Improve Your Ability to Learn

On the surface, John looked like the perfect up-and-coming executive to lead BFC’s Asia expansion plans. He went to an Ivy League B-school. His track record was flawless. Every goal or objective the organization had ever put in front of him, he’d crushed without breaking a sweat.

But something broke when John went to Asia. John struggled with the ambiguity, and he didn’t take prudent risks. He quickly dismissed several key opportunities to reach out for feedback and guidance from leadership. It became clear that John had succeeded in the past by doing what he knew and operating rather conservatively within his domain. It also became clear that the company was going to massively miss the promises it had made to the Board and the Street if John remained in the role.

With a heavy heart, BFC’s CEO removed his promising protégé from the role and redeployed him back in the US. He decided he had no choice but to put a different kind of leader in the role – Alex.

While talented, Alex had come to be known behind closed doors by the moniker “DTM” – difficult to manage. He marched to the beat of his own drummer, and he wasn’t afraid to challenge the status quo. He loved a challenge, and he was comfortable taking risks. It turned out to be the best move the CEO ever made.

No stranger to ambiguity, Alex was flexible in formulating his strategy and sought feedback from the people around him. He made a risky move at the beginning that backfired on him. But as a result, he learned what not to do and recalibrated his approach. That was the key to success. His tendency to buck the established BFC way of doing things was exactly what was required for the company to successfully flex its approach and win in the new territory.

What Alex’s success exemplifies is the importance of “learning agility”: a set of qualities and attributes that allow an individual to stay flexible, grow from mistakes, and rise to a diverse array of challenges. It’s easy to assume that those qualities would be highly prized in any business environment. Flexibility, adaptability and resilience are qualities of leadership that any organization ought to value.

But in practice, this is not the case. As a rule, organizations have favored other qualities and attributes – in particular, those that are easy to measure, and those that allow an employee’s development to be tracked in the form of steady, linear progress through a set of well-defined roles and business structures.

Learning agility, by contrast, has until recently been hard to measure and hard to define. It depends on related qualities such as emotional intelligence that are only just beginning to really be valued. It also relates to behaviors – such as the ability to recover from and capitalize on failure – that some managers would prefer not to think about.

The Pillars of Learning Agility

According to the researchers at Teachers College, Columbia University, and the Center for Creative Leadership, learning agility is defined as follows:

Learning agility is a mind-set and corresponding collection of practices that allow leaders to continually develop, grow and utilize new strategies that will equip them for the increasingly complex problems they face in their organizations.

Learning-agile individuals are “continually able to jettison skills, perspectives and ideas that are no longer relevant, and learn new ones that are,” the researchers say.

The research identified four behaviors that enable learning agility and one that derails it.

The learning-agility “enablers” are:

Innovating:

This involves questioning the status quo and challenging long-held assumptions with the goal of discovering new and unique ways of doing things. Innovating requires new experiences, which provide perspective and a bigger knowledge base. Learning-agile individuals generate new ideas through their ability to view issues from multiple angles.

Performing:

Learning from experience occurs most often when overcoming an unfamiliar challenge. But in order to learn from such challenges, the individual must remain present and engaged, handle the stress brought on by ambiguity and adapt quickly in order to perform. This requires observation and listening skills, and the ability to process data quickly. Learning-agile people pick up new skills quickly and perform them better than less agile colleagues.

Reflecting:

Having new experiences does not guarantee that you will learn from them. Learning-agile people look for feedback and eagerly process information to better understand their own assumptions and behavior. As a result, they are insightful about themselves, others and problems. In fact, in prior studies, Green Peak Partners discovered that strong self-awareness was the single highest predictor of success across C-suite roles.

Risking:

Learning-agile people are pioneers – they venture into unknown territory and put themselves “out there” to try new things. They take “progressive risk” – not thrill-seeking, but risk that leads to opportunity. They volunteer for jobs and roles where success is not guaranteed, where failure is a possibility. They stretch themselves outside their comfort zones in a continuous cycle of learning and confidence-building that ultimately leads to success.

The learning-agility “derailer” is:

Defending:

Being open to experience is fundamental to learning. Individuals who remain closed or defensive when challenged or given critical feedback tend to be low in learning agility. By contrast, high learning-agile individuals seek feedback, process it and adapt based on their newfound understanding of themselves, situations and problems.

How do these five facets translate into behavior, performance and results at work? The researchers found that learning-agile individuals are notably:

• More extroverted: They are more sociable, more active and more likely to take charge.

