How To Due Diligence Your Most Important Asset in Private Equity With Dan Cremons

How do you take this vague notion of value creation and break it down into its component parts such that we as practitioners and investors and leaders can approach it more surgically?

So many of the hiring mistakes we make originate in the 6 inches between our ears called our brain. And our brains are faulty instruments.

Believe they are good at hiring and yet the data suggests that this is in fact not a core competency of many executives.

Welcome back to the Private Equity Podcast. Joining us today is Dan Freemans, founder of Accelera Partners, prior investor and also previous P backed CEO. So Dan's covered all bases and is here to share with us all about one of my favorite topics which is talent hiring process, due diligence, pre deal post deal on interviewing and all sorts of different bits, especially on the scorecard stuff. So strap in. This is all about how you can improve your talent and people processes. Dan, if you could give us a 60 to 90 second breakdown of you please.

I don't know that I have enough interesting about me to fill 60 to 90 seconds, but I'll do my best. I am a Midwestern US guy, born and raised turned finance guy turned leadership and human capital nerd, mostly within the private equity realm. So I to trace you back real quick. I started my career in investment research, a little bit of experience in operations management early on in my career and ended up stumbling my way into private equity in 2007 with a firm based in San Francisco called Alpine Investors, which is, you know, today is doing some really cool and innovative stuff when it comes to human capital. And over the span of whatever it was 13 years or so working in private equity proper, I have effectively played across most of the positions on the field. I've sourced deals, I've done deals, I've sat on the board of PE backed companies, I've led within and led private equity backed companies. So what I think that says about me is I have the unique vantage point of having seen the private equity story from a bunch of different chairs. Also probably tells you I'm not especially good at any one of those things. But I spun out of private equity full time about two and a half years ago to start my own advisory firm. Really focused on helping private equity groups and their recently acquired companies to unlock this thing I call people powered value creation in their portfolio companies, which I'm sure we'll talk a lot about.

Absolutely appreciate the insight. So what's one mistake that you see private equity firms or portfolio companies making and what would you suggest for them to correct it?

The biggest mistake I see and this is changing and evolving real time before our eyes. But the biggest mistake I have seen having been in the space for 15 years or so, is private equity groups taking a reactive, unintentional, sometimes haphazard approach to driving value creation in their portfolio companies. You know, when I got started in the, in the private equity business, a lot of the firms, as I sort of looked around the landscape, peers of mine, friends of mine in the space, a lot of the firms were quote unquote deal shops. And I don't mean that in a condescending way, but that they viewed the bread and butter, the core of the business as being to do deals. And at least back then in 2007, there wasn't a ton of intentionality around the post closing piece of driving alpha and driving value creation. There were just starting to come into the. There was just the sort of like new trend around.

Value creation teams or was the it was the early innings of human capital in private equity. And so we were starting to see some early indicators that the PE space was getting the joke that hey, we need to get more proactive and intentional about driving value creation in these companies. But I think fast forward to present day, the importance of doing so has grown significantly as the space has just become way more competitive, way more capital, way more firms. And so this is, I mean this is a big, this is a big need for a lot of firms, but also a big opportunity to just becoming more proactive and intentional about making value creation happen.

Post closing so value creation is a particularly overused term.

In private equity and a lot of other industries, especially when, you know, operating partners talk about a portfolio company. You know, we had a recent guest on with, with Matthew who shared that I forget the exact number, but it was, it was, it was particularly high percentage. Most firms don't actually bring any value to the portfolio companies. The market just grows and they exit on the back of it. So if we dive into value creation, talk to us a little bit more about your interpretation of value creation. And you know what we, I suppose what we really mean by value creation.

