Interim Ingenuity: Ready-made Executives to Elevate Your Company

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I did a lot of just general strategy, consulting and program management stuff, and that's very much how I view the world today. Is resource allocation, especially with a growing firm and a growing portfolio. So this topic is very relevant, to say the least, in my world. Before McKinsey, military special ops, guy in the Marines and fly-fishing guide. I'll connect those dots via a happy hour and another conversation.

The major trend reaching an all-time high in Q3 of 2023 at 58, is human capital or human resources, as opposed to or compared to 47 of Q3 of 2022. Going back this layer a little bit and digging into the specific tactics across the functional areas. Consistently. The top two areas businesses look to create value are related to getting the right people on the bus and in the right seat. So really, that number one use case in Q3 is connections with specialized recruiters. And as you go to number two, that's interim executive leadership. The last layer we'll look into is really the breakdown across those interim executive leadership positions. What are those specific roles that we're really seeing the most demand for? And so across 2023, that interim CFO position is accounting for about 58 CEO at 15 CHRO, close to 10 in the remaining executive positions that we're seeing. So CFOS, CIOS, CTOS, CROS, et cetera account for about 20%.

To get into our first question for today. As previously noted, private equity firms come to us for a variety of reasons to fill their interim talent needs. Sometimes it's at the beginning of investment, when they're looking to start fast as a bridge where a replacement is needed and at the end of a hold period. CFOS, in particular, to maintain momentum through the sale. So, given these different variety of reasons, how are you all addressing and or thinking about working with interim executives? BRIAN, I'll let you start us off with this one.

Those are usually in moments of transition, when you have an unexpected leadership change. And versus me, stepping into a role, or somebody kind of on the OPS team, or from the private equity side, stepping into a role, going out and finding that replacement. I think the other would be if it's just very oriented towards a specific task and you can very specifically define what you want to have done. By the interim, I think that's another good example. And that could be early in the hold if you're going to zero to one or late in the hold. RICHMOND Kind of, like you described, so those would be really the big times. I do think one of the things that I've kind of started to change my mindset on a little bit. I would not say I'm fully converted to this, but is a willingness and openness to interims in more settings.

I think four years ago I would have said, or pre-Covid, I would have said a interim is only in crises. Now. I would kind of flip it a little bit or broaden it a bit and say, hey. If there's specific examples, like some of the ones I mentioned around, you have a very specific task, maybe it's temporal and time-based, or maybe it's task-based that you'd look to. An interim, but definitely more orientation to hiring a full-time, but more acceptance of kind of the interim role as times evolved.

And so largely kind of around thesis, either at the onset or an evolving thesis, as you're kind of going through a whole period.

They're just slowly amassed to a decent product, if nothing else. And when we come in no surprise, most of what we're underwriting is growth, and or different outpaced growth from what it has been doing. That inevitably means, especially as we look back and kind of reflect on all the companies that we've invested behind. It ends up being mostly new leaders across the team to include the CEO role within about 18 months of us getting involved in the business. It's a lot of work, but that means that we also have capabilities on our team in the form of a broad portfolio operations effort that can plug in place, drive some of the value creation efforts. In the early days of that whole period. Knowing that we don't have the right leadership team out of the gate with these businesses.

And by the way, that's not an insult to the people we inherit, it's just we very much value and benefit from. Some. Been there, done that, but that's where. Again, back to in a perfect world. We've always got coverage to drive that first, particularly six to 18 months, while the team's getting into place in a perfect world. We always have that capability set ready to plug in and act as that role, working for us full time.

But that's not always the case. Sometimes we're stretched and or sometimes we don't have the certain specialization that we need in that business. So it's fundamentally the reasons we end up going to interims are to help set the stage. And or help inform what the go forward role should look like, particularly when I say, inform what the go forward role or function or motion should look like. That particularly applies to anything on the go to market and product side, again, software focus.

We can get really dialed in on each, on what excellence each one of these functions looks like. And then the back office roles, though, like, we kind of know what we need there. It's a pretty consistent set of activities. And I wasn't shocked to see that. CFOS and Chros were roles of that, that seniority level, not necessarily that title. That being. The most common thing is, we use interim CFOS the most often whenever we need to, in part because these little federal bootstrap businesses guess how many CFOS we inherit.

