've tied your human capital strategy to this, you understand the culture of the team, and now you're hiring for it.

How do you all approach that and say, okay, we know we need a CFO? What maybe is an example that's, Regularly hired for in private equity or a CEO, whatever example you want to use. How do you then go say, or we're going to hire, what do you need to do tactically on that hire first? And how do you approach that before you start talking to candidates?

[00:12:59] Doug McCormick: Yeah, I'll take a stab at that. You know, we just talked about all of the variables that are contributing to the success of these decisions, the org chart, the culture, the skill sets. And so my general bias is to standardize as much as possible. Okay. To minimize the variation. And this is one of the hardest things I think we do.

And so by doing that, I think you can isolate the variables that are most important. And so we try hard to force anybody that's in the hiring decision making to be pretty standard about the criteria that we're evaluating and how they're getting to their answers. And we kind of make decisions by committee in terms of like, Multiple people interviewing the same person, hopefully with the same type of interaction.

So we all heard the same thing, and then we could evaluate kind of the same results. If you will,

[00:13:49] Lloyd Metz: we take it back a step or two. And by the way, Sean, our process has evolved as a firm and just even individually over the last 10 years, we used to just approach interviewing. Hey, we want to hire a CFO to use your example.

And then we would talk to a search firm and get resumes and Oh, this one looks good. Oh, they look like they have a good background and we'd interview and then we make a hire. Now we've evolved in to a much more structured and intentional approach. So the first thing we always do, particularly for C suite hires is develop a scorecard.

And this is very much coming out of the GH smart model of the world, the private equity. Individuals, partners, our operating partners, our deal team will sit down and sketch out what are the objectives that we want this CFO to accomplish and how do we want them to accomplish it. Very specific, like super specific.

And then we'll go and work it through with the CEO and whoever else is in the leadership team, maybe the founder of the company. And we come to agreement that these six objectives is what we need the CFO to do and how we need them to do it. Stack hands. And then we go talk about hiring a search firm.

And then that scorecard informs and structures our interview and the questions we ask. And it structures our discussion once we've gone through and seen candidates, well, who's going to get moved on to the next round? Well, how did they stack up against the objectives we need them to? And it even shapes the specific type of questions we ask in the interview process.

And we have found it maintains integrity in the process. It removes a fair amount of bias. We're like, we're human beings, so everybody's biased. We're biased by our lived experiences, right? It removes a lot of that from the process and it can be used as an accountability tool, right? So I wind up liking somebody because of they made me laugh or we went to the same school or whatever it is, but they only check two of the six objectives.

Well, now you and Doug can say, I hear you Lloyd, but they only check two of the six objectives. They completely don't meet the other four. And these candidates over here meet five of the six objectives. What are you talking about? And it becomes less personal. And it is a tool for you all to hold me accountable or for us to hold each other accountable.

And it clarifies things. So it works really well. I find.

[00:16:32] Doug McCormick: Well, it says you think about your scorecard just to give the audience a sense of a little more clarity on what that looks like. I'm assuming it's kind of six or seven categories and you're kind of given a Harvey ball, full circle, partial circle, or are you like very precise about the weightings and the score?

Give people a sense of like how precise your scorecard is.

[00:16:54] Lloyd Metz: Yeah. And this is just our approach. Other people have different approaches. We don't have weightings. We do prioritize one through five or one through six. So number one is the most important and there's usually some number of sub elements to it.

So making us up, we need the CFO to help the company grow EBITDA from 10 to 30 in the next four years. How do you want them to help in that? Right? So it's Being the cost czar or implementing an ERP and reorganizing all of the internal processes or fixing billing and collections, whatever it is that you think they need to do and can contribute in growing EBITDA from 10 to 30 in the next four years.

That's what's in the sub elements of that first objective in the scorecard. So when you now interview that candidate, you'll say, Hey, have you ever, Revised or rebuilt or re engineered a billing and collection system, or have you ever done an ERP implementation? It helps you ask more specific questions versus a random walk through a resume.