In the most fundamental sense, value creation is anything that creates equity value, plain and simple. And so you know, there's, like you said, there are a lot of interpretations, a lot of different definitions of quote unquote value creation in the private equity sphere today. But let's not forget value creation at its core is about things that create equity value. So one of the things so I wrote this book back in 2022 at launch called Winning Moves, which is on this topic of winning moves that can help power value creation in PE backed companies and one of the first things I do in the book, before we even get into the 105 ways to actually create equity value, one of the things I do is just sort of level set on what do we mean by value creation, which again at its core is anything that creates equity value. And then how do you take this vague notion of value creation and break it down into its component parts such that we as practitioners and investors and leaders can approach it more surgically. So you know, when you, when you peel back the value creation onion, there are really five ways to create equity value in a private equity backed company. You can grow your revenue, you can expand your margins, you can do strategic acquisitions, you can pay down debt, you can expand your exit multiple. That's, I mean that's it, five core ways. Now knowing that in and of itself doesn't give you much in terms of how do we actually go about pulling those levers or actualizing those value drivers. But, but the starting point for the value creation conversation is let's just be clear on what we're talking about when it comes to value creation and the different, different levers, albeit pretty high level that firms can pull or exploit to make equity value creation happen.

So if we think about your approach that value creation focusing around people, what should private equity firms be doing on a people front that drives value creation? Because it's rarely I've had conversations with people around, with anyone around the value creation piece, being around people, people deliver the valuation crease. But you're talking about that being, I think part of the value creation element is that. Right?

It's a huge part of it, of course. And the way that I think about this very simply, I'm a pretty simple minded guy so I like to break these things down to like what's the essence? The three questions that in my mind any private equity backed company or private equity board needs to have a clear minded view on and be aligned with their leadership team on are where are we trying to take this thing? Call that your vision, call that your bhag, call that your whatever, but where are we trying to take this thing? What does success look like at the end of the road? Question number one, Question number two, how are we going to get there? Call that your strategy, call that your value creation plan, which is the, the instrument I advance in the book and a lot of firms use for defining how are we going to actually make that about that vision come true. And then question number Three, who do we need a board to make the first two things come true to power the value creation plan such that we can make the vision come come true. So you know, you know, in a private equity world where there's all sorts of jargon tossed around, like I, I just, I boil it down to those three things because they're pretty simple minded ways thinking about what is the core mandate that a leadership team and a board is charged with figuring out early days in the investment. Where are we taking this thing, how are we going to get there? And then to your point, who do we need a board to make make those first two things happen? And where I see the conversation sometimes stop is after question number two. And we spend a lot of time, there are a lot of, you know, former operators and management consultants and private equity today on value creation teams. A lot of good rich thinking goes into the vision, the strategy, the value creation plan. But in my experience, in my observation, there's oftentimes not enough intentionality around that third piece, which is, well, who do we need to make the aforementioned happen? And you know, my view increasingly over time is if you're not answering that question, then the answer to the first two questions is sort of doomed from the get go.

Which brings us into one of my favorite topics. One is management. The second is or joint first is talent. So, so if, if point three, which is who we have on board now, research your material. I've looked into it. We're both, you know, inspired by GH Smart maybe or whatever, whoever's come up with the scorecard, I don't know, I'm sure somebody, sure they took it from someone who took it from someone else. But the scorecard element being an important factor in building that out is that when we talk about the who do we need on board, obviously we've got the vision of the business strategy, how do we want to deploy that, where do we want to get to, et cetera. And then building on the scorecard, talk to us about point three on where, where you see those, those elements that are missing that obviously private equity firms are not or stopping at point two.

The exercise I like to, I have used as an operator and investor myself and I like to guide clients through is this exercise I call people planning, which is the, you know, almost the peanut butter to the value creation planning's jelly. It's the ham to the egg of the value creation plan in people planning. I'll give you my know, four or five step process for how, how we approach this, which, which invokes the scorecard as you're, as you're describing. Question number. Question number one is what is the vision which we already hit on? Question number two is what are the biggest moves we're going to make, strategies we're going to employ, value creation initiatives we're going to pursue to make that vision come true, which I already hit on question number two. Question number three, and here's where the people planning part comes in, is what capabilities do we need in the business? When I say in the business typically resident within people, in people's heads, what capabilities do we need in the business in order to actualize that value creation plan? And what I like to do is just, you know, envision that in terms of, come up with a list of capabilities. What are the 10 things that are going to be most important to have resident within the business to power these strategies and then start to fashion those into.