Zero. We need a CFO in every business. I can't promise, I've got like a closet full of them ready to plug in all these businesses. So it makes a lot of sense for an interim to come in that we in a perfect world we've worked with before and know and trust. But that has the requisite experience to set the stage for the go forward and how that takes shape.

In other areas, the business is often a little bit different again because of the capabilities we're able to bring to bear. We don't have a finance operating partner, for instance, but if we did, maybe that plug some of that hole. But also again, because how good a market takes shape, it's a little bit different than every one of these businesses.

So it's hard to say, like, Hey, this, this exact sales profile is exactly what I need every time. That's not going to be the case. So there's a little bit more modularity or flexibility on those that, on those that, those parts of the businesses.

And then it takes nine to 12 months to fill it, just because the market was so tight and difficult to find. You know, that perfect fit? Also, I think the bar on a permanent is a little bit higher, right? And so you kind of feel like, Hey, we're getting married, we need to really be sure here.

And I think, you know, some of those times we would look and say, Look, we just need somebody in the seat. And if it works out for, you know, a year, six months to a year, that's a great outcome because, you know, we'll get a lot of value out of that. I think the, you know, we don't find ourselves in kind of the good reason camp as much. BRIAN kind of as you guys probably do of, like, you know, you don't have that role and you're standing it up. I think maybe this is a failure mode of us and something I should adjust. My thinking on is. But if we find ourselves in that situation, we just go find a permanent, you know? And then if it takes us six months longer, it does.

So maybe I need to change my thinking there.

But I would agree on the specific roles that we, you know, look for interims. I first and foremost think some things are easier to step in and add value. Day one. I think nuanced sales motions are harder than CFO, therefore we would naturally orient towards CFO is probably our number one, right?

A CFO in X, Y, Z industry is all fairly similar, you know, to tangential industries, albeit software is going to be very different than industrials. But aside from that, CFO is probably the most generic role, and so that's the one we look at most. I would say a transformation officer or CEO that's more transformation oriented would probably be number two. You know, should we need, you know, find ourselves in more of a distress situation?

Or there's kind of an element of, you know, turnaround or just program management that's really needed versus, you know, something else. And the Chro is one that I've thought a lot about because that is the area we do find ourselves in. More. Brian, your camp of kind of zero to one, you know? Even the $10 million mid-market industrials business probably doesn't have a sophisticated, you know, human capital or HR leader, you know. But it's something that we're trying to build throughout the whole period, you know? So that's one that I've actually given a lot more thought to in the past nine to 12 months. But haven't, you know, had a situation to pull the trigger? But those would be the top ones, I think, you know, some of the others I'd be interested in exploring as well.

I think it'd be probably less, maybe I'm wrong about this, but a sales leader, I think it could be harder. Just because the nuance of that, and then also the change management kind of cost of doing that twice, I think, is more difficult. But yeah, CFO, first CTO Slash, kind of transformational CEO, and then ChrO would be kind of my order of one, two, three.

And Mark said something in the response to the first question of, Hey. There's typically a specific list of tasks, we've got a really, really specific list of tasks. For instance, that needs to happen to build a professional finance and accounting function in a business. So we're able to go in and very specifically orient to on a project basis. Like, Hey, does this person have experience or the skills to knock out? Kind of a more tactical list of things versus. We evaluate full-time talent with outcome rated scorecards, you know, as the primary orientation for evaluation of. Hey. What are the odds for success for this individual accomplishing these outcomes, and therefore what skills and attributes do they need over the next, you know, few years? So it's a lot of. The motion is the same, but the checklist, the criteria we're using, is quite different, just much more tactical by nature.

Because we are assuming it's a short, we're planning on a short snit.

We kind of bifurcated, and so we would say internally, our process is just as rigorous around number of interviews, time spent together, people and introductions to the board, to the private equity firm, so on, and so forth. But we probably do less on the assessment side, so, you know, we won't run somebody through a smart assessment, we're not going to do an industrial psychologist of sorts.

