Interim Ingenuity: Ready-made Executives to Elevate Your Company

Sean Mooney:
Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real-time trends. During this special episode, we replay a fantastic conversation from our interim ingenuity symposium with my colleague Richmond Donnelly and Mark Steenhoek, managing director from the Stevens Group, and Bryan West, managing director from Resurgence Technology Partners. The expert panel discusses how top business builders in the world are using grade interim execs to both defensively and opportunistically create value within their portfolios.

This episode is brought to you today by BluWave. I'm Sean Mooney, BluWave's founder and CEO. BluWave is the go-to expert of those with expertise. BluWave connects proactive business builders, including more than 500 of the world's leading private equity firms and thousands of leading companies to the very best professional service providers, independent consultants, and interim executives for their critical, variable, on point, and on-time business needs. Enjoy.

Richmond Donnelly:
Alrighty. Good afternoon everyone, and thank you for joining us for today's edition of BluWave's webinar series, Interim Ingenuity, covering interim executive best practices, and then billing trends in short-term leadership roles. My name is Richmond Donnelly. I'm a member of the client coverage team here with BluWave, and will be moderating our discussion today. Also joined us, our expert panelists, Mark Steenhoek, managing director of operations with the Stevens Group, and Bryan West, managing director of Talent with Resurgence Technology Partners. Mark, I'll pass it over to you for a quick intro and then Bryan up to you next.

Mark Steenhoek:
Yeah, for sure. Definitely the least important part of this, but kind of my background is I've been with Stevens Group for about four years. Prior to that was with McKinsey and the majority of my career has just been in an advising role to executives and that kind of continues with us. We're a mid-market private equity firm based in Little Rock, Arkansas with about $2 billion under management.

Richmond Donnelly:
Bryan.

Bryan West:
Hey everybody. First a little bit about Resurgence Technology Partners. We're a lower middle market software buyout focused firm. We're on our second fund, which is $500 million right now, about a halfway through it. Before I joined the firm about three years ago, before this, I was at ghSMART, which is a boutique leadership talent advisory firm for about five years and ran their private equity practice or stood up and ran their private equity practice before that McKinsey. Like Mark, I did not do talent there actually, I did a lot of just general strategy consulting and program management stuff. That's very much how I view the world today is resource allocation, especially with a growing firm and a growing portfolio. 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 happy hour in another conversation.

Richmond Donnelly:
All righty, let's get into it. To set the stage, we wanted to share a sneak peek into our Q3 quarterly insights report. This is looking at proprietary data from BluWave's Activity Index. This tracks all inbound projects through our network. This index in particular looks at all really post-closer value creation activity. 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. Really that number one use case in Q3 is connections with specialized recruiters. 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? Across 2023, that interim CFO position is accounting for about 58%, CEO at 15%, CHRO close to 10%. The remaining kind of executive positions that we're seeing, COOs, CIOs, CTOs, CROs, et cetera, account for about 20% there.

To get into our first question for today, as kind of 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 whole period, CFOs in particular, to maintain momentum through the cell. Given these different variety of reasons, how are you all addressing and or thinking about working within interim executives? Bryan, I'll let you start us off with this one.

Bryan West:
Well, interestingly enough, in a perfect world academically, if you will, I'd never need to look for an interim executive, but I don't live in a perfect world. By definition, we live in a pragmatic world that we need to get things moving off and on a timeline that prevents me from establishing relationships years in advance and getting really comfortable with people and plugging them into the perfect opportunity just because all that's already happened in the background. Our thinking on why and the use case for interim execs and when to use them, it's still pretty consistent in terms of the rationale. Again, in a perfect world, we're not meeting somebody for the very first time and plugging them in. We maintain a network of interims here and there, but as we grow our firm and the number of portfolio companies grows, it's inevitable that we're going to use them. It's a muscle that we want to continuously get stronger and stronger at.

Richmond Donnelly:
Mark, how about you?