A simplified little box and wire diagram putting aside for a second what the org chart of the current org looks like. Sometimes what got you here ain't going to get you there when it comes to the current role configuration, the current talents and capabilities in the business. So scrap what exists today, draw it up from a clean sheet. What are the key roles that we need in order to actualize those strategies? And then what capabilities do the people in those roles, never mind the current team for a second, but what capabilities do the people in those current roles need to have in order to drive your drivers in order to actualize your, your value creation initiatives? And what that gives you is a mini scorecard for each of the key roles in the business. Then you know, step number and four I'm on, I think I'm on number four right now. Step number four is bring back into the picture the current team and overlay them on top of those scorecards and say, okay, based on what I know about, independent of the current team, based on what I have sort of thought up when it comes to what capabilities do we need in what roles, organized in what way? And based on what I know about the human beings we have available today in the business, where do we have a tight fit.

Where do we have gaps, where do we have situations where we have a leader that maybe isn't as sharp as we need them to be in some of these areas, but we think with the right coaching, support, training, we could get them up, leveled and ready for the party. But it become, that becomes the sort of people planning. The core of the people planning exercise is, is making a series of decisions around where do we have a tight fit? Where do we need to elevate key people in the organization? Where do we need to repurpose key people in the organization to get them better aligned with what we need to have happen going forward? Where might we need to replace or augment key people in the organization? And these all become decisions that you start to think through the prioritization and sequencing of post closing. So there's a lot there. But to zoom way out this, this people planning instrument and exercise and thought process is really.

Happening on the back of value creation planning. To answer that third question of who do we need aboard in what roles in order to give us all confidence that you know, this value creation plan is, is positioned to come true.

I like that. Completely agree. I think if we look at, you know, step three, step four, step three, certainly the review of what you need, I think regularly is missed is the focus around the middle part of the investment. And I talk to clients a lot in private equity firms. Private equity investors that you focus on what the business needs right now might need new perp etc, focus on what the business needs when it exits. It needs a 6x, it needs a 10x, it needs taking through investment banking presentations, etc. To sell that business and go through it. What we don't talk about is the middle part which is the organic growth part, which is the acquisition part part and the integration part which I've not seen many private equity firms do particularly well. They can acquire businesses but they're not as strong at the acquisition. And then on the next phase and then the actual reviewing of the executives and in play at the moment is then being able to contrast that back to the actual search that's needed here. Because I think this, we fill out all this big criteria side. We need this, this, this, this and this. But we've already got that from the cfo. We've already got a really charismatic and high gravitas cfo. We don't need another CEO of that level. We might need somebody who's a little more process orientated or vice versa. Usually is your CFOs usually your highly process driven individual. What some of the mistakes that so those couple of things that I see. What in addition do you see mistakes in those areas when it is done or obviously the fact that it's not done is one of those areas but when it is done. What's some of the the guidance that you would give to private equity investors when making those, you know, step three and step four?