[00:18:11] Doug McCormick: Yeah, maybe just give a little context to how we think about the scorecard and use it. My own bias is early in a process. I'm more focused on fit and kind of softer skills. And so we're less scorecard oriented and more like, do we think this person would fit well within the organization? Do we think we can work well with them?

And there's a bias to include people onto the next phase or pass people onto the next phase because I'd rather interview too many times than miss somebody early. And then as we mature the process, we get more disciplined about like the scorecard. And I think that allows us to kind of keep things moving and evaluate at pace.

And then the one comment I'd have to the scorecard is, I want to apply a scorecard to the same game. And what I mean by that is, we like to do, when we get serious, let's say you're down to three folks, I want all of the decision makers to hear the same interview. And it's almost like a three or four on one discussion, because then you have a chance to evaluate the scorecard in the context of the discussion we all sat in on.

And to me, the best content for that is less about a resume review and more about here's a business problem we're dealing with right now, you've done enough work that you can have a conversation with that person in a way that like they begin to tangibly talk about how they would kind of serve in the position.

[00:19:38] Lloyd Metz: That's great. The one thing I just want to make sure I'm clear about is the scorecard in my example, make it sound like it's a very quantitatively oriented. You can put soft skills and we absolutely put soft skills on the scorecard too. And that prompts you to ask the soft skill oriented questions, right?

How have you built out a team? How have you coached and mentored and developed talent, et cetera. We definitely have those on the scorecard for sure.

This episode is brought to you by HCI Equity Partners, a lower middle market private equity firm focused on partnering with family and founder owned manufacturing service and distribution companies. ICV Partners, an innovative private equity firm supporting management teams of leading companies at the lower end of the middle market.

And BluWave, The business builders network connecting the most proactive business builders in the world with the best of the best service providers for critical variable on point and on time due diligence and value creation needs now back to the episode.

[00:20:54] Sean Mooney: And I think that's a great thing. Like you should absolutely have your culture, your values, your attributes. In addition to skills and that. As I was thinking about how you're describing the scorecard approach, which has proven to be really effective over time compared to like, do you like the person, which is what people used to hire people.

Do you like them? And then that almost always causes bad outcomes. It causes bias that you're going to hire who you like versus who has the skills and the attributes you need. But as I was thinking about I don't know if I really connected this as you guys are describing this. It's almost like a natural water falling or latticing down of how you start with an investment.

You start with an investment thesis. I believe this company, when you're looking, investing company has these attributes that will be needed for success. You test each of those in kind of a scientific methody type way, yes, no, or in between. And then they say, yeah, this is a great company. And now you're just naturally kind of progressing that for the people you need.

All right. I believe that these people need these skills, these values, these attributes to do what we need to do at the top of our. waterfall to make this thing happen. And it's just kind of this really natural extension, almost like an OKR, of getting so much alignment throughout everything to make it have the greatest chance of success possible.

The other thing I'll just say for our listeners, I went down in a deep dive on all this when I first started hiring people. As I said, like I'd interview like every CFO in the market and realize it was the second one. I'm like, Oh, no. For people who are interested in learning more about where all this came from, it's a duo called Hunter and Schmidt.

And if you Google them, you'll see that they kind of did all of this like deep psychological work. Kind of scientific method driven analysis to say, how do you hire someone best? It's called structured interview process. So I won't take everyone down that rabbit hole, but if you want to go and see the origins, like a lot of this started In the 80s and 90s And then it's just gotten just like in kind of the name of the podcast your best but never final It just gets better and better and better in terms of making sure you're getting the best people for the opportunity And making sure those are aligned with each other

[00:23:06] Doug McCormick: just to highlight one thing We talk about like Getting to these decisions sooner in an investment has the impact on the trajectory.

But I think you really bring up a really critical point of once you start a hiring process, there is real value to speed and it's not related to your internal situation. It's related to a dynamic external market. If you're a efficient market guy, you would say that the best talent is also the most in play.