Mark Steenhoek:
Yeah, and maybe I'll kind of chime in. I would echo the first point with emphasis on both that I would prefer not to, but that's not the world we live in. I think the when is largely around for us is, first and foremost if you have a moment of crisis, and so you absolutely need to do something, you need to do it quickly. Those are usually in moments of transition when you have an unexpected leadership change and versus me stepping into a role or somebody 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 to hold, Richmond, kind of like you described. 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've said, or pre-covid, I would've said, "Hey, 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 tasked-based, that you'd look to in interim. Definitely more orientation to hiring a full-time, but more acceptance of the interim role as time's evolved.

Richmond Donnelly:
Interesting. Yeah. I know we discussed this a little bit in our prep call, but even kind of thinking about how is it playing into your thesis and what does that look like from historically, as you mentioned, maybe in a crisis setting, whereas now it's more of the try before you buy scenario. No, those are both very interesting.

Mark Steenhoek:
Richmond, it's a good point. I'll just expand on that just for folks that weren't on that call, but I think when we think about thesis, there's sometimes where you need a wartime general or a peacetime general, and sometimes that those transition states are going to occur at a specific state in the hold. If there's a transition already coming and you know that you only need a certain skillset for a period of time, we would then look to an interim to bridge that versus looking for a full-time that you aren't sure if they're going to be able to make that transition. Those skill sets are somewhat different. Largely kind of around thesis, either at the onset or an evolving thesis as you're kind of going through a hold period.

Richmond Donnelly:
Yeah, no, that's super helpful context. The next question that we had discussed is, and you touched on this a little bit, but what are some of the reasons that you use interim executives and what is the value that they add and then a second part of, what are some of the titles that you're typically bringing in or looking to bring in?

Bryan West:
Yeah, I'll start. I described to us as a firm as lower middle market software, foot buyout shop, more like what that actually means with a slightly different words is, is far more often than not we're buying anywhere from eight to 25 million ARR founder-led bootstraps businesses that have been around for a long time, not things that are screaming to the moon, but things that have been around 10 to 20 years and just kind of have been running. The founders aren't visionaries looking to take over the world. It just slowly amassed to a decent product, if nothing else. 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 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 and 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. 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. 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 had that capability set ready to plug in and act as that role working for us full time, but that's not always the case, where sometimes we're stretched or sometimes we don't have the certain specialization that we need in that business.

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 what excellence each one of these functions looks like. Then the back office roles though, 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 or roles of that seniority level, not necessarily that title, that being the most common thing.

We use interim CFOs the most often whenever we need to in part because these little federal have bootstrap businesses, guess how many CFOs we inherit? Zero. We need a CFO in every business. I can't promise I've got a closet full of them ready to plug into 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.

How that takes shape in other areas of 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 plugs some of that hole. Also, again, because our go to market takes shape, it's a little bit different than every one of these businesses. It's hard to say, "Hey, this exact sales profile is exactly what I need every time." That's not going to be the case. There's a little bit more modularity or flexibility on those parts of the businesses.

Mark Steenhoek:
Yeah, I like that, Bryan. I think it's somewhat of a similar, I would say, there's good reasons and bad reasons that we would hire. I'd say that we find ourselves more in the camp of the bad reasons, and I'd describe those as it's a crisis situation, somebody leaves, like I talked before, or it's a situation where we started looking in this a little bit more post-covid in that we would have an open CFO role, and then it takes nine to 12 months to fill it just because the market was so tight and difficult to find that perfect fit. Also think the bar on a permanence is a little bit higher, and so you kind of feel like, "Hey, we're getting married, we need to really be sure here." I think some of those times we would look and say, "Look, we just need somebody in the seat," and if it works out for a year, six months to a year, that's a great outcome because we will get a lot of value out of that.

I think we don't find ourselves in the good reason camp as much, Bryan, as you guys probably do of you don't have that role and you're standing it up. I think, and 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 and then if it takes us six months longer, it does. Maybe I need to change my thinking there, but I would agree on the specific roles that we 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 to tangential industries, albeit software is going to be very different than industrials.