Well, I, I mean first and Foremost, I just, I want to applaud you because the fact that you as an executive search firm put a big emphasis on scorecarding. I know this about you just based on what, you know, what I've seen from your, your firm out there. I know this about you, that this is a very core part of your process is getting really clear on the scorecard. And I've worked with a lot of search firms. Some are decidedly better at this than others in my experience. But this has not been in prior areas of search in prior eras, rather of executive search. A thoughtful, intentional, disciplined approach to scorecarding has not been common practice in my experience. And so the fact that you all are very, you know, disciplined about, you know, the scorecarding process, what are the outcomes that we need to come true in this role for it to be a success? What accountabilities will this person own? What competencies do we need to see in this, in, in a candidate to know that they have the stuff to deliver, deliver on the, the role that intentionality I think is, is key. The other thing that you're, you're making me think of when it comes to mistakes is treating this people planning exercise as a one time event early in the hold period. Like any planning endeavor, this people plan ought to be revisited regularly as part of your, the rhythm and your, the, you know, the strategic and the planning rhythm in your business. Because as, as you're pointing out, the needs change. The needs in a CFO may change the needs. New new roles may come into the picture as you pursue, as you decide that, hey, we're, we've got the core business really short up. We've got organic growth humming. We want to start turning our attention to acquisitions. Well, guess what, you're going to need new capabilities in the business to make an acquisition strategy successful, which then necessitates the need in a lot of cases to go hire some outside people. So some of these decisions end up happening naturally as part of planning. Hey, we want to pursue acquisitions this year. Don't have anybody who can lead that. We need to go hire somebody. So in some cases these, these, you know, intentional people decisions happen naturally and organically anyways. But my recommendation to firms is as part of every planning conversation, you be sure you answer that third question. Hey, this year we've agreed that we're trying to achieve X question number one, my, you know, my vision question earlier. We're going to use these strategies or objectives or initiatives to, to achieve that. My question number two, who do we need a board in what roles, configured in what way to ensure that our one year goals happen. So this is an ongoing iter. Talent management and people planning is an ongoing iterative effort that's going to span pre closing to until the day you exit in my view.

Sorry to interrupt. Just a quick mention of a long standing partnership with Grata. As you will probably know, the private equity scene is constantly evolving and deal flow is moving now to proprietary and data driven processes. Grata provides you with the data and information of over 7 million private companies. So if you're looking to improve your proprietary deal flow and improve the data access, then reach out to Grata today. Now back to the podcast if you.

Because you've been on, well, multiple hats, you're a supplier now to private equity. You used to be a private equity investor and used to be a P BET CEO so you've got a unique perspective on things. What on top of what you've just shared. What do you. Because a lot of people be sat here, and rightly so going Dan, I do this, they may not do it well enough because you know your material shares that there's what, 50% turnover rate in in C suite executives Now Amazon spent 10, I think it was 10 million or tens of millions or millions or whatever on, on basically improving their hiring process. They used to ask stupid questions like how many elephants can you fit in New York City? And all these kind of silly things. They're removed. And I can say silly because they did the research and said it was real, it was not linked to high performance.

How many golf balls fit inside of a Volkswagen?

Yeah, all these bits and pieces.

But so you've seen the different phases and Google's got a 50% hit rate now on hires.

Excuse me. And if Google's got that 50% hit rate and we're sharing that, that's probably the private equity. It might even be worse than that within Pennsylvania. What do you wish that you knew now as a pro. Sorry, what do you wish you knew back then as a private equity investor that says I'm already doing scorecards, Dan. I'm already all over that. I've heard that before. GH Smart shared it X, Y and Z shared it Raw selection. Tamon home and I Dan Crayman's has had a Hammond home on it. I'm already doing that. What? Because it's not. Well it's working for some firms and it's not for others but it's not working as nothing's perfect. What do you wish you knew now that goes into More depth based on what you just shared.

Many of the things that have become a part of my process, my playbook for this, which is borrowed from some of the thought leaders in this space that you've alluded to, has been a product of my own failings in hiring. I've been, I've been hiring, you know, I've been hiring people ever since I started in private equity as a core part of my job description. Early on in my time in private equity, I've made many of the mistakes in the book.