And so when you find someone, there's this balance between Making decisions with limited information because you don't know the entire market, but you think this person's good. And then also, I've seen us miss people because our process was too robust, too mechanical, too methodical, and took too long. And so, you've gotta maintain a flexibility where you say, This is an exceptional person, I gotta fast track our process in a way that allows us not to miss that talent.

That's hard, but it's a fact of the circumstance.

[00:24:10] Lloyd Metz: I couldn't agree with you more, Doug, and we, we've fallen victim to that over time, and we try to get better at it, and a part of that evolution, and literally just had a conversation about this a couple days ago, is trying to put some of this assessment screening actually in the front end of the funnel, and that way by the time you're down to two or three candidates.

You can actually go now with intuition or gut because you've cleared all of the deal breaker sort of elements, attributes, characteristics, all the stuff that are problematic, you've screened those out, and you've screened for all the positives, and generally we try to put it. We, the private equity folks in the front end of the funnel.

So that almost by definition, the folks who are in the final two or three, we're good with either of them. So then we'll put it in front of the leadership team. So it's like they check the scorecards. We're good with all of them. So we can actually move faster. That's the intention.

[00:25:10] Sean Mooney: I think you're both so smart, spot on.

It's like, it's so important. Why wouldn't you treat it like any of your most important processes in the world? So you're kind of describing almost like a lean Six Sigma. Like, how do we get to the best outcome in the shortest period of time with the lowest amount of variability in your building quality into the system so that you don't find the important things out at the end.

And that's exactly the way we do it. So it's like, we value stream map the process. We use an HR system that enables our HR manager to really orchestrate someone through our process and her SLA is,

[00:25:44] Lloyd Metz: there's that word again, HR

[00:25:48] Sean Mooney: hiring manager, but like we try to get someone through our. Entire process from maybe to yes or no within two weeks.

And that was really important, like two years ago when the market was so white hot, but it's still important. Why wouldn't you use it as a strategic advantage? I love, love, love what you all are saying there. You've done your first organizational strategy. Now you have your scorecard and now you want to be prepared to get the best candidates, In the fastest period of time with the best outcome.

Do you all typically use recruiters for your hiring processes, particularly the C suite?

[00:26:23] Doug McCormick: Yes. Yeah.

[00:26:25] Sean Mooney: And a lot of people like we'll come into, they're like, Oh, I don't want to spend the money on recruiter. Why do you use a recruiter?

[00:26:31] Doug McCormick: It's speed of execution. We end up hiring the recruiter that has the most.

Relevant placements in our industry or business model, right? So if you do it right, this person is trafficked in the talent equation you're looking for, like for the last six months on other very relevant things. And so in many cases they can repurpose that pool. We find that it's a really quick way to hit the ground running and you got very good context.

[00:26:56] Lloyd Metz: The bottom line is, no matter how great your network is, and you can think of five candidates that you would call for this position, finding the right search firm, you'll see other people. There's people out there that you don't know about, who may not be obviously looking. That's what search people do.

They know that Lloyd is Where Doug is or Sean is at this organization working away, they're doing great. They're not obviously looking to leave, but for the right opportunity, they might. That's what you're paying for. And I also find that when you do meet these other candidates, it can help sharpen your perspective.

If you structure your questions the right way, you actually learn a lot from them that can inform your view, can help onboard your final successful candidate better. It's a worthwhile process to go through.

[00:27:50] Doug McCormick: The other thing I'd say is I think good recruiters have evolved into also being good evaluators of talent.

If we interview 15 candidates, they probably interviewed 115 candidates to get to the 15 that we saw. And so that's a great way to be efficient and focus on the value add decisions as opposed to a lot of activity with not a lot of outcome.

[00:28:11] Sean Mooney: It's really interesting. You can see kind of the alignment of this conversation.

And I totally agree with the recruiter. It's how do you get the most access to the top candidates in the shortest period of time? Ideally, someone who already knows your candidate before you even call them. And so they're spending time it blew it. We have this really interesting vantage, right? Working with the large number of firms like yours.