• More focused: They continually refine and polish their thinking and their work. They are more organized, more driven and more methodical.

• More original: They are more likely to create new plans and ideas, seek complexity and readily accept change and innovation.

• More resilient: They are more “at ease,” calm and optimistic. They rebound more quickly from stressful events.

• Less accommodating: They are more likely to challenge others, welcome engagement, and express their opinions.

The research also shows that while many individuals can model some aspects of these behaviors, learning-agile individuals stand out in particular for their resilience, calm, and ability to remain at ease. It’s not just that they are willing to put themselves into challenging situations; it’s that they’re able to cope with the stress of these challenges and thus manage them more effectively.

The “derailer” – defensiveness – also has an impact on performance, of leaders in particular. When the researchers reviewed 360-degree evaluations, they found that leaders who ranked high on the “defending” scale were considered less effective. By contrast, peers and direct reports rated more highly the leaders who ranked high on the “reflecting” scale.

Researchers at Columbia University and the Center for Creative Leadership collaborated to develop an objective test for learning agility, called the Learning Agility Assessment Inventory (LAAI). It’s a 42-item survey that measures learning-agile behavior by asking individuals about how they respond to challenging situations, then scoring the answers against the four enablers – innovating, performing, reflecting and risking – and reverse-scoring the derailer, defending. In developing the test, researchers compared the scores to a 360-degree assessment and to another established personality test, the Workplace Big Five Profile.

We then administered this test to over 100 executives – mostly private-equity backed C-suite leaders — that we had previously assessed in a rigorous half-day structured interview. In a 2010 study with Cornell University, we showed that our assessment grades predict performance, as measured not only by revenue and EBITDA but also by boss ratings (often issued by the Board). The more recent study extended that research by showing that those who out-performed in our assessments also scored higher on the LAAI.

Taken together, the two studies demonstrate that high learning-agile individuals are also high performers.

Cultivating Your Own Learning Agility – and Coaching It in Others

One of the best ways to coach for learning agility – or for that matter, any desirable set of behaviors – is to recognize and develop it in yourself. Becoming more learning-agile will help you cope with the turbulence of the workplace. And it will make you more aware of how to bring out the potential in your learning-agile people.

Among the ways to cultivate learning agility in yourself are:

Innovating. Seek out new solutions. Repeatedly ask yourself, “What else?” “What are 10 more ways I could approach this?” “What are several radical things I could try here?” It doesn’t mean you do all of these things, but you explore them before proceeding.

Performing.  Seek to identify patterns in complex situations. Find the similarities between current and past projects.  Cultivate calm through meditation and other techniques. Enhance your listening skills – listen instead of simply (and immediately) reacting.

Reflecting. Engage in “counterfactual thinking” – explore “what-ifs” and alternative histories for projects you’ve been involved in. Regularly seek out real input. Ask, “What are three or four things I or we could have done better here?” Frame the question in specific terms, instead of simply asking, “Do you think I should have done anything differently?” But make sure the questions are still open-ended – that will encourage colleagues to speak up.

Risking. Look for “stretch opportunities,” where the probability of success isn’t a given.

Avoid defending. Acknowledge your failures (perhaps from those stretch assignments) and capture the lessons you’ve learned from them.

Reaping the benefits of learning agility takes effort and commitment. That said, the first step is simple: Recognize its attributes and that it is an asset that you need to cultivate. But once you have started that process, you will begin to realize the benefit – an organization that is more flexible, more adaptable, better able to respond to business volatility and therefore more competitive in the face of unprecedented challenges. The results might even be revolutionary.

https://hbr.org/2015/06/improve-your-ability-to-learn

The post The “Superpower” of Top Leaders in Crisis appeared first on Green Peak.