And the things that I think were the most costly in terms of the mistakes I have made. Number one, not scorecarding. The role which we tuned up. We tuned up and I tuned up in my own process pretty quickly. Number two in this one, subtle, but I think very important. This has really come to the fore in a lot of the training I do with leadership teams on how to hire more effectively. Something that has risen in my own mind in importance over time is becoming aware of the inner game of hiring. So many of the hiring mistakes we, we make originate in the 6 inches between our ears called our brain. And our brains are faulty instruments riddled with all these bugs on the brain's operating system that can skunk our hiring decisions. People classically refer to these as, as cognitive biases, things like commitment bias. Hey, I'm deep into the interview process right now. I've spent, you know, three months getting to know this candidate. I don't know that they're a tight fit with my scorecard, but man, I just want to get this, I just want to get this, this role filled. That commitment bias can color your view of a candidate and cause you to make a poor decision. Urgency bias. I just want to fill this role. Just got to fill this role. We've got numbers to hit, We've got goals to meet. I got to fill this role that can unconsciously color your opinion of candidates and cause you to settle. So I think the core message there is become aware of the biases that we all have, myself included. The biases we have that can cause us to make lower quality hiring decisions. Part of those biases come or part of the mitigant to those biases comes just by way of awareness. The first step on the road to recovery is that, you know, just being aware you have a problem. And I think just becoming aware of the biases is that can impact your hiring is very important. But then also having a process, a structured interview process which who or top rating is a great template to use to construct your own hiring process, but having a structured interview process that will give you reliable data on which to make a hiring decision and can help to mitigate or alleviate the impact, the negative impact of some of these biases. These were all things that, you know, early on I didn't score a card, paid the price for it was definitely not aware of many of the biases that were impacting my hiring decisions until later on. And it really started to become tuned into those and study those. And then this are, you know, our structured interview process. My personal structured interview process has evolved considerably over time. But the fact that we have one and I have one that experience has taught me is fairly reliable, I think has helped me to shore up a lot of those, a lot of those mistakes. I want to just. While I'm on my little rant here, I want to just say one more thing that hits on a point you made. I. You're right that scorecarding, among other human capital practices have become, has become more prevalent in private equity over time. People didn't know what the score. Most people, particularly those that weren't clients of GH Smart or, or an equivalent firm, you know, in 2007, when I joined the space, most firms didn't know what a scorecard was. Fast forward 15 years or 17 years, whatever it's been. And the level of discipline the people practices in when it comes to hiring and more broadly in private equity have definitely improved. But every, you know, if you imagine a spectrum, you know, on the one end of the curve the, the laggards and on the other end the leaders, there are still firms at every point on that spectrum. Alpine and other firms, I think have really sort of pushed out onto the leadership edge of, of really a lot of discipline in their human capital practices. And then you have firms at all points on the spectrum, you know, behind that. And so I think we're message being we're making progress in the private equity sphere in raising the collective level of play on human capital. But I think we, you know, we still have a way to go and a lot of firms still have a way to go.

Yeah, I agree. And it comes down to print playbooks. It comes grounds to creating processes and making sure that we have the right like things like simple, like interview structures. Not many firms have that process. They might say, oh, we speak to this person, that person, this person. But you know, what's actually being discussed? What the skill sets that each partner has that each board member has and how's that being communicated? And are they just asking the same Questions? What's your reason for leaving? Why are you interested in this opportunity? A CEO having that conversation six times is particularly frustrating. But, yeah, if you actually get in, if your board member's been a phenomenal salesperson, get them to assess the sales side, don't get them to ask what the reason for leaving is, and leave that down to the partners in the pfa. But, yeah, creating that, that clear structure, I think is particularly important.

And hiring is one of those things that I like to equate it to karaoke, where everybody thinks they're good at it, but the data suggests that far fewer people are actually good at it than think they're good at it. You know, it's like I wrote this in one of my books, but it's like, you know, as I sit up there on stage belting out Born in the usa, I think I'm totally nailing it, but I fail to look out, you know, into the eyes of the people in the audience who are just cringing in horror. I think there's, I think there's a. There's a metaphor there for hiring where every, every executive I've ever met, I shouldn't say every executive. Most executives I've met in interview, which have been hundreds, maybe even thousands at this point, believe they are good at hiring. And yet the data suggests that this is in fact not a core competency of many executives. So I think for firms just becoming the message in that is just entertain the notion for a second that you might not be as good at this as you think and that's not intended to put anybody on the spot or be, you know, sound holier than thou, but just entertain for a second the thought that you may not be as good at this as you think, because acknowledging that and actually going back and looking at the data on hiring hit rate at your firm or for you personally, is going to be really important to convincing yourself that if you need it.

There is reason to grow and invest in raising your game in this area.