Every month, one of the top three reasons we get called is for a specialized recruiter. And the same thing we take them and I recommend to anyone who's looking to recruiters, pick your recruiter the same way you're picking your candidate. Have a scorecard. What do they need to have? What's important? So what do we do every time?

Well, really for every project we do, we take them through a scorecarding exercise. With all the questions so that we can get them literally within one business day, the top three recruiters who already know your candidates. And then you just pick one of the three and who are always fishing in those same waters.

So like when you call them. The biggest thing I would be mindful of is like a Jedi trick for you all and anyone hiring that's listening. If your recruiter uses the word find a lot, be careful because that means they don't know. They should know who your candidate is or at least have a handful of like, I know this person, this person, this person, because it shows they know your industry, your segment, your company, et cetera.

And so that would just be one thing I'd say is like, The same alignment, it's like find your recruiter the same way you find your person, do a scorecard, find what's important, measure against them, and then get all this precursor and then get ready to run. Last thing before we talk about precursors, do you use any hiring advisors, the GH smarts of the world?

[00:29:53] Lloyd Metz: Yes, we do. Several.

[00:29:57] Sean Mooney: What's the added benefit there?

[00:29:59] Lloyd Metz: They consistently surprise me with the information they can get out of people. It is mind boggling. Like we'll read the report and Hank regularly read and react like, holy cow, they actually said that to you. Who would actually admit to that? Right. But it sounds worse than it is.

But the way I describe it to executives that are about to meet our people that we work with. I was like, think of it as like a late night talk show. It's got that conversational feel and it's not like you're getting drilled and interrogated. It's very much like being on a late night talk show and you're talking about stuff and things come to mind and you kind of go with it.

It's useful because it does give us some depth of understanding because it's important to us to know, how is Sean Mooney wired? What motivates him? What are his insecurities? And then one, make sure we don't inflame you or we don't hit all your hot buttons inadvertently as we like are starting to work together, right?

What gets you excited, right? If it's not anything that we would naturally know, maybe we're missing opportunities to make you feel good when we're working together, right? Because I don't know what excites you. Second, We at our firm have gone through the same exercises and assessments that we put people through so now you can literally say, I'm about to partner with Sean.

How will Sean and I get along? How should we work together? Are there personality and characteristics of mine? They're going to irritate the hell out of Sean and vice versa. And at least knowing that going in, I can say literally the way the rubber meets the road is we'll have lunch or orientation or retreat or whatever it is.

And I was like, Hey, Sean, this is how I am. Just so you know, and I'm trying to get better at it, but you'll probably be annoyed by these three things that I do. So when it happens, I'm Well, you can have a swear jar or we can do push ups or we can have a code word or whatever that says. Hey Lloyd, you're doing that again and we'll just work through it or whatever it is, right?

But it gives you an opportunity to acknowledge it, talk about it and work better together despite it, right? But if you don't know, you can't do anything about it and that can lead to misunderstandings or lingering resentments, all that stuff, right? that are just avoidable if you take the right approach.

[00:32:38] Sean Mooney: And do you typically use these groups late in the process, middle, front, where do you typically bring them in?

[00:32:46] Lloyd Metz: So as part of our evolution over the last 10 years, it used to be toward the end, and we're finding ways to bring more and more of it earlier in the process of making an investment. So it used to be post close, now it's pre close, and then there are elements of the assessments that we're able to pull even further earlier.

[00:33:08] Sean Mooney: I like that. I used to use those groups when I was in your shoes, and if I were honest with myself, if we've gone through a six month hiring process and I got it at the very end, I would rationalize everything that was in that report way. I'm like, we're hiring this person

[00:33:24] Lloyd Metz: time. Yeah, that's right. I

[00:33:26] Sean Mooney: regret it.

So I like how you're bringing it forward.

[00:33:28] Lloyd Metz: Right. Because you're pot committed at that point. And who's going to, who's going to walk away. It's

[00:33:35] Sean Mooney: just too. And you're like, all right, yeah, this is a good point, but you're probably wrong. Let's go. And then 6 months later, like, oh, they were right.

