Private Equity Spotlight: Doron Grosman on Shaping Success Across Sectors

[00:00:00] Sean Mooney: Welcome to the Karma School of Business Podcast. In this episode, we have a very insightful conversation with Doron Grosman, a serial CEO, private equity operating partner, and PE, VC, and angel investor.
Enjoy.

[00:00:38] BluWave: Hello everyone and welcome to the Karma School of Business. Today, I am thrilled to have with me a distinguished figure and a dear friend who is well known in the realm of private equity, Doron Grosman. Doron, it's fantastic to have you on the show.
Could you start by introducing yourself to our listeners?

[00:01:01] Doron Grosman: Well, thank you so much, Rena. It's really an honor to be with you and also to be here on the Karma School of Business podcast. I've had three phases in my career. I'd say the first is leading businesses in the public domain, like global train, air conditioning, Excel, carbon fiber, chemical magazine printing.
I started my career at Bain and then I spent 11 years at GE. I'm also an engineer with an MBA. The second phase of my career, I then spent about 20 years in private equity. As an operating partner at court square capital, they're a middle market, private equity firm with fund size of 3 billion. And then I've been a serial CEO and interim CEO of Portco's at Global Container Terminals, Physiotherapy Associates, DISA.
Most of these businesses, Serena, have EBITDA ranging say from 50 to 500 million. And I've worked for many years with boards, the nominating committee, the audit committee, compensation, et cetera, et cetera. And at this point in my career, the third phase, I'm mainly doing private equity board work. And investing on my own account in startups through venture capital and angel investing.

[00:02:14] BluWave: Super. And I'm so thankful to Court Square who brought us together. Doron, with your extensive experience in private equity, I'm curious, how do you influence and guide management teams at your portfolio companies?

[00:02:25] Doron Grosman: In some respects, I've been rather fortunate to have a unique set of business experiences.
And that I've been on both sides of the table as an operating partner and investor, and then also as a serial CEO. So that experience allows me to be very comfortable with educating and coaching and mentoring and guiding management teams. And certainly from a leadership perspective, I think leadership is all about followership.
You create a vision, you set standards that are realistically aspirational, you paint a future with hope, and then you drive execution to create distinctive value. I've always tried to lead with empathy and compassion, but holding people accountable, I tend to be rather consensus driven, but only to a point.
I try really hard to be an active listener. Who holds my thoughts to the very end. Now that's from a leadership perspective, from a collaboration perspective, you can't really succeed today, Rena, without having collaboration as a behavioral attribute, every leader will fail without being collaborative because collaboration is required with customers, suppliers, partners, the board, the management team.
And to me, collaboration really means transparency. See. Honesty, attentive listening, and then constructive debate and effective data driven decision making. So when I tend to think of the management of private equity, the important thing there is to figure out what the private equity metrics are. They're EBITDA, they're multiple expansion, they're free cashflow, and then get those metrics cascaded within an organization all the way down.
So that every person in the organization understands what they're going to contribute and also make sure that their bonuses are associated with these financial metrics, maybe 70 percent financial metrics and 30 percent behavioral metrics. That's how I tend to guide and lead management teams and portfolio companies.

[00:04:35] BluWave: So considering the unique position that you're in, what do you see as the unique challenges of leading companies as private equity CEO compared to a public company CEO role?

[00:04:45] Doron Grosman: Ah, yes, that's very different. So let's start out with the PCEO. As a PCEO, you're entirely focused on creating success for an exit in, let's say three to six years.
I'm It's very important to get high speed agreement on strategy, organization design, and talent upgrades. And then certainly you have to be maniacally prioritizing and sequencing work that has to be executed because you don't have a lot of time. There's M& A work being done constantly. You don't have quarterly earnings, so that's not a target for private equity and certainly not in the public, but you really have to be disciplined and focused on cash.
With the rolling 13 week cashflow forecast to make sure you don't breach covenants and constantly I have to be engaged with the board focused on EBITDA and speed to value. And that's more prized than meticulous planning. Now in the public domain as a CEO. Only about 25 percent of fortune companies provide earnings guidance and there's no exit that's needed to be achieved.
So what you're really doing there in my judgment is managing the equity analyst's expectations and relative competitive positioning of your company versus your competitors. You obviously have to be engaged with the board and focused on governance and ESG and DEI, succession planning, certainly the audit, the risk.
But there's very little operational engagement that a public board has. The boards tend to be rather formulaic and check the box. Sometimes they can be a little bit stuffy, but the focus there is entirely on earnings per share.