Not only am I the host of the private equity podcast, but I'm also the founder and Managing partner of Raw Selection. Rule Selection is a private equity specialist executive search firm. We have two divisions, one that focuses on portfolio C suite executive hires and one that focuses on private equity direct hires of your back office and investment deal professionals to the industry. Alongside the podcast, we're passionate about giving back to the industry and giving people information that they can run and utilise. One thing we do regularly every year is we run salary reports on accurate and Live data of people that we've interviewed and people that have shared their information with us. So if you're looking to compare your current compensation or your compensation for your next hire in your private equity firm or portfolio company, then please check out our YouTube channel and see the playlist of salary surveys.

Yeah, A question I ask regularly is who trained you in interviewing? And I've still yet to come across anybody who's been professionally trained and that includes myself who's, you know, learned through mistakes, learned through errors, learned through clients, learned through different specialists, etc. But certainly a, certainly a factor for a lot of guys. And how can we improve this? How can we make it better? How can we bring ink? Selection And I think a lot of the selection process comes down to having one candidate that we like and therefore going all gun ho. And it's the same with acquisitions and, and choices. We don't have enough options because we're not as good at the front end of actual generation. And it might be that the search firm you're working with cannot generate the flow enough. It might be the deal generation partner, the business development partner in the firm cannot generate enough options for you to make an investment and you just get forced into it and it's making, you know, the accurate based on huge amounts of looking through. If you taught people as data, which is how I see it, you look at lots and lots of data, you look at lots and lots of individuals that's whittled down by your search partner to a small number of. And then you're making choices rather than we have one candidate, we think they're good, we need to force it through because we've got an empty seat and we need somebody on. And that for me is, is my interpretation of a lot what happens in hiring, that's key.

We've talked in this conversation so far a lot about the selection phase deeper in the funnel. But you're making a great point which is what's the old, you know, the old truism that good decisions come from having good alternatives. Fundamentally, the more higher quality alternatives you get into the funnel, I. E. Candidates, the better decision you're going to make at the end of the day. And so this, I mean this is where an executive search firm can really earn their keep is not only, not only in helping the client to make intentional decisions throughout the hiring process in the funnel, but as you're saying, just getting a lot of really high quality options in front of them.

We talked a lot about the scorecarding process, identifying through that on a valid creation basis. But I want to talk a little bit about the initial phase because you're in an interesting spot. You, you come in before us pre acquisition review the team and then you're coming in, you know, during us, I suppose that end selection phase and, and due diligence on individuals. So it's interesting perspective but I think a lot of firms that when they look at portfolio companies the emphasis is around EBITDA success etc. And I think there's a general thought process around how good are the executives to take us forward. But I think there's a general rule that if they're not right, we'll replace them.

A lot of firms will come to me and say this person's not going to be right or but it's usually down to the fact that there isn't somebody as in there's a controller in there, there's not really a cfo, but called it or there's a founder that wants to exit and become a chairman or something else if it's first time pe.

I'd like to delve a little bit into the detail around how you're doing the due diligence on or what you'd recommend for private equity firms on that due diligence phase and portfolio companies of how they should better and improve the assessment side of their due diligence of acquisitions. Not because it will influence the decision making on the acquisition may, but it mostly won't. But they can come with a plan as you've mentioned a few times that when they make that acquisition they can go, we'll need to change this out, this out. And these are the reasons why and this is the weakness we have. Or on the flip side, which is something I don't see in private equity very often is actually we'll assign them with a coach and we'll go out there and we'll find an experienced individual either in the firm or outside of them. Please be an operating partner. Partner if it is inside the firm and we can upgrade those particular areas, etc. What's your, what's your take on that?

Well, I'll give you my, I'll give you my approach in a second. But I. You said something there that really resonated, which is a lot of times we think, and I say we because this was my prevailing mindset for a long time. A lot of times we just think about talent selection, pre closing and post closing as being do I keep them or do I replace do I keep them in the role they're in or do I replace them? It's like a one or a zero. It's binary. And the reality is that the array of options you have for quote unquote optimizing talent are much more vast than that.

