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The Private Equity CEO: Navigating the First Year

By Matthew D. Belda and Tim Hutchins
October 2024

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It’s not as if a new CEO hardly has a long runway in their first year — let alone in their first 100 days. They are expected to confidently hit the ground running, making critical decisions about the business almost immediately. And in a private equity–backed company, this is perhaps doubly true as the CEO almost certainly enters with an accelerated mandate to drive value.

Welcome to PE: a demanding and challenging experience — but one that can ultimately be quite rewarding.

When seeking leaders for their portfolio companies, private equity investors often say they want a CEO who has done this before; an “athlete” who can effectively lead on many fronts. But the supply of CEOs with PE experience is in short supply, an issue that will only become more acute as invested deals are held longer. The reality is that firms are hiring first-time CEOs more than ever, and in many cases, these leaders have never worked with private equity.

In this article, based on our experience as leadership advisers to both CEOs and investors, along with interviews with a dozen CEOs leading private equity-backed business services companies in Europe and the United States, we look at the keys to success in the early days on the job, and what new CEOs wish they had known when they started.

What is that first year really like? How did it differ from their preconceived expectations? What helps a CEO not just get through the first 12 months, but even thrive, become better leaders, create stronger teams and position their companies for success?

For one thing, PE firms often have more ambitious timelines for achieving results, with an eye toward a successful exit within, give or take, five years. And, as they have more invested in their companies, they tend to be more hands-on than public boards when it comes to working with CEOs, particularly around both strategy and operations.

For new leaders, the situation on the ground is almost always different than the one they expected to have.

Clearly evident from our interviews for this article is the fact that no two jobs are alike. Every invested situation is different, each with their own challenges and opportunities. For new leaders, the situation on the ground is almost always different than the one they expected to have. CEOs provide core focus on strategic initiatives for the business, which in some cases may be a new muscle. The day-to-day operational oversight should be left to a strong team, who will execute on the blueprint that has been created by the CEO and sponsor. Learning how to “zoom out” will test the very best leaders, who are accustomed to having their hand in every element of the business at a deep level.

First-time private equity CEOs who have come from large businesses may be surprised how big things can come in small packages. They will also quickly learn that serving as a CEO is quite different than being COO, division president, or some other similar role.

While context matters, our experience and discussions with CEOs point to several key actions that can help a new CEO succeed in the private equity realm during their first year on the job.

Be ready for the unexpected. Whether it was an underperforming business, a financial irregularity or something adrift culturally, the leaders we spoke with shared many examples of unexpected hurdles they faced in their first year as CEO. Of course, all candidates will do their best to diligence the company they’re considering joining; and the board, us, and the investors will also do their best to prepare their new hire for success, but it’s impossible to be prepared for everything.

That’s why it’s always wise at the outset to gain as much visibility as you can about the organization and its current status. Review the confidential information memorandum (CIM) or any other investment paper that outlines the original investment thesis presented to the investment committee, the latest trading information and the most recent financial results. Speak with the CFO, meet the team and ask around; leverage your network for advice and counsel as much as you can while maintaining confidentiality.

Be decisive. CEOs are often confronted with challenging and complex situations where perfect information is not available. It's in these moments that their ability to make decisions becomes crucial. The nature of the decisions often involves significant risk and stepping out of one's comfort zone, but the ability to move forward in spite of this truly distinguishes effective leaders. Being decisive doesn't mean acting rashly. Successful CEOs understand that it’s better to make a move and adjust course as needed rather than remain inactive and wait for perfect conditions that may never arise.

Prioritize the relationship with the fund. The CEO’s relationship with private equity sponsors is a crucial element of success. Our interviewees talked about establishing early and ongoing alignment and ensuring that the core operating team and the fund are aligned on value-creation goals and planning. If possible, meeting with other CEOs within the fund’s portfolio can also yield helpful guidance on what it takes to secure a positive relationship.

Beyond that, we have seen and heard how important it is to err on the side of overcommunicating with the fund, particularly in the earliest days on the job. As the saying goes, good news travels fast, but bad news travels faster, and that’s certainly true in the private equity setting. “It’s about building trust and ensuring everyone is working towards common goals,” one CEO told us. That means meeting regularly, and getting everything on the table.

Successful CEOs understand that it’s better to make a move and adjust course as needed rather than remain inactive and wait for perfect conditions that may never arise.

Get the focus right. First time buy-out CEOs can find themselves entrenched in the minutiae of the business. However, experienced private equity CEOs tell us that a strong partnership with their CFOs and COOs is critical, as those leaders effectively manage the day-to-day operations, allowing them as the CEO to establish and maintain the necessary clarity for the mission in hand.

Intervention should be strategic and minimal, focused on ensuring the path forward remains clear and corrections are only made as necessary. CEOs should look outward, engaging with stakeholders and scouting for future opportunities, thereby fulfilling a role that supports and complements the internal focus of other key executives.

Instill excitement and a culture of learning. The focus on culture has never been more important, particularly in situations where organizations rapidly scale through M&A. The blending of different cultures with the aim of moving in unison is no small undertaking. Culture problems can stymie even the best-laid plans; the faster you address these — with the right bedside manner, based on a clear blueprint for the future state of the company — the sooner you will be able to address the company’s larger-picture needs.

Defining that future state is an opportunity to instill energy, excitement and a sense of accountability into the company. Work hard to instill faith in the business and help them get excited about the opportunity ahead.

Engage your CEO peers. The idea of CEO as the “loneliest job” can certainly be true at times, but there are resources available and it’s critical to tap into them. At the very least, find a mentor who’s been through this and understands what you’re facing. CEO peer networks can also enable you to swap experiences and bounce ideas off people with similar experiences. Many private equity funds actively bring their leaders together exactly for this reason; further, the company’s board chair has likely been through this as well. All in all, invest in your relationships.

• • •

To say that a bumpy first year is the “nature of the beast” may not be that reassuring. But the experiences of the CEOs we spoke with show how, with patience, confidence and determination, a new CEO can navigate the unique challenges that will undoubtedly arise. With a strong approach to managing their relationship with the fund, building a strong team and inspiring their people, they can lead their company to their goals.

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