[00:33:45] Doug McCormick: Maybe just compare and contrast a little bit.

So, as I think about, like, our support resources, so I would put the recruiter in this bucket, a support resource for our human capital needs. We have an executive partner that focuses on human resource issues. And so I find him to be a great resource. And then the third element would be very specific personality and aptitude testing that we do that we found predictive, but I kind of view all three of those is a little bit specialized.

When you think about like outside advisors, are they advising you? In a more holistic way and it's a more generalist, or is it more like you're bringing in special assessment tools, et cetera.

[00:34:25] Lloyd Metz: So we're bringing in assessment tools. So most of our focus is on the third category that you laid out, right? The assessment, personality, the psychology, et cetera.

We have a separate person that helps us understand organizational dynamics. Less design, more just dynamics. Is the team functioning well or are they very dysfunctional and what's the source of the dysfunction? Are there dysfunctional individuals or is it the culture? That's a separate person. That's how we break it up and think about it.

[00:35:02] Sean Mooney: And we do the same thing kind of to what you are talking about. We'll use a cognitive aptitude and essentially a personality assessment tool that's really quite quick. They're like 15 minutes each and we put that. at times up and right after the screening interview. So we can just get them out of the funnel if there's just obvious bad fits.

It's interesting.

[00:35:24] Doug McCormick: We have a slightly different model and I'm intrigued by yours. My experience has been that this test is pretty invasive and extensive, so a good half a day and there's probably some prep that happens before. And so my bias has been You scare people if you say after the first interview, Hey, here's a day and a half with an industrial psychologist.

So our experience has been like, you do that with the last couple of finalists and maybe it has to do with C suite. Cause I think in many cases, if you're hiring for the C suite, this person has already proven a fair amount of competency and success in the relevant application. And so the chance of a big, big miss, I think may be smaller than other parts of your organization.

[00:36:09] Lloyd Metz: That is true. So a couple of things, Doug. One is our industrial psychologists aren't really representing a firm. They're individuals. So it's not, you're going to meet with industrial psychologists. It's literally, you're going to meet with Doug. Doug shows up and like I said, like late night talk show, right?

It's all about you and telling stories. The other piece that you raise that we have come to consider seriously is, you may have been a successful CEO, but you also have to pay attention to the period of time that you were a successful CEO, and was it a sunny, calm seas period of time that you were successful, or was it a choppy, swirling currents?

Type of environment when you were successful ceo and normally we didn't really pay that much attention to it, but we've been paying more and more attention to it because sometimes people aren't good. Rough seas ceos they need sun and steady wind in their sales and relatively calm waters to be successful and when things get choppy and swirly performance changes mindset changes.

And so we've started to try to look for agility, right? Cause you can't predict necessarily whether you're about to enter a period of turbulence in your market, or is it going to be smooth and up into the right? Sometimes we just try to be more intentional about finding people who are mentally and emotionally agile and resilient.

[00:37:50] Sean Mooney: And the only other piece of advice I'd give on this just because working with so many of these heads of human capital PE firms, I always like pick their brains really selfishly so I can do it here is like our ultimate little skunk works. And there's a lot of ways to do this. There are some very high end assessment advisors that are pricey.

There are others that are spin outs that are less so. There are other groups that in different approaches. So you have a lot of ways you can take it. There's also a DIY so you can use off the shelf assessment tools. Like Hogan, CriteriaCore, Predictive Index, Wunderlich. There's lots of ones that you can use.

And the best advice that I've gotten is, pick an approach, and then use it regularly. And then you're going to be able to, in your mind, then have pattern recognition about this readout equals this kind of outcome. And then knowing it's still only going to be 50 percent more informative. Because like, you know, the complexity of humanity still can't be summed up in a test.