There's the question, you know, one alternative is back the current person in the current role. Another alternative you have is back the current person in a role that suits them better and, or where they can have more impact. Another option you have is back the current person in their current role or another role. But give them the coaching, the guidance, the training, get really specific on what's needed there in order to elevate into the needs of the role. Another option you have is to replace somebody. So.

This process, I'll give you a window into how I think about and approach this. But the outcome of the process is, is not only getting the right people into the right roles, which again isn't just hire or fire decisions or you know, keep or, or replace decisions, but can be different shades of that. And how do we best position them for success in that role? Whether it's getting them a coach, whether it's moving, you know, changing out their job responsibilities to get them playing in areas where they can have more impact, whatever it may be. That's the ultimate, you know, outcome that we're after here. So the way I like to approach this and think about it is step one, before I even talk about talent with a client. My first question when we're approaching organizational due diligence is what's the thesis? I don't believe in just going there and arbitrarily assessing, hey, do we have a, do we have a good CEO or a good cfo? Good is relative to the thesis. Good. And the thesis then dictates, well, what do we need?

What, what key roles do we need? What capabilities do we need in those roles in order to make that thesis come true? So you're sort of starting at the top and it's a bit of a top down, but you're starting at the top and saying, start with a thesis back into what roles do we need, what capabilities in each of those roles? And then go into a structured interview process with, I'll come back to that in a second. But a structured interview process pre closing with the leadership team that is aimed at sussing out not only what capabilities reside within each of these people and how can those best be used post closing, but also gauges some peripheral factors as well. I don't just view organizational due diligence as strictly about, do we have the right leaders or not, there's some peripheral factors that become really important. So I think of four legs to the stool. One is leadership. We have the right leaders in the right roles to make the thesis come true. The second is talent beyond the leadership team. What are the key roles that are going to have disproportionate impact on the value creation agenda? And do we have those roles today? Do we have the right person in those roles? So talent beyond the leadership team is thing number two. Thing number three is culture is that collection of people enveloped in a culture that is going to bring out their best and is conducive to the sort of growth and evolution and change that's going to be needed. And then the fourth is capabilities, which is a bit of a catch all, but it's to say what capabilities are needed to, to actualize growth and value creation. And, and do we have those resonant somewhere in the business? So it's those four things. And through this, you know, through this conversation, this series of conversations with the leadership team and in some cases people outside of that leadership team, you're able to extract the data to develop a point of view on each of those, each of those four things.

And there, there's a little bit of a, I want to just let the air out of a concern balloon that a lot of firms have on this.

The biggest objection that I think a lot of firms have to doing this sort of work pre closing when I go and talk about this, there's a lot of head nodding that yeah, there would be value both to the underwriting process and to just getting off to a faster, more decisive start on value creation post closing. There would be a lot of value to this. But here's the objection. I don't want to scare management pre closing or I don't want to, you know, I don't want to risk the deal by having a guy like Dan go in and do this sort of, sort of conversation. What I have learned and having done this a bunch of times pre closing is two things. Number one, you have to do these conversations in the right way, with the right level of eq, with the right level of trust and rapport building in order to get management to open up. And I've become, there's many things I'm not good at, but I become quite good at that. The second thing is by doing this work and positioning it in the right way to the leadership team that you're still selling in the deal process. This can actually be a net positive because they learned that we are being pursued by a sponsor who actually cares about creating an environment that brings out the best in this team and getting us all into roles where we can have our greatest, you know, the greatest impact on value creation. So I actually, you know I, I get the fear factor and, but the actual like the before and after the, the, the, you know, the, the what we suspect this process is versus the reality is actually quite stark in contrast because this can become a real net positive in a due diligence process and just advance everybody's understanding of what do we need to do to make this business as successful as possible in the next chapter.

Yeah, certainly what we're saying none of this is simple and well, certain steps that can be simple and easy but it only additional thought and consideration. I hadn't even thought about the rumbling the deal through initial due diligence. So appreciate that. Appreciate that thought. So Dan, what are your influences? I know you've written your own book, but what do you read, what do you watch, what do you listen to that you'd recommend that others check out?