Aside from that, CFO is probably the most generic role. 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, should we need find ourselves in more of a distress situation or there's kind of an element of turnaround or just program management that's really needed versus something else. CHRO is one that I've thought a lot about because that is the area we do find ourselves in more, Bryan, your camp, of zero to one. Even the $10 million mid-market industrials business, probably doesn't have a sophisticated human capital or HR leader, but it's something that we're trying to build throughout the hold period. That's one that I've actually given a lot more thought to in the past nine to 12 months, but haven't had a situation to pull the trigger.

Those would be the top ones. I think 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 would be harder just because the nuance of that and then also the change management cost of doing that twice, I think is more difficult. Yeah, CFO first, CTO/transformational CO, and then CHRO would be kind my order of 1, 2, 3.

Richmond Donnelly:
Yeah, no, those are both great points and good areas to think about. When you do decide to use interim talent, how do you think about that selection process and really how, if at all, is it different than a full-time position? Is there any criteria or process change that you also incorporate into that process?

Bryan West:
Yeah, this has actually evolved a good bit on our side in the last year and a half and not evolved materially, but it's just there's been good step changes here. In part, it was informed by candidly a bad experience with an interim where we said, "All right, let's not just do a cursory quick couple of phone calls, not do a full hiring process kind of exercise as we would with a full-time piece of talent." We very much do a full interview slate just like we normally would with interims, but we're willing to move a lot faster than we would have otherwise if we're interviewing for full-time number one. The criteria though, it very much goes back to, I'll connect it to what I just said of what most often what we're solving for, is that bridge or again, we kind of know what needs to happen in some of these areas right out of the gate.

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. We're able to go in and very specifically orient to on a project basis like, 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 as the primary orientation of 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 few years?" 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're planning on a short stint.

Mark Steenhoek:
I actually think, Bryan, your first point, I think it's a failure mode if you don't put them through a somewhat normal process. Similar in that I kind of think about, there's two elements, there's the kind of private equity side, and then is there anything external, whether that be a ghSMART assessment or whether it be something cognitive or whatever. You could take your pick on assessment tools. We also do for these kinds of level of roles, we also require pretty significant case studies where you get a little bit of a day in the life, I would say for normal hires. We kind of bifurcate it 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.

We probably do less on the assessment side, so we won't run somebody through a ghSMART assessment. We're not going to do an industrial psychologist of sorts. We're not going to do cognitive testing, those kinds of things. 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. We won't do a case study necessarily, but we will probably over index 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, maybe higher. Just full day, lunch and dinner, walk through the facility, met the full board three times. I spent four or five hours going through the opportunity with the person.

With all those touch points, you develop a pretty good feel for what you're getting. I think that failure mode, Bryan, you're kind of luting to is, 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 if things don't go well. We do try to continue to be fairly rigorous on that evaluation. The selection criteria is largely what's the need and do they fit that and do you have a lot of confidence that they fit that? Then secondarily, nobody is perfect, and so you say, okay, maybe they fit eight to 10 of the things you need. How are you going to supplement the others or are you willing to bypass those and go without? Very specific kind on selection criteria.

Richmond Donnelly:
No, that's interesting. It's certainly a fine line between getting the Mr and Mrs Right Now, versus the Mr. Or Mrs. Right, and what's that trade off and how far are you willing to go, more or less? It's great. That leads into our final question then nicely is, so nicely you found your interim executive, you've gotten them in the seat, how do you go about managing them and working with them to ensure that it's an successful engagement and as noted earlier, even potentially a conversion to a full-time role? Mark, do you want to start us off with this one?

Mark Steenhoek:
Yeah, for sure. I would say successful is no different than you would on a lot of others. I think really clear communication around what you need and alignment that they're oriented and really focused on what you are tasked them to do. I think the second is just being really clear on alignment related to are they interim, are they permanent? I think there is a little bit of a shift in the talent pool of more folks willing to look at interim, almost as a try before your buy, both on the private equity side or the hiring side and the hired side. More executives willing to take that role, but many of them are looking for full-time. 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."