Have it part of the mosaic of your hiring process. It's not God's

[00:38:53] Doug McCormick: honest truth. That's exactly right. Because you know, I'm a numbers junkie. I totally agree with what you've said, Sean, and we've actually done that where we've used the same evaluation firm on the aptitude and personality for more than a decade.

So, you know, we have an observation set of call it 75. And so then we try to kind of say, okay, so now if you overlaid what went well with those 75 candidates, which we've tested and hired. And then did they turn out as expected kind of insights? Can you tease out? And the things that were interesting to me were one is there's always a minimum amount of intellect required to be successful.

But once we found a certain amount, it wasn't like being off the charts differentiated, which was a kind of interesting takeaway for me of all the positions that required real intellectual rigor. It was CFO like that was the most highly correlated with that test. And personality attributes. I think we have a bias to hire certain personality attributes, which was interesting that kind of came out of the data, which is probably a reflection of our cultural personality.

So anyways, with all that, it's still 50%. Like I said, it's, it's still hard to get it right.

[00:40:08] Lloyd Metz: Give yourself some credit, Doug. You guys are probably better than 50 percent likely to get it right. That's the point, right? Like, even if you get it to 70, 30, you're still doing better.

[00:40:19] Sean Mooney: And smart enough is like the story of my life.

Just smart enough, you know? So I like that point.

[00:40:27] Doug McCormick: Smart enough with a really good work ethic gets you there.

[00:40:29] Lloyd Metz: That's right. To your point, I was reading this blogger recently, and there was a quote. It's like, there's somebody out there right now who's 10xing their life because they can't overthink it. Yeah.

Right. So. Cautionary tale to being too smart, right?

[00:40:47] Sean Mooney: Exactly. Thank God. That's good to hear. All right. So you've done all this prep. What's kind of that sequence? How do you kind of work them through the process? Like what's kind of the tips of the waves on what's the sequence of events that unfolds from there for each of you?

[00:41:04] Doug McCormick: I think I would describe it as on the front of the funnel is pretty informal. As I mentioned, general assessment of fit. Less consistency about exactly which team members are interviewing folks, and that's to get people through the pipeline as fast as possible. And then we go increasingly in depth in terms of what the content is that we're trying to evaluate.

And for us, an ideal process is matriculating at least two, doesn't always happen, but at least two candidates to the point where you're kind of in a position where you're trying to make a decision. In that scenario. We're going to have folks from the deal team, the ops team, and maybe the company, depending on what the position is, who are going to evaluate that candidate in an interview setting.

And for us, as I mentioned before, I think a case study where you give them some relevant information and then ask them to just tell you how they think about the problem. Or the issue or what they would do, I think is a wonderful opportunity to do two things. One, let them set the agenda. So you're not asking the questions, but they're coming to you with a recommendation and solution and to making.

their work style very tangible. So that's usually the culmination for us. And I'm a big in person person if I can be. And so like, I want to be able to have done the case study and had a chance to have a drink or dinner with the person that kind of interact

[00:42:35] Lloyd Metz: human basis. Fairly similar. As I said earlier, we try to put the hard screens earlier in the funnel.

So if it's the personality assessment or temperament assessment or aptitude assessment, try to move that after the first round screen. The first round screen usually The search firm do that and then they'll suggest candidates to us. And then usually we private equity folks will do that interview, then the assessment, and then we layer it down to the leadership team members who are going to be in the process.

They meet next, then we huddle and down select, and then they go. Back to make two on ones with the leadership team or us or some combination of us and the leadership team. And then by that time, we should be in a position to actually extend an offer because you've cleared all the. Hard assessments, and then that's usually when you'll have the 3 hour or whatever it is.

Late night talk show experience, and then. We close it out.

[00:43:49] Doug McCormick: Just to offer a counter perspective, I see the merit of this. I don't totally agree with it, but I've talked to a number of recruiters who would say some of this third party testing and personality testing is kind of irrelevant. And it's so academic because you have a resume that shows this person's body of work for the last 25 years.

