By Jim Etling
Increased equity: Inside the growth of Charles Aris’ PE Portfolio practice
Charles Aris senior vice president Jim Etling sat down with marketing colleague Cameron Warren to discuss the growth of the firm’s PE Portfolio practice and his recruiting efforts in the space.
Cameron: Over the past five years you’ve helped spearhead substantial growth in the firm’s Private Equity practice. Tell us a bit about the vision behind the practice’s growth and how you developed your recruiting expertise in the portfolio world.
Jim: I started the private equity portfolio practice largely because of my background. I was a CFO for 20 years and of those 20 years, I spent five as a portfolio CFO. I understand what a world-class CFO looks like in the portfolio space and I know what private equity firms need to attain the type of growth they are targeting.
The vision for the practice’s growth was to partner with as many PE firms of a certain size and type that our firm could bring value to as possible, and begin to earn the right to compete for business with the rest of their portfolio.
Instead of making individual calls to 15 portfolio companies under a private equity firm, I focus directly on the firm itself, establish a relationship with them and knock that first search out of the park. This route is more effective and gives you the availability and opportunity to work with all their portfolio organizations. However, there’s no guarantee you’ll be given additional projects without additional conversations. So even if you’ve done a great job on a search, the PE firm may call with another portfolio, introduce us to the CEO, and we need to be able to pitch our ability to handle that search.
Our strategy has developed in recent years and a great example of that is a particular client that is a strong mid-market firm. We’ve done business with them for 10 years and completed roughly 40 searches. That’s one example of many that serves as confirmation that our strategy is effective.
The Charles Aris PE Portfolio Team: Ryan Morgan, Sarah Becker, Jim Etling and Greg Harper
Q: As private equity firms continue to develop their portfolio leadership teams, what key skills and traits are in high demand at the portfolio level? If someone is transitioning into the private equity world, what are a few key takeaways that you should keep in mind?
My first piece of advice: Understand the pace in which the private equity firm needs to operate.
People entering the private equity world need to understand that there is an intense speed in which firms work. Not to say that non-private equity firms don’t have that same attention to speed and detail, but when a private equity firm is set up, its leaders talk to potential investors and ask them to make an investment in their firm. These firms say, “for every dollar you give us, we will return x dollars back to you” within a specific timeframe. If I say I’m going to give your money back in five years and we are in year 10 and you don’t have your money back yet, you’re not going to be happy and I’m never going to be able to get more investors because I didn’t do what I promised. If I have a four-year window, I can’t take three years to develop a new product and a year to test it; I have to do something different. There is a pace in the private equity world that is unlike almost any other business sector out there.
Number two: Private equity is a high risk, high reward field.
When you are on the leadership team at a private equity firm, when people ask questions like: “What happens when it sells? Will I lose my job?”, the answer could be yes, no, or maybe. You don’t know. You should go into a private equity deal with a risk profile that outlines all possible outcomes. You could do everything right and grow the business to the exact level that you should; you could sell the business; you could end up with no equity. The private equity world is very high risk, but also has very high reward.
Number three: Candidates need to have strong skill sets and confidence.
The successful people that end up in a private equity portfolio company have a strong skill set in what they do, they’re the best of the best, and they know it. That should be apparent every step of the way.
Q: Charles Aris has partnered with more than 75 PE firms to place more than 100 portfolio leaders in recent years. What questions should PE leaders ask when considering an executive search partnership?
Private equity firms should understand at what level the search firm works. The top five search firms are usually working with multi-billion-dollar companies and, while Charles Aris can certainly do that, I have spent most of my time in the mid-to-lower market because those organizations need us more. If I’m a PE firm and I have a $100 million dollar business and need a CFO, the large firms traditionally are not going to be interested in that because their minimum fees are significantly higher than our fees at Charles Aris.
I would also reassure these firms not to be concerned about having a search partner that is 100 percent narrow in the specific industry that their portfolio is designed around. I would recommend considering a search firm with a more general and industry-agnostic focus. Generalist search partners go into searches within industries they may not be experts in, which means that they won’t have any preconceived notions. At our firm, we build each search from the ground up. We have no preconceived notion of who is right or wrong; we are going to search the world to find the right person for your organization.
More important than industry is function. I recommend that firms look for search partners that have experience in the specific function they’re looking for. These search firms will have deep expertise and may have team members who understand the role because they have been in the role themselves. It’s much more effective to focus on a function than an industry.
Q: As organizations vie for A-level talent, compensation remains a key element of the offer and decision stages. What trends have you noticed among offers you’ve coordinated recently?
Over the last three to four years, for CFOs specifically, it’s become an intensely candidate-driven market. While there are many great opportunities for CFOs, there are also a limited number of CFOs that I believe can perform at a private equity level. This means that A-players are in incredibly high demand and they can dictate what they earn.
The days of going in with an offer and working up to a certain number are gone. Forget the negotiation game; if the person fits what you’re looking for and is an A-player, pay them what you feel it’s going to take to get them in, because the pay back will be 100 times more than what you’ve paid for this person.
Q: Before joining Charles Aris you served as a chief financial officer in the private equity portfolio space. Between your experience in the portfolio trenches and as an executive search partner, what do you believe has been the main driver in the continued growth of private equity? Where do you see the space moving in the next several years?
There are many businesses that are attracting private equity investment and since my career began, PE investment has increased significantly. There are so many small and medium-sized businesses that are started or created in spaces that didn’t exist several years ago, there are many new areas for people to invest.
As technology advances, there are incredible groups of intelligent people using technology to fulfill needs that people haven’t thought about to create businesses and industries. These businesses are looking to grow and I think it is a perfect lead in for private equity. People have become more comfortable with the private equity world because it’s not viewed as high risk like it used to be because of the many successes that are out there. Now you have more PE firms with more money to invest in these great businesses and if a business is acquired by private equity and it’s the right match, the private equity firm benefits, the investors in the firm benefit, and the company grows significantly and benefits as well.
To learn how your private equity firm and accompanying portfolio organizations can benefit from the recruiting services at Charles Aris, give Jim Etling a call at 336-378-1818, extension 9113, or email him at jim.etling@charlesaris.com.
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