[00:06:29] BluWave: So what's your perspective on the following? I love to ask this question.
What role does board engagement play in enhancing the value of private equity investments?

[00:06:39] Doron Grosman: So let me differentiate when you ask that question between board engagement of the equity investors themselves versus the independent board members, because I think it's rather different. So if you're a board member representing the equity investors, you're really there to guard the limited partners money.
Those individuals tend to be highly analytical, financially focused. Sometimes they bring operational expertise. There's certainly setting the M and a strategy and the exit path. And they're working with the banks on financing, debt coverage, debt extensions, things like that. I have tended to find that the equity investors.
No, the private equity firms that own other portfolio companies in the space from whom maybe you'll do a buy of an add on to your company, or maybe you'll sell to. So I think that tends to be the focus of the equity investors. Now, if I turn my attention to the independent board members, that's rather different.
They create more of a balance between management and the equity investors. My experience has been they're more pragmatic. They set an appropriate speed and cadence. They have a very good balance between what needs to get done immediately and what can be left for next year or three years time, so that things tend to be more smoothed out.
And they're certainly very strategic. Some bring deep domain expertise. So it could be within an industry that your business is, or maybe in a function, like the chair of the audit committee could be a serial CFO, independent director. And some of them do bring operational value. So that's how I tend to think Rena about the difference of the board role between the equity investor and the independent board member.

[00:08:31] BluWave: So in terms of strategy and governance, how do you leverage your board position in your portfolio companies?

[00:08:37] Doron Grosman: Ah, okay. So let's start with strategy. Obviously, there's a very strong investment thesis that has been underwritten by the equity guys and the debt guys upon closing. But quite often that doesn't always have the management input that's needed for buying and support.
So most often, what I would do as soon as we've got the full complement and strength of the management team in place, we'd start a piece of strategy work. Could take four weeks to eight weeks. Not longer. Sometimes we'd use a consultant. Sometimes we wouldn't. And we would finalize the five year strategy plan based on the investment thesis that was created.
But then we would translate that five year plan into an operating plan, a financial plan, and a cash flow plan. So you've now got a strategic plan, an operating plan, financial and cash flow plans. And then we update those, let's say, every 12 months or so. From a governance perspective, I think it's very critical that the board, especially a private equity board, is involved in governance in a meaningful way.
I like to be a little bit more formalized and scheduled on governance with clear and transparent objectives and agendas. I tend to find that's an easier way to lead the company as a CEO and also manage the board. And that's true for the board and its committees, regardless if we're talking about the audit committee, the HR committee, the ESG committee, or whatever, and I like to coach the CEO and the management team to assist them to be at their very best in terms of priorities, the content and their delivery for board meetings.
So I tend to divide the board agenda into three parts. One is for information only. So take a quick look, ask a few questions. Let's move along. The second is really for discussion and input, but we don't have to make a decision at this board meeting. We'll come back to the board later on for decision making.
This is for discussion and input. And then the third is, okay, We're ready to have the final decision made here. Let's discuss it and let's make a decision and then move along. So that's how I tend to think Rena about strategy and governance.

[00:11:04] Sean Mooney: This episode is brought to you today by BluWave. BluWave is the go to expert of those with expertise. BluWave connects proactive business builders, including hundreds of the world's leading private equity firms. And thousands of leading companies to the very best BluWave credential professional service providers, independent consultants, and interim executives for their critical variable on point and on time business needs.
Now back to the episode.

[00:11:29] BluWave: I posted many forums through 23. and ask this question a lot. I think this is the area that gets people talking and wanting to hear more. So with your experience, what have been some of the most challenging aspects of working in private equity and how have you overcome them?