12 Specific Leadership Questions During Times of Uncertainty:

1. How do I anchor myself and the company on our ‘why’ and vision, now more than ever? How do I demonstrate that the situation is serious, but not add unnecessary fuel to the fire? How can I add transparency and reassurance in an authentic and consistent manner? (If you haven’t explicitly clarified your company’s purpose, you’ll have some time now to do it…)
2. How do we truly live our company’s values in this situation? (Hint: How many of you have actually pointed to the values as you make decisions about whether to ban travel, encourage working from home, or launch a new offering in the midst of this uncertainty?)
3. How do I show my team I truly care about them – as people? What personal calls do I want to make to my direct reports? (Hint: Ask “what support do you need now?”) What company-wide email(s) are warranted? Consider:
   • What is the invisible nametag you would want people to “feel” from being around you as the leader? For example, “She cares about more than the numbers.” “He is being serious and authentic, but leaning into action on things we can control.”
   • What small, meaningful gift could I send to the homes of each of my senior team members or other employees adversely impacted by the situation to show I care? Think chocolates for that mid-day work break in the ‘virtual kitchen’ or a card game for them to play with their family when staying inside during evenings.
4. What do I need from my team? And who else can support me/us? When you ask your team to support you, watch how valued and connected they feel. “Can you help me with this?” is one of the most underutilized and powerful leadership questions I hear from CEOs.
5. What are several bold actions we can take now or soon? How do we increase our cash runway and put in place contingency plans? What costs could we cut now that we have been debating (as the adage goes: “Never waste a good crisis.”) Better yet, what radical ideas would turn this situation from a negative to a positive over the near to medium term?
6. How can we communicate and stay connected, especially if we are leveraging a virtual model for some period of time? What new cadence of video or chat communication would help? What new rituals do we need? What might make things fun? For example, one of our clients created a personal emoji for each member of the team this week, which had people laughing and bonding more than ever expected.
7. How can we brainstorm the most useful questions to ask before we jump to solving? Questions are more powerful than answers; just like ‘having your ladder on the right building is more important than sprinting to the top of the rungs.’ In these times of uncertainty, our human tendency is to react vs. pausing to consider our range of options and implications.  By starting with brainstorming questions (not answers), CEOs draw out a more robust and diverse option set from their leadership teams, usually resulting in more creative solutions.
8. How do I take care of myself, and maintain my objectivity, balance, and optimism? Now’s the time to double-down on (vs. abandon) the physical/emotional/spiritual practices (e.g., the right food, sleep, meditation, etc.) that you know serve and sustain you.  For example, I have been working out and meditating more than ever and focusing on manifesting ideal outcomes. I have been repeatedly asking and answering the quintessential coaching question “What do I want?” And, “How would this play out, ideally.” Strangely, the phone has been ringing with opportunity from unexpected places over the last week…
9. What are the relevant lessons that I can evoke and apply from prior periods of uncertainty that I’ve faced? Here’s your chance to apply the skills/wisdom/perspective you’ve accumulated over the years.  Consider not only what surfaces in your mind, but also in your gut/intuition and elsewhere in your body.
10. What’s already happened over the past few days/weeks that I may need to let go of? Acknowledge any missteps and really own them (without excuses, without externalizing them and without beating yourself up).  Take a breath and leave them behind you. “Nobody gets to be perfect, including you!”
11. Where can I cultivate more of a curiosity and growth mindset (vs. a fear or fixed outcomes mindset) for myself and my team during this period? Times of uncertainty create openings and opportunities for those who are willing to explore them. However, it’s also important to recognize that you and/or some members of your team may not be able to rise above the fear right away.  Strive to meet people where they are, without judgment; but also, be attentive to one person’s fear disproportionately hampering the broader team.
12. How do I want to be remembered in six months for my reaction to and leadership through this situation? What will I want to be able to congratulate myself and my team on? Remember: “Opportunity favors the bold.”

JP Flaum
CEO & Founder

The post Coronavirus Resource for Bold Leaders: 12 Specific Questions You Need to Ask Yourself appeared first on Green Peak.

Imagine arriving your freshman year at Princeton and declaring that you will be the No. 1 crew rower in the country by the time you graduate, despite having no interest from a coach who has already filled his elite team with recruited athletes and despite having no prior experience in rowing. Can you imagine declaring, much less actually accomplishing, that feat?

Imagine that you fall in love with an island in 1978 and you get the insane idea in your head that you want to buy it. An entire island. Except you are told that it costs $6 million, and the most you could possibly pay is $160,000. You find a way to actually(!) buy it for $180,000 and it later becomes worth over $200 million.

How would you react if you were one of 24 people who applied as an hourly worker at Kentucky Fried Chicken and everyone but you gets a job offer? And you are told that you have “no potential” by KFC? And then you start two companies that also fail. Would you be able to push on and today be worth $40 billion?

The vast majority of people cannot imagine such scenarios because they believe that only the truly gifted or lucky among us have the motivation, the capability, and the resources (talent, financial and otherwise) to accomplish such achievements. Indeed, there are a complex set of attributes that the top 1% – 2% of business leaders, athletes, and performers possess that contribute to their success.

And in today’s winner take all economy, small margins of excellence add up to outsized rewards. For example, the average Major League baseball player makes $4 million a year. But if you can get one-half a hit more every 10 times at bat or get on base one more time for every 20 times you go to the plate, your average salary jumps to $8 million, or double the average. At the top of every field, these exceptional performers are able to produce outsized returns. The top 3% of computer programmers can code 1,200% more lines of code than average. And as you often see in the news, the top 1% of income earners control 38% of the wealth in our country, or more than the bottom 90% combined. To most people, it’s difficult to imagine being in select groups like these.

The fact is that not everyone wants to do what it takes to become exceptional; most are content to be average. There is a reason that the average American watches 4.5 hours of television per day and spends 2 hours per day on social media, while only managing to read 3 books per year. There is a reason that fast food restaurants serve 50 million Americans each day. Simply stated: It is easier.

Undoubtedly, the ingredients that lead to exceptionalism in an individual or organization are numerous, complex, and vary widely from case to case. However, if you are among the minority who yearn for something greater, there is a simple three-step process to follow. By “simple”, we don’t mean easy. However, we do mean these 3 steps can be applied successfully in almost any situation by anyone to achieve exceptional results.

THE THREE STEPS: Making the Mission Possible

1) Declare the unreasonable

In 1962, John F. Kennedy gave a speech to 35,000 people at Rice University in which he famously said, “We choose to go the Moon in this decade and do the other things, not because they are easy, but because they are hard…” Switch out “hard” for “unreasonable” and you have the first pillar.

When goal setting, many individuals and organizations are content to simply declare the reasonable or, perhaps, the reasonable plus a little more. But, when was the last time anyone got excited about the typical stretch goal? Cries of “We are going to do 10% better than last year” never seem to inspire the troops.

Declaring the unreasonable and shooting for the Moon, on the other hand, has an inherent power — a power that is unleashed in your own mind, as well as activated in the minds of the people around you. When you declare an unreasonable goal, immediate or longer term, whether it’s personal or for an organization, you and then others will rally behind it and put forth extraordinary effort to achieve it.

2) Launch the heat-seeking missile

In order to achieve the unreasonable, you have to get started towards the goal, even if your initial efforts prove to be off target. By definition, an unreasonable goal is one you don’t yet know how to reach. Hence, the analogy of the heat-seeking missile. You launch the missile in the rough direction of the target and the missile constantly adjusts its trajectory until it gets close enough to zero in on a heat source and then hit the intended target.

The main idea of launching the missile is that your first shot – or initial step – does not have to be big or aimed precisely. You often don’t even know where the target is. It is most important to simply get forward momentum in the general direction of the target. Take a step and then another. Be prepared for failure. This stage is all about trial and error, course-correcting, and moving closer and closer to that goal.

One bold example of launching a missile happened when Todd Davis announced on national TV that his social security number is 457-55-5462. And then told hackers to give it their best shot. Why would he do such a thing? He was the CEO of Lifelock, an identity protection company and he wanted to demonstrate confidence in his own product. That bold, unconventional action was a turning point in the company’s trajectory. Not only did his action captivate a national audience of millions, the subsequent publicity was a media bonanza of free press, leading to scores of new customers.

Ultimately, it does not matter what the first step is, as long as you take it and launch that missile. And, then take another step, then another, and then more…

3) Be a rhino

For those unfamiliar with the impressive stats of the rhinoceros: on average it weighs 5,000 pounds, can run shockingly fast — up to 25 miles per hour, has two-inch thick skin, and if cornered, it will simply run through the obstacle and refuse to back up. In other words, nothing can stop them.

Once the unreasonable goal has been declared, only “the spirit of the rhino” will carry you past the naysayers, the many failures, and all of the other obstacles that stand between you and your target. This is the stage where most people fail. They are told that their goal is impossible, so they give up. They are told they are crazy and to be more realistic. They run out of funding, or some other roadblock materializes and everything fizzles. This is really where the exceptional separate themselves from the average. They are relentless and resourceful. All those arrows being fired off by the doubters just bounce off their two-inch thick metaphorical skin, and they keep moving forward.

One of our Green Peak mantras to remind us of the spirit of the rhino is to “Risk a 3 to get a 9.” On a scale of 1 to 10, where 10 is an absolute “I’ll buy 100 of whatever you’re selling” and a 1 is “Never speak to me again,” most people try to be polite and standard and average when selling and maybe try to land at a 7 by being a 7. The problem is that a 7 doesn’t stand out and most often will lead to zero sales or success. But by being bold, unconventional, and most importantly, persistent and risking a strike out at a 3, you dramatically increase the chances of a deal-closing 9.

THE THREE PILLARS IN ACTION

An example of this formula at work can be seen in Graham Weaver, the founder of Alpine Investors, a San Francisco private-equity firm that consistently generates top percentile returns on every round of funding. While each of his ventures, including the three companies he bought with credit cards when he was still in business school, is representative of the three-step formula in action, we want to go back a little further.

Upon arriving his freshman year at Princeton, Weaver decided that he wanted to be the No. 1 crew rower in the country by the time he graduated. Here’s the problem: Weaver had not rowed a single stroke in his life. Reasonable goals might have included joining an intramural rowing club or practicing until maybe he was good enough to at least join the team by senior year. But, Weaver declared the unreasonable.

Weaver launched the missile by going to the coach, who was understandably nonplused by his request to join the team. Of course, he could not simply walk onto one of the top crew teams in the country, especially with zero experience. All of the slots were filled months ago with top recruited athletes.

Undeterred, Weaver ascertained that he could use the boathouse to train, which he did every morning, six days a week, at 5:00am. Most people would have walked away from this endeavor upon being told they could not join the team. Others probably would have abandoned it after a couple of weeks of training, an injury, or a late night of partying, which does, in fact, happen at Princeton, despite what you may have heard.

Not Weaver. He persisted at this for months, as any rhino would. Finally, a visiting alum, who happened to be one of the school’s top alumni rowers and an Olympic gold medal winner, noticed Weaver on the rowing machine in the boathouse. He asked the still bemused coach about Weaver, who muttered something about “crackpot…here every day…no chance in hell…”

The former rowing star asked Weaver what he was up to. Instead of saying something reasonable like, “I am training so I can maybe make the team,” he said, “I am training to become the top college rower in the country.”

It is impossible to say how history might have played out had Weaver simply said he was trying to get better so he could make the team. It is likely the alumnus would have walked away, and it would be the end of the story. Instead, Weaver’s unreasonable and bold statement immediately captured the attention of the alum, who walked over and checked out Weaver’s rowing times. The shocked rowing star quickly informed the coach that this “crackpot” kid was rowing times that were on par with, if not better than, half of the current varsity team.

The coach didn’t need much more convincing. At the end of the season, the team allowed Weaver to try out. He made the team, walking on his sophomore year. He continued to improve under the training of professional coaches. By junior year, he was named the captain, an honor usually reserved for seniors. And, in his senior year, not only did Princeton win the NCAA Division I rowing championship, but Weaver held the country’s top times in his weight class for several consecutive weeks. He was, in fact, the No. 1 rower in the nation!

Declare the unreasonable. Launch the missile. Be a rhino.

The formula works. It worked for Weaver. It worked for Richard Branson, who declared in 1978 that he would buy Necker Island in the Virgin Islands, which at the time cost $6 million. Branson only had $100,000! Through persistence and creativity, he was able to buy the island for $180,000 and now it’s worth well over $200 million. It worked for Jack Ma, who was rejected from KFC, told he had “no potential,” who’s first startup companies failed before he finally achieved success as the founder and CEO of Alibaba, the Amazon of China. It worked for the creators of Angry Birds, who people misperceive as an “overnight success.” In fact, they spent 5 years creating 51 games that didn’t take off and the company nearly went bankrupt before they hit the jackpot on game No. 52 with Angry Birds. It now has 2.5 billion downloads and nearly every human on the planet with a smart phone has played it. It worked for golfer Phil Mickelson, who spent thousands of hours mirroring his dad’s golf swing, which is why the right-handed Mickelson is a left-handed golfer. Mickelson hit thousands of balls day-after-day, in rain or shine, from every conceivable lie on the golf course, playing in tournaments every weekend while his friends were off enjoying normal teenage lives.

Do not make the mistake of believing that only exceptional people can achieve these results. It’s not exceptionalism that makes it possible for them to achieve the three steps. Rather, it is following the three steps that makes them exceptional. Being unreasonable, relentless, resourceful, and motivated to keep moving forward — all of this is free currency that anyone can access.

It is easy to look at someone at the peak of their journey, when they are at the top of their game, and conclude that this person achieved these heights because he or she is exceptional, as if the person was born with this trait. It is also easy to mistakenly assume that these individuals and teams achieved overnight success. What most people don’t see is all the hard work behind the scenes that involved declaring the unreasonable, launching the missiles, and charging through obstacles like a rhino.

The surprising thing about this formula is that it can be applied in all situations, from multi-year goals to something that has a much shorter timeline. It can also be applied to one person, a team, or an entire organization.

This formula can be applied to day-to-day activities, whether it’s completing a week-long project in two days, being the best spouse or parent you can be, or presenting a very bold idea in a business meeting.

Maybe you are leading your weekly team meeting. Instead of checking on progress or outlining the reasonable targets, ask each person what are three or four radical things they could do to make a big impact this quarter. Then ask them to pick one, declare it, launch the missile, and be a rhino. If they think you are crazy then send them this article from a firm, who – because of being unreasonable for the last 20 years — has now worked with over half of the top 25 US private equity firms, numerous Fortune 500 CEOs and their top executives, several self-made billionaires, and hundreds of other exceptional people including world class athletes and nonprofit leaders.

Yes, there is always going to be average. It is a statistical reality, as any bell curve demonstrates. But, imagine what can be accomplished if we move that curve to the right, so that the new average is what was once considered exceptional.

You can be a part of that shift. You now have the secret formula that has been honed on hundreds of executives that our firm has coached. What exceptional and unreasonable goals are you going to set? What missiles will you launch to get closer and closer to your target? And, what is your rhino plan to break through any obstacles that stand between you and your target?

The post The Real Reason You’re Average – How Exceptional People Got That Way appeared first on Green Peak.

If you’ve been an investor for any period of time, you know this scenario well. Perhaps it has even happened to… your friend? It’s why you invest substantial time and money in diligence to reduce knowable risk as much as possible. As an investor, you also know how critical having the right team in place is for the success of your investment.  The right CEO, surrounded by high performing talent, can work their way out of most situations where mediocre leaders would fail.  Yet, think about your last investment committee presentation; what percent of the diligence was dedicated to the quality of the management team, and the next layer of the organization? Did you effectively evaluate the talent and performance management programs to ensure they were incentivizing the right behaviors?  Are you sure that the org chart is aligned to the strategy and set up to scale the company as rapidly as your bull case on revenues? If you’re like most investors, the answer is probably not.  We find that the average investment committee document has a couple of pages at most dedicated to these critical people issues while the vast majority are focused elsewhere.  Yet, the organizational issues are just as likely to undermine your investment as the market dynamics are.  You wouldn’t buy a house without hiring someone to conduct a thorough home inspection.  So why take such a risk on a multi-million-dollar investment?

“John” took that risk; he justified it because he was afraid of losing the deal if management was pushed too hard about the quality of the people on their team.  He also didn’t know where to turn; his firm had always relied on networked references and management team meetings to gauge the quality of the team.  Unfortunately, the risk he bought came to fruition.  The company he invested in had a CEO who was not prepared to lead the organization through the next phase.  This CEO actually hadn’t been actively driving the firm for the prior two years; he had all-but-retired and much of the organization was being run by a President who was pushing orders out the door and papering over substantial quality concerns.  The organization was tired, disengaged, and largely working to the letter of their contracts and job requirements.  All of this could have been identified during diligence, but it doesn’t show up in the “tried and true” methods.  Especially when the CEO is a savvy individual, battle-tested by prior investment rounds and well prepared for the meetings.

At Green Peak, we believe that performing an effective organizational due diligence is more important now than ever before.  Gone are the days where returns were mostly a result of financial engineering or even operational excellence. Deal valuations are soaring as a smaller number of deals are being chased by an ever-growing pool of money.  Many of these deals are for companies that have already been owned by a professional investor, and the low hanging fruit has been picked clean, from operational improvements to bolt-on acquisitions to sales force effectiveness.  New tools are required in order to create value, and undoubtedly managerial talent and the supporting infrastructure will be a critical part of the value creation roadmap.

Having conducted over 130 Organizational Audits and Reviews, we have learned a lot about creating the blueprint for scalability and identifying blockages to growth.  Our approach begins with a thorough understanding of the investment thesis:  what is the core rationale supporting this investment and, more importantly, what will the company need to do differently to achieve the goals? From this, we conduct a series of interviews with the critical leaders who will be responsible for leading the company in its next phase of growth.  We seek to answer four fundamental questions:

• What is great about the company?  What are the foundational pillars that have fueled success to date and will be required in the future?  (Spoiler alert:  avoid changes that accidentally knock these out!)
• What is missing from the company if it is to be successful in reaching its goals in three to five years?  What are the functions, capabilities, and organizational needs that must be strengthened to support a far larger organization?
• Where is the company’s talent or organization infrastructure ill prepared to scale?  How might that undermine the investment thesis and how can we mitigate those risks?
• How should the company phase those organization and talent investments?  Too much too early can be as detrimental to growth as too little too late.

These questions, and the sub-questions we use to unlock the answers, result in a clear fact-base that management and the new board can use to build a meaningful “First 100 Days” plan and ongoing org blueprint.  These two parties can be fully aligned on the state of the company today and therefore the steps needed to achieve success.  On average, our clients report advancing the value creation agenda by 6-9 months as a result of knowing this fact base in the first days of the new partnership vs.  ‘tripping on hidden land mines’ over the first year.  And by eliminating those 6-9 months of wasted time, their investments can be realized on a faster trajectory.

What types of issues will organizational due diligence uncover?

First, know that the example that befell “John” was not conjured out of thin air.  It represents an actual outcome but the circumstances described are an amalgamation from two other diligence projects we conducted.

In another example, a regular client was under time pressure to close a deal, and already knew that the target company had some problems. But, rather than do a detailed assessment before closing, they decided to buy the company, do their own deep dive, and call Green Peak later if needed.  Within a month of closing the deal, the “CEO Successor” quit, the COO clamored for the CEO job, and the head of HR was finally honest with the deal team about “the real story” behind the company’s dysfunction. In all, the series of events led to a 10% reduction in EBITDA.  When we arrived, we uncovered a massively fractured team, broken operations, and a toxic culture. It took an entirely new executive team to right the ship and get things running smoothly, and far more time, money, and energy to accomplish all this after the deal closed. Eighteen months later, the organization is beginning to turn the corner but much time has been lost.

There are many other examples, and there is no easy set of “the five questions to ask during diligence” no matter how catchy that title might be.  Findings range from deep familial and other undisclosed personal relationships within the team, compensation programs with perverse incentives, companies presented as one unified organization that are little more than financially beholden to a corporate center, etc.  All of these challenges would certainly have been uncovered after the deal was concluded, but at a major cost of both time and relationship alignment.  Importantly, when these types of issues arise post-close, the trust between management and the board is broken.  The issues can be fixed, but the trust is substantially harder to rebuild and leads to tense if not tumultuous dynamics within the board room. This is certainly not the right way to begin a three to five year relationship!

Organizational Due Diligence is more important than ever if private equity firms plan to maximize the value of return on their investments. Make no mistake, there is a price associated with a thorough inspection. But, it is a small upfront price to pay, and it could potentially save millions in time, energy, capital outlays, lost productivity, and of course the lost equity value of a bad investment. Just ask our numerous investor clients — our blueprint for continued scalability is worth its weight in gold.

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Strong growth and market tailwinds can breed complacency which, in this bull market, leads to lost potential or being blindsided. In a down market or rapidly evolving industry, this complacency can be disastrous. Is anyone planning to stop by Blockbuster on the way home tonight to pick up a movie?

While there are several drivers that promote agility in organizations, I wanted to touch upon the most critical one today: modifying the makeup of your workforce.

The Learning Agility Spectrum

We see three primary actions that best in class companies are taking:

1. Hire more Agile Culture Enablers. Add screens in your interviewing processes for candidates who have a track record of innovating. Ask the following question to the references: “How often does ___ drive you crazy because they are pushing on new ideas for your organization?”  And, hire some ‘trouble makers’ that are willing to push!
2. Replace Active Detractors. These folks are the first people to highlight failed attempts (and underscore that the company never should have changed in the first place). Add buckets like ‘Brings innovation,’ ‘Reflects on mistakes,’ and ‘Takes calculated risks’ to performance management systems to identify and weed out these blockers of change.
3. Push the Capable Followers up the agility curve. Identify them through the performance management system and foster the capability through coaching, ongoing training, and ensuring receptivity to new ideas.

Finally, as a leader, perform an honest assessment of where you fall on the curve. What are three things that you personally need to do differently to promote change within your organization? If you are a CEO and not in the top third of the agility scale, it’s highly likely that you are holding the company back from innovating.

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