I think just communication is number one. Then I would say you still have to go through the normal onboarding. These individuals are not superhuman. They don't know the businesses they're joining, so we would typically go and partner with them, one to get them up to speed on the business, and then help them transition into that seat and then make sure that there's as much support as they need as they're occupying that seat. We will definitely not take the path of dropping them in and, "Thank goodness they're handling the mess," and now we're out. We see it as very much a partnership, but it's not that different than a permanent role.

Bryan West:
One quick aside that's building or responding a little bit to one of the things Mark said, and Richmond, you said earlier in the conversation too, in one of our prep calls or the prep call that we had before this sometime in the last couple of weeks, the notion of try before you buy, we've always been open to it. I was actually pleasantly surprised to hear that a lot of folks are actually in market explicitly raising their hands saying they want to be on the other end of try before you buy. That was actually reassuring because that's a great way to build a relationship. We're always open to that.

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, and that's CFO. Again, clarity of what exactly that person's there to do and communication is key, just like Mark said. Look, we kind of view it particularly because software specialists. With an interim, it's a dual reporting relationship. With a CFO, that's kind of true, generally speaking anyway. 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. I say that not for me personally, but just from the ivory tower of the sponsor.

The reality is, 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. If they're slotting into somewhere else, same statement. 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, that's the interim CEO. As far as project managing the task list, because again, an interim is there by nature to do a short-term assignment, not a long-term. That project management really more often than not happens at our level. Again, I'm speaking mostly for CFOs, but it's played out in a couple other roles where we've had to do go over interim as well.

Richmond Donnelly:
That's great. Yeah, Bryan, to that point that we were discussing earlier where the rise of the gig economy and through covid, whereas prior to 2020, maybe 5% of interim placements that we would work on would convert, and that's close to 30 now. Kind of a combination of the increase in the talent pool and folks being more open to stepping into that interim role as it's a good segue potentially to something longer. If you could hit on in the selection process, what are some of the must haves that you kind of index on? Then maybe conversely, what are some of the red flags or things that you stay away from?

Bryan West:
My answer is pretty boring on this one, and it's very much informed by my own experience and particularly my ghSMART experience, our own just conviction. We need somebody that's been there, done that, if it's an interim seat and has been there, done that on a specific activity level as we possibly can. We don't want to burn six months of time or three to six months of time on building a function, which is often, as you've heard me say, that's what we're doing. As a result, we do get very specific on size, industry, experience, everything. It is very, very, very specific. That's to benefit everybody, not just to make us feel good about it.

Richmond Donnelly:
Sure.

Mark Steenhoek:
Yeah, I would say that's my number one as well. Then I think the second would be, especially if it's a CEO and a leadership thing, of just pretty radical transparency. You're just going to be able to really work together hand in hand, which kind of equates to low ego and like, they know what they're there for. They're there to do a job, and they're on point and then we're all working together. I think that is huge in any higher, but I think that's the second, especially here where it can be one of those circumstances where you're not going to know everything, they're going to pick up the phone and call, or they're willing to take feedback. That'd be my number two.

Richmond Donnelly:
Yeah, no, those are great. We'll, appreciate it guys. Thank you both for giving us your time today. I think with that, I think we'll call it. Mark, Bryan, sincerely, appreciate it again.

Bryan West:
Yeah, thank you.

Richmond Donnelly:
All right, thanks everybody. Talk to you soon. Bye.

Sean Mooney:
Special thanks to Mark and Bryan for sharing their insights. If you'd like to learn more about the Stevens Group or Resurgence Technology Partners, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts, including Apple, Google, and Spotify. We truly appreciate your support. If you like what you hear, please follow, rate, review and share it. It really helps us when you do this, so thank you in advance. In the meantime, if you need to be connected to the world's best in class PE-grade professional service providers, independent consultants, interim executives, or anything else, give us a call or visit our website at bluwave.net. That's B-L-U-W-A-V-E.net, and we'll support your success onward.

Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.

BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.