And if you're good at resume interviewing, where you can talk to the person about like what they did, who they did it with, why they did, what problems they had, what opportunities they had. There's so much good content there to really suss out. Is this person going to be good? My view is the cost of the other information is relatively cheap and relatively easy.

So why wouldn't you, I would acknowledge that for somebody that's experienced in like that resume review and eliciting the conversation, all kinds of really interesting opportunities to evaluate candidates there.

[00:44:45] Sean Mooney: And for our listeners. What Doug and Lloyd are describing is absolutely the way to do it well.

And research will show exactly what they're saying. It's like, this is the way you do it. You have these structured interviews. And really what's important is When you're interviewing and you're using these different approaches, it's important to use the word and not or. Don't just do an assessment test.

Don't just do a workplace simulation. Don't just do cognitive and assessment. You do all of them. And then what you're looking at is the mosaics of the people relative to each other that most align with what you need versus that scorecard that you've done all this work on. And that's what makes it so hard.

But if you do all the things that Lloyd and Doug are saying, you're going to be batting at a lot higher percentage then if you're Having everyone just kind of ask them questions that are fun and see if you like them.

[00:45:36] Lloyd Metz: And Doug, to that counter comment, it's why we like the written reports we get, because believe me, there have been many a times where I pull it out and reread it and it's like, okay, did we see this coming?

Let's say there's some behaviors that we've seen. Positive or negative. Did we see this coming? Was this something we missed? Did the assessment get it wrong or did they get it right? So we do definitely check.

[00:46:03] Sean Mooney: Okay, so you've taken everyone through your process. You've done everything. You've done all this hard work.

You got your right candidate. How do you then think about onboarding them for success?

[00:46:14] Doug McCormick: I think this is a really good one. And as we were talking about this podcast, yes, that question. And I was like, I don't think we have a good of a program there as we should. And so our onboarding is a little bit organic.

And what I mean by that is we've done a lot to evaluate the person we've communicated to the team and we have an ops team that's designed to help our management teams. And so there's some interaction with them, but other than that, I think it's a little bit of a missed opportunity for us.

[00:46:43] Lloyd Metz: I agree with that.

Sean, you're asking the question. I guess we think that this is the handover part and it's now in the hands of the leadership team. Let's assume it's a CEO in place, and we just hired the hypothetical CFO that we've been talking about in this episode. We probably wrongly assume that the CEO and the rest of the leadership team is going to onboard that CFO.

Where we do weigh in is Definitely insist on a conversation with our firm's CFO and this new CFO that we're talking about. So that they can have a direct line relationship. Our firm's CFO has relationships with all the portfolio company CFOs because they need to exchange information or ask questions.

They need to have a working relationship, but it's also an opportunity for our CFO to give advice because he's literally seen every single CFO at every single portfolio company we've ever had. best practices and bits of advice or whatever he can provide. But other than that, I don't know if we have as consistent onboarding process as we probably ought to.

And I land where Doug is, it's a missed opportunity.

[00:48:02] Sean Mooney: I would put myself in the same boat. This is something that I've been doing a deep dive on relatively recently. And to give credit to a couple of people who've kind of made me think differently on this. And so Devin Matthews and Paul Stancic from Parker Gale, a software private equity firm in Chicago, they have a really thoughtful approach and what they'll do is they will map out everything that the progression of what they think their first year will and should look like.

And so they're like that first year, we want you to be doing this by this time, this by this time, this by this time. And we're going to be talking about that, like how you're progressing on it. And then they also put that in the job description. And so it's a really, I think, clever approach. So the candidates are drawn to what they'll be doing or opting out.

And so they're building that quality into the beginning. And so we've started doing that. And then the only other thing. I think it's more about the culture that I was talking with Jay Jester from Plexuscap, and he was talking about this book that I've now since read called Meaningful Moments, where you can't, like, I have a hard time seeing these, like, meaningful moments, it's always looking ahead.

And he's like, oh, you gotta read this book. And he goes, but one of the things that's really interesting, like, when someone starts at your company, no matter who they are, what's the first thing they do day one? They fill out paperwork, they assemble their desk, they, like, load up software on their computer.