Private equity podcast. Of course.

Alex didn't pay me to say that. I in sincerely I so I am a, I'm a consumer. I've long been just a for, for right or wrong, a learning type, you know, continuous learner. I love just digesting a lot of, a lot of stuff. I've tuned in quite a bit to your podcast. It's not a, not just a backhanded compliment, but I have so my interests are and I fulfill these interests via books and podcasts and then just, you know, I try to stay networked within the private equity space. Always trying to learn from other people. My interests sit at the intersection of value creation and human capital. Value creation being how can what are the ways in which we can make private equity backed businesses more successful, more enduring.

Create value in the world. And there's a lot of angles and threads to that. But I've, you know, I've traveled down many of those rabbit holes and then of course how do you bring leadership and human capital to bear to make, you know, make the collective more, more successful. So I mean lots of. I don't want to open up this Pandora's box, but lots of podcasts and books that I'm, you know, I try to stay, try to stay tuned into to keep my act sharp.

What is there any particular books that you'd highly recommend? Like for me, every chief executive should read the Motive by I think it's Patrick Lencioni. I may be pronunciate pronouncing his surname wrong. But is there any kind of top reads that you'd recommend either for investors or portfolio execs?

When in terms of the threads that I most focus on three threads being hiring well, creating high performing teams from the people you've hired well and driving value creation with and among that team. If those are the three threads, my top book in each of those three categories are for hiring well, go read who or top grading. That'll get that's the 8020 version of how to hire effectively. I've added bells and whistles and my own you know, spin on some things in who and top grading over time but it it'll get you 80% of the way to to being you know, to at least having a process to to. To.

Excel in this area when it comes to.

Building high quality teams. I this may may have been the book you just mentioned, but the Advantage by Patrick Lencioni, it's all about building.

He's written another book as well, actually.

Yeah, I mean the guy's prolific, he's written a ton. But the Advantage is fundamentally about building high performing teams. But that comes in his view that comes by way of building trust based cultures and trust based relationships among the leadership team. I found that to be the one must read for a lot of for private equity leaders and otherwise. And then on value creation.

Perhaps a shameless plug, but I would, you know, go grab a copy of Winning Moves. I say that because I the reason I wrote this book, this is not an attempt to hawk books at people and earn like a whatever it is, a 2.20 royalty off each of these copies. But the reason I wrote this book is because there just wasn't a lot. There's a lot out there on business strategy. A lot out there on business strategy. What I didn't find was something that is tailor made to private equity that can both define and break down value creation as we talked about in the early part of this chapter, and canvas the market of private equity firms and professionals out there who are making value creation happen and ask them what are the moves you're making to do that and try to catalog all of that in a book that can be just really practical and actionable.

There are, there are a few other books I think that are on the way out in or that are coming out in in the sphere that play to the same theme of private equity value creation. But but I frequently as a practitioner, I frequently drink my own Kool Aid and refer back to this book as I'm just working with clients because I think we I was able to extract a lot of really good wisdom out of some really smart private equity professionals about about how to do this stuff.

Appreciate the recommendations and if anybody wishes to reach out to you, Dan, how best do they get in touch?

Please get me on LinkedIn. I try to try to stay pretty active on there and post things that I think are going to be valuable to the PE community and their company. So follow me on LinkedIn and reach out to me.

Perfect. Well, thank you very much, Dan for joining us. We've talked about one of my top subjects, all regards to talent, and I've learned some good things today. So hopefully all of our listeners have to so thank you very much for coming onto the Private Equity podcast.

Thanks for having me, man, and thanks for everything you're doing to help, you know, help out the private equity ecosystem, ecosystem and sphere. I think you and I are kindred spirits and wanting to just put some stuff out there that's going to help other firms to, to be better. So thanks for what you do.

Absolutely. Our pleasure. And as always, thank you very much for all joining us today and having listened to the Private Equity podcast. Should you ever need support with private equity professional hiring or portfolio executives, please do reach out to us at Raw Selection. But till the next time, keep smashing it and thank you very much for listening.