Building a Successful Executive Team
By?John Simpson, Svoboda Capital Partners, LLC
Part 6 in the "10 Ways to Create Equity Value in Your Services Business Series"
Svoboda Capital is excited to launch our "10 Ways to Increase Equity Value in Your Services Business" series! Based on our experience investing in professional services businesses, we will be bringing our thoughts on how to create lasting equity value in people-centric businesses. Today we publish Part 6 of the Series - Building a Successful Executive Team
Previous Parts:
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After a pandemic-caused delay, my wife and I finally attended our first live concert in two years this past weekend at Soldier Field in Chicago. We went to see country act Kenny Chesney after our 2020 tickets were rescheduled for 2022. The show was fantastic, and the crowd was extremely excited after the long delay in rescheduling the concert. As I watched the show, I had the similar feeling I had earlier in the week when talking to the executive teams at one of our portfolio businesses. This executive team was operating at its highest level and the business was thriving. Just like with the Kenny Chesney show, it was a pleasure to watch them perform at their best.
This got me thinking – what are the most important attributes – based on our empirical experience as investors - that our top performing executive teams share across the portfolio? In this installment of the ‘10 Ways to Increase Equity Value in Your Services Business’, we discuss three key attributes shared by the most successful professional services management teams.
Passion for the Work
Many years ago, at a previous employer of mine, our professional services business unit cycled through a revolving door of senior executives. Our business unit was a steppingstone for executives to rise through the ranks of the much larger, more product-oriented parent company. During this time, our business unit was the least successful it had ever been. ?
I came to realize that our business unit lacked a critical component for any professional services business: a passion for the work.?Our executives were well-intentioned and accomplished. However, they did not have the same passion for the work because they had not grown up delivering it. The result was a management style that focused on risk mitigation and financial controls, rather than pushing the creative and technical envelope on behalf of our clients.
I contrast this style to that of our portfolio business’ executive team. The executives are focused on creating breakthrough work for their clients…and making money while doing it. In fact, they devote a sizable portion of the board meetings to sharing their latest and greatest work product. They push each other and their clients, taking a huge amount of pride in their work product more than anything else.
In a professional services business, it is this passion for the craft that differentiates firms with swagger from anyone else. The passion is infectious and serves the business in recruiting and new business development endeavors, as well as how the client values (and pays for) the work itself.
On Mission
Yet another key attribute of our most successful executive teams is their ability to unite around their mission. Now, missions can take many shapes and forms, and some are better articulated than others. However, they can be traced back to a connection with a simple human need: we innately want to be a part of doing something meaningful. A former colleague of mine summed it beautifully, “We all want to slay the dragon or save the princess.”
I have seen this play out in a number of scenarios. One of our portfolio businesses, for example, has a mission to take on clients and work that makes societal change possible. In doing so, they also attract a certain set of employees that believe strongly in the clients and change they are helping to achieve. ?
In a ‘closer to home’ example, I experienced the power of mission-oriented business when we founded One North, a digital agency based in Chicago. One North was founded in a management buyout from a much larger parent company. The mission of the entire business very quickly became to prove to ourselves and our clients that we could do better as an independent agency. It drove our decision making and enabled us to dramatically improve Net Promoter Scores and the profitability of the business. I still look back at those early years as some of our most successful because our executive team and the company were entirely aligned on ‘doing it better.’ ?
A Healthy Relationship with Accountability
Over the past two weeks, I had the opportunity to meet with many different executive teams at both portfolio companies and potential investment targets. The contrast between two of these businesses could not have been more pronounced. One, a fast-growing consultancy, recognized that accountability was a key pillar of the business and was actively looking to update the metrics by which they kept both the executive team, and the practice groups and employees of the company, accountable. To them, ‘accountability’ was not a scary management technique used to call underperformers to the carpet. Rather, this business had the healthy view that ‘you get what you measure.’ They want their executives to understand what they are responsible for, so that they can raise the alarm early and ask for help if they are not meeting expectations. This is vastly different from the business that uses accountability to punish executives for not achieving their goals. The level of accountability has enabled the executive team to build a significant amount of trust and collaboration and encouraged executives to reach out for help if an initiative is off track.
On the other hand, I recently looked at a business where accountability among the executive team was not a regular part of the conversation. The executive team all gets along well and the business plods along producing see-sawing profits and growth. While the CEO is accountable to the board, that is where the accountability ends. Individual executives feel little responsibility for the overall company performance and very few accountability metrics are in place. As a result, the business lacks urgency and institutionally seems to believe that their destiny is outside of their own control. When initiatives go awry, the executives tend to write off the mishap to elusive external factors like ‘bad luck’ or ‘the stars not aligning.’?
In my experience, the businesses that have a healthy view of accountability across the executive team produce outsize results relative to those that shy away it.
Conclusion
Many scholarly articles have been written about effective leadership teams. However, as we have acknowledged in different parts of our ’10 Ways to Increase Equity Value in Your Services Business’ series, professional services businesses are different. In these businesses, the ‘product’ is the employee. As a result, passion for producing high caliber work, the support network and accountability of the organization, and the mission that creates the ‘why’ for the team are critical components to building a confident, successful executive team.