It's the most exciting moment in probably, like, At least one of the few most exciting moments in their lives, starting this new job and their whole day in the first day is like sitting in their desk and probably like screwing together monitors and putting their HR paperwork together. And John Deere was pretty famous.

Apparently what they'll do is like, they're going to come in and you're going to have the John Deere tractor. And the first thing they do is meet with. They're senior, most manager, often even times the CEO of the company, there's a balloon. They're doing all this fun stuff, the vision, all the exciting thing, like the paperwork happens later.

And it's just like, how do you start off with this kind of like celebration of excitement? And I was like, Oh, we don't do that at all.

[00:50:07] Lloyd Metz: And so that is, that is, I'm going to write that one down. That's really, really. That's a good one.

[00:50:15] Doug McCormick: If we only had cool products like John Deere's that you could let people come around on, it's like, here's my computer, this is where the magic happens.

[00:50:23] Sean Mooney: It's a ThinkPad. Click, it opens and it closes. I totally agree on onboarding, it's something that I've been trying to, once again on this kind of journey of like modest improvement over time, that was something that really resonated with me. And I think both of those. Folks had really kind of interesting approaches to it.

As we kind of bring this conversation to a head here, what are tips, tricks, and pitfalls? Some of the kind of sage advice that you've kind of figured out over time and like that we haven't touched on that make it go well, how it can go wrong, that kind of fun stuff.

[00:51:01] Doug McCormick: Three tips, speed is an asset, system ties as much as you possibly can, and then be willing to trust your gut at the end.

So if you get those three things, I think you've set yourself up for better than that odds.

[00:51:15] Lloyd Metz: The only thing I would Add is just don't negotiate with yourself. Go find better people. It's easy to interpret. Once you go through the scorecard exercise, that becomes the definition of a quote unquote, perfect person.

And then a lot of times people will negotiate with themselves immediately by saying there are no perfect people. Therefore I now have permission to compromise on my scorecard. Don't go to the marketplace with your scorecard and see how good you can go get.

[00:51:47] Sean Mooney: Those are. Super spot on. And the only thing I would add to those is in this market and in general, you're both assessing, but also selling the opportunity, make sure the candidates know about how exciting this is.

Sell it to the candidates as well, because you want them to want you and be excited about it as it is and will be. And I just also really appreciate like this, just trust your gut thing. Cause. I think every time I haven't listened to my gut, the gut was right.

And one of the primary reasons the only hair I've left is gray. And so

I think this has been a really Awesome conversation. I've taken actually a lot of notes myself here. So look out fellow BluWavers, because there's going to be some things coming your way.

[00:52:44] Lloyd Metz: Really enjoyed the conversation. Thanks. Good seeing you guys.

[00:52:49] Doug McCormick: A special thanks to HCI equity partners, a lower middle market, private equity firm focused on driving transformational growth through consolidation strategies.

By partnering with family and founder owned manufacturing services and distribution companies. Learn more at HCIequity. com. ICV Partners, an innovative lower middle market private equity firm, supporting management teams of leading companies at the lower end of the middle market. Learn more about ICV at icvpartners.

com. And finally, BluWave, the business builders network connecting the most proactive business builders in the world with the best of the best service providers for critical, variable, on point and on time due diligence and value creation needs. Learn more about BluWave at BluWave. com. For further information on HCI, ICV, and BluWave, and relevant topics discussed here in the episode, please see the episode notes for links.

[00:53:50] Sean Mooney: The views and opinions expressed in this program are those of the individuals presenting, and do not necessarily reflect the views or positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice are made herein. Consult your advisors regarding any topics discussed during this episode.

Join Doug McCormick from Oridian Capital Partners, Lloyd Metz from ICV Partners, and Sean Mooney from BluWave as they explore timely private equity topics and offer their seasoned perspectives on crucial areas of focus within the industry. Gain valuable insights from these industry experts in this engaging podcast tailored for PE professionals.