We're not going to do cognitive testing, those kinds of things, and we would not generally do. By the way, I don't really like the cognitive test ones. But everybody's got their own view on that, just in general. And we won't do a case study necessarily, but we will probably overindex on trying to spend more time with them than less. We did a CEO earlier this year and I think the collective time that we had probably spent with that individual was something in the order of 16 hours. You know, maybe, you know, higher, just, you know, full day kind of lunch and dinner walk through the facility, met the full board three times. You know, I spent four or five hours, you know, going through the opportunity with the person. And so with all those touch points, you develop a pretty good feel for what you're getting.

And I think that failure mode, Brian, you're kind of alluding to. If you just pull the trigger, it might look good for the first three conversations, but you can really set yourself up for a lot more work and headache. You know, if things don't go well. So we do try to, you know, continue to be fairly rigorous on that evaluation period. And then the selection criteria is largely what's the need right? And do they fit that? and do you have a lot of confidence that they fit that?

And then, secondarily, nobody is perfect. And so you say, OK, maybe they fit eight to 10 of the things you need. How are you going to supplement the others? Are you willing to kind of bypass those and go without so very specific kind of on selection criteria?

Right, and what's that trade off, and how far are you willing? It's great that that kind of leads into our final question. That nicely is so.

You found your executive, you've gotten them in the seat, so how do you go about managing them and working with them? To ensure that it's a successful engagement? And, as noted earlier, kind of, even potentially a conversion to a full time role. Mark Do you want to start us off with this one?

So executives, more executives willing to kind of take that role, but many of them are looking for full time. So I think just being willing to have really transparent conversations about what each party's expectations are and desires are. And then coming to an agreement on. Hey, maybe this is interim, or it is definitely interim today. But maybe there is opportunity for permanent down the road or no, there is hard, no opportunity for permanent down the road. So I think just communication is number one.

And then I would say, you still have to go through the normal onboarding, right? These individuals are not superhuman, they don't know the businesses they're joining, you know, so we would typically go and partner with them one to get them up to speed on a business. And then, you know, help them transition into that seat and then make sure that there's a lot of, you know, as much support as they need. You know, as they're, you know, kind of occupying that seat.

We will definitely not take the path of dropping them in. And you know, thank goodness, you know, they're, they're handling the mess, and now we're out, you know, we. We see it as very much a partnership, but it's not that different than, you know, a permanent role.

But more back to the question specifically at hand here. Look, I'll answer. Primarily in the lane for which we use the interim roles most often, that's CFO. Again. Clarity of what exactly that person is there to do and communication is key, just like Mark said.

And look, we kind of view it, particularly because we're software specialists. It's kind of with an interim, it's a dual reporting relationship with a CFO. That's kind of true, generally speaking, anyway. But again, we know what good looks like, most often, even better than the CEO.

We say that that probably sounds pretty egotistical right out of the gate, and I say that not for me personally, but just from the Ivory tower of the sponsor. But the reality is is, you know, we've, we know what good looks like for a finance function. The founder, or a often a first time CEO, probably doesn't, unless they have a CFO background. And then pick the function, you know, pick if they're slotting into somewhere else. Same statement.

So there is the team integration and the business integration very much. The CEO is the primary quarterback there, assuming it's a direct report to the CEO of the interim seat. But as far as project managing, the task list, because, again, it is, it is much more we. An interim is there by nature to do a short term assignment, not a long term. That that project management really more often than not happens at our level. And again, I'm speaking mostly for CFOS, but it's played out in a couple other roles where we've had to go interim as well.

If you could hit on in the selection process, what are some of the must haves that you kind of index on? And then maybe conversely, what are what are some of the red flags or things that you?

And that's that's the benefit everybody, not just not just to make us feel good about.

And so I think that is huge in any hire, but I think that's the second. Especially here, where it can be one of those, you know, circumstances where, hey, you're not going to know everything. They're going to pick up the phone and call, or, you know, they're willing to take feedback. That'd be kind of my number two.

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