Bad Boss, Bad Client

“Private Equity Strategies - Best Practice Insights”
Issued by the Gantry Group
Study Approach:
Gantry Group developed a 15-question, online survey to probe strategies & practices used by private equity firms for investment & value creation.
48 unique firms responded
Participant criteria: Private Equity Management
Survey conducted over the period August 8 – 16, 2007

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Bad Boss, Bad Client

TechTransform, August 28, 2007: In a recent survey (see sidebar), I was struck by what Private Equity (PE) firms consider their biggest challenge: “Finding the right executives for portfolio companies”. That agrees with what I know. One fund manager I work with says he is only limited by the lack of good CEOs. All the rest – technologies, markets, finances – is comparatively much easier.
The PE firms might not realize that operating execs have the equally difficult task of finding the right company. This is true whether you are a virtual team (as in our TechTransform projects) or a full-time exec. We’re confronted all the time with dubious directions and mandates from owners and boards. They result in financial losses but also missed opportunities.
Arbitrary Changes
One company that I was first involved with in the late nineties could have been a great dot-com success; but its venture capitalist mandated an arbitrary change in direction that proved completely counter-productive. Two years later, that decision was finally reversed and the company found an exit – in March of 2000, right when the dot-com bubble burst! That cost us all perhaps fifty dollars a share, and some in the team had a lot of shares. Far more important was the failure of a wonderful new technology to make its mark as it should have.
Every operating exec has a hard luck story like this, or five. Fortunately, in technology our “lives” happen about once a decade and so you can always position for the better one – and you’ll be perhaps smarter and more able to find a great outcome than before. Right now the green tech wave is just gathering tremendous momentum and it has tremendous long-term promise.
The Really Bad Boss
A much tougher situation is when the boss is outright bad. From my own experiences, I’ve drawn a simple conclusion. Let me set the stage.
The Used-Car Salesman
Back in the mid-seventies, I took a break from my non-profit work. I had been trained as a ship’s officer and had a master’s license, so I accepted an assignment to take a small freezer ship from Penang, Malaysia to Djakarta, Indonesia. My owner was a former used-car salesman from Santa Barbara to whom I had delivered a ship the year before.
Through a long series of adventures, we ended up not in Djakarta but in Mexico, where I finally left the ship and my boss. After all those detours, I was only half surprised to hear that my owner had managed to “load” a whole cargo of tuna on board my ship at Djakarta, without my ship having ever being there at all! I testified to the grand jury at his mail fraud trial; he was indicted and eventually convicted.
[I returned to the southwestern Pacific for a time before finally returning to the USA to launch my marketing and high tech career. That was 1978.]
The Two Brothers
Ten years later in New York, I had built a systems house with no finance at all and had finally exited – rather exhausted – leaving the client base to my best salesman, who has done a great job with it in the years since.
I found a new opportunity with two well-introduced brothers who had an industrial import business from Colombia. These naturalized Americans wanted to export high-tech back to their native country, and they hired me to launch a company to do just that.
I could never get close to their import business. They were bringing oil field equipment back from Colombia to the USA for repairs, but they never let me get to see a single piece of equipment… and a good thing, since it turned out that drilling gear was full of a very illicit cargo indeed. I was briefly detained (all charges quickly dropped); while the two brothers went on to spend long years in federal prison.
Lessons Learned
What did I learn from these experiences? How can I be sure that they will never happen again? It’s not enough to say that you should never take a job from an American of Colombian origin, or from a former used-car salesman, because if you use that as a rule, you’ll end up trusting a rascal with a great background. So that’s not perfect.
But in both of these cases, the owners were carefully withholding from me what was really going on. So here’s the conclusion: if you can’t find out what’s going on, then something’s going on. In those cases, run don’t walk for the nearest exit.
The Beauty of Transparency
I think the converse is also true: if you have an owner, management or a board that are completely transparent to you as a C-Level exec, then the odds are that nothing fishy is going on.
Yes, you could still get those zany decisions that result in lost opportunities, but that just means you have to try to be in the position to make or influence those decisions. It will take a while; meanwhile, always look for transparency. That should prevent the really bad surprises!

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Updated 2 October, 2007

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