[00:11:45] Doron Grosman: Let me start with this example and then I'll have some other examples.
Not many people have the, I say, distinguished advantage, but it's not really distinguished nor advantage. Of asking a CEO to leave the company shortly after post closing. And I've unfortunately had to do that. It's super emotional. It's psychologically difficult, but I do think that when it's done with compassion and empathy and care and logic, it can make a difference.
The words, the body language and the tone when delivering that message all matter a lot. The CEO often knows that she or he is not the right person to the job. And it's just that they have to evolve emotionally to accept that as an outcome. This is not an easy thing at all, and certainly a very, very significant challenge.
So I'd give that as one example, Rena. The other example is I had to go in as the interim CEO to a portco for six months while I hired and onboarded my replacement. So I had been operating as an operating partner for that portco, but there needed to be quite a rapid and large swing In the minds of everybody of me being the operating partner to me now being the CEO and people really needed to understand that.
And we had to avoid any confusion around that. So one example was I didn't use the CEO's office. I used the conference room next to the CEO's office so that everybody could see. I'm not trying to play the CEO. I'm an interim person and I'm not sitting in that space, but I also had to bring in a business psychologist.
Into the office a couple of times over, let's say a six week period to work with the management team and myself so that there would be complete understanding of what the role is, what my expectations were of the management team now as the interim CEO, what their role was and how decisions would get made.
So in terms of most challenging aspects of working in private equity, I would offer that up as a second. Challenge that I experienced. The third challenge that I would offer up is in a technology business. We had to kill a product line that was under development because there was no product market fit.
And the CEO and the innovation officer and the technology officer, they were convinced that this product had merit, but they didn't recognize that this was a product that was based on the technology push and not really based on a customer needs. solution. So we did some work with the focus groups that highlighted that the product really had no merit and that enabled us to kill it.
But you can imagine how disappointing that was to the CEO and the innovation officer and the technology officer. Now, on the other hand, the revenue officer and the CFO were quite thrilled with that. We wrote off the investment and we pivoted away from what we're doing to other customer needs. And did that.
So I offer those up as three challenges. There are lots of others and how we overcame those particular challenges.

[00:15:00] BluWave: For our listeners looking to build a career in private equity, what key skills and experiences would you say are essential?

[00:15:08] Doron Grosman: Yeah. You call out skills and experiences and I would differentiate between those.
So first on the skill side, clearly leadership is, and also having an executive presence is important. Being strategic. Building customer loyalty and distinguished customer service is important. I don't think you can survive in private equity without having a financial acumen skill and the ability to manage for free cashflow.
And also, I think you have to really understand how are you going to create value for the exit, but then also leave enough opportunity on the table for the buyer. Who's buying so that you as the seller make money, but the buyer also has the opportunity to make money. And then maybe the last skill or last two skills that I would suggest are the ability to advocate with data for your point of view by being willing to compromise when hearing the inputs of the other stakeholders.
And then finally, the skill just to execute to the best of your ability and motivate the team to do that are very important. So those are some of the skills. When I think about experiences, the life cycle of a business tends to go through three possible phases. The high growth phase, which everybody wants to have.
Sometimes there's a turnaround. People don't really want to have to deal with that, but that's important. And on rare occasions, how do you avoid going into bankruptcy? So I think that's an experience that's important. So understanding what happens at the investment committee in the private equity shop is very important.
How power and success is gained or lost within the private equity firm. How credibility is built, what portfolio successes sell well to limited partners when raising the next fund, those are important, but clearly multiple repetitions of running a portco. Which builds confidence and capability and acumen are very important.
One doesn't have to necessarily have worked in all of those three phases of growth, turnaround, and bankruptcy, but sometimes in two of them is worthwhile.

[00:17:21] BluWave: So Doron, how important is it for private equity professionals to have experience in different sectors and roles?

