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Advisors, Private Equity

Characteristics of Highly Successful BD Professionals

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For over a decade, we’ve helped our private equity firm clients not only find great executives for portfolio companies, but we’ve also assisted with the selection of dedicated business development professionals who are responsible at the fund level to execute the endless deal generation and sourcing activities firms undertake. While most firms still see business development as the responsibility of all, an increasing number of firms are adding private equity business development professionals to their ranks.

The search for best-in-class business development professionals has only become more critical amidst a highly competitive deal market. Having interviewed a significant number of high performers has led us to ponder why some individuals thrive in this specialized role while others, who appear to be perfectly suited, wash out in a few years.

After many conversations with fund managers contemplating the addition of such a role, but with no standard profile, we decided to take on the challenge of discerning what makes a highly successful business development professional. