When a founder starts thinking about bringing in a capital partner, one of the first worries that comes up is what happens to their leadership team. It’s a natural question. Most founders have heard about firms that come in after a deal closes and start swapping out executives, and the people on a founding team are usually more than employees. Many of them joined early, took on more risk than the job description called for, and helped build the company into what it is today. Founders feel a real sense of loyalty to those people, and they should.
So it’s worth addressing directly. Here’s how we think about it at Rallyday.
We are in the people business
Every deal we do gets modeled and stress-tested like any investment would, and the spreadsheets are part of the job. After enough years of doing this, we’ve learned that the numbers follow the people. A company growing from $10M to $50M will ask things of its leaders that nobody in the building has done before, the founder included.
Our starting assumption is that the team who got you here knows your customers and your culture better than any outside hire ever will. That kind of institutional knowledge is expensive to replace and close to impossible to buy. We would much rather invest in it.
Roles outgrow people, and that’s normal
The controller who helped close your books at year-end for tax purposes may now sit in a seat that has to manage a lender relationship, accrual-basis monthly financial reporting, and a three-entity consolidation. Your head of ops may have run one location beautifully and now owns six. The role grew. That says nothing bad about the person in it.
We help founders look at each seat as it will need to exist two or three years from now, then have a candid conversation about the gap between that seat and where the person sits today. Sometimes the gap is small and closes with a few months of focus. Sometimes it’s bigger and calls for coaching, a strong number two underneath, or a peer group of people who’ve already made the jump (our leadership program Ascend exists for exactly this). Once in a while the answer is that someone would be happier and more effective in a different seat, one where their strengths do the heavy lifting.
Give people a real shot at scaling themselves
Most people never get told clearly what the next version of their job looks like. They get vague signals for a year and then a surprise. We think that’s unfair to them and bad for the business.
So when we partner with a founder, we push for clarity early. What does great look like in this role at the next stage? What support does this person need to get there, and over what timeline? Then we put resources behind the answer: executive coaching, leadership development through Ascend, introductions to operators in our network who’ve run a bigger version of the same function, and plenty of our own time.
We’ve watched a lot of leaders rise to the moment once someone gave them a real shot. When we do bring in outside talent, it’s usually for a seat that didn’t exist yet (a first CFO, a dedicated head of people), and the existing team helps pick that person.
The short answer
We never walk in with a list of people to replace. You’ll get a partner who takes your team as seriously as you do, who will help you map out the organization structure of the future, and who will provide the resources to help your team rise into those roles as the organization grows and evolves. When changes do happen, they get decided together and handled with the dignity people have earned.
If you’re weighing a partnership and this question is keeping you up at night, give us a call. We’d love to talk about your team. Make it a Rallyday.
This is Part 4 in a series where we tackle the most common questions we hear from founders thinking about a private equity partnership.
Ready to start the conversation? Reach out to John Trinquero, Managing Director.