[00:17:27] Doron Grosman: I tend to think about three different kinds of experiences.
One is industry experience. The second is functional experience. And the third is what I just referred to earlier, which is the stage of a company's evolution experience. So from my perspective, I think all three of these are very important for the executive to have, and to have seen multiple repetitions on so that one can recognize patterns and anticipate what is coming around the corner that hasn't occurred yet and how best to deal with it.
thereby not losing time and wasting company resources and zigzagging back and forth with the team. So when I think about industry, I think it's very advantageous to have worked closely and deeply in two industries that are very closely related to one another. So it gets you better experience. I'm fortunate in that I've worked in numerous acid intensive technology enabled businesses like marine terminals or carbon fiber production or air conditioning or plastic.
So that's, I think, an advantage that I have brought to private equity from a function perspective. If I recall correctly, the successful. Fortune 1000 CEOs have primarily come up through operations. The number that sticks in my mind is somewhere around 25 percent through operations and about 22 percent through finance.
And then somewhere in the high teens coming from innovation, technology, engineering, or sales and marketing. So I think this is equally true in private equity for CEOs. That they get this kind of diverse experience. Now, not many people are going to get experience in more than two functions. Most of my domain expertise is in operations and finance.
And then because I'm an engineer, I've had some experience in engineering and innovation, so that can be helpful. And then lastly, that stage of the company evolution that we spoke about before the startup, the growth, and then the turnaround piece, that's I think ideally a CEO should have had experiences in, let's say, two of these three, so that they know what's coming around the corner.
I've not had startup experience, but I've had a lot of growth productivity experience, and I've also had some turnaround, and unfortunately I've had some bankruptcy experience. I say that unfortunately for the company, fortunately in that I learned from that experience, Rena.

[00:20:00] BluWavet: Super enlightening. And before we conclude, I want to ask you, I know that this is always something that people are interested in hearing about, give any final thoughts or advice for our listeners who are keen on the private equity sector, what can you leave them with?

[00:20:15] Doron Grosman: There are a couple of things that come to mind. I think the first thing is the individual should do extensive due diligence. If necessary, get the data under an NDA on the private equity firm, the investment partners, and the port co. The individual taking on these roles have the right and obligation to do that.
And they should take their time. Just like the private equity guys do talk to a lot of people, really make sure you understand the firm that you're going to be associated with. The investment partners that you're going to be working with, who are going to be on your board and really understand the portco and what the investment thesis is and what the exit strategy is, et cetera.
So I'd offer that up as one. I've been fortunate in that. I've had some mentors along the way in my private equity career. And so I would encourage people to find mentors. Who have had repetitions in private equity and are willing to coach and guide them. My mentors have coached and guided me. And I think that has hopefully made me a better operating partner, a better private equity board member, and a better private equity CEO.
I also think that learning is a lifelong thing. So make it a priority. Learn about governance, learn about ESG, learn about artificial intelligence and how it's going to impact your business. Understand global economics and how it impacts your business, cybersecurity. You don't have to be an expert in all of these areas.
Other people will be, but understand it well enough to ask insightful questions that will add distinct to value. Now, there are two other thoughts that I have on this question as well. Keep building your network of expert advisors. I call it my kitchen cabinet. These people are critical. They're different than the mentor, but build your network.
And really have a kitchen cabinet of people that you can turn to. And then maybe lastly, I'd say just be an attentive listener. Look the people in the eye, listen thoughtfully to what they're saying, ask subsequent questions. So you really understand things. Well, be a compassionate empathizer. That's so important.
It's so stressful today and everything that we're doing. Be an analytical strategist. And at the end of the day, be known as somebody who gives back, that helps other people in their careers. I think that's important, Rena.

[00:22:34] BluWave: Today's been fantastic. Sharing your wisdom and experience with us was priceless.
Going back to what you just said about keep building your network, I think you're one of the super networkers of our time and can probably teach a course on it. So this has been fantastic to all of our listeners on the Karma School of Business. Thank you. It's been a pleasure. Make sure that you subscribe for more insights from industry leaders.
And until next time, keep striving for excellence.

[00:23:05] Sean Mooney: That's all we have for today. Special thanks to Doron for joining. If you'd like to learn more about Doron, Please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts. We truly appreciate your support. If you like what you hear, please follow, rate, review, and share.
It really helps us when you do this, so thank you in advance. In the meantime, if you want to be connected with the world's best in class, private equity grade, professional service providers, independent consultants, interim executives, that are deployed by the best business builders in the world, give us a call.
Or visit our website at BluWave. net. That's B L U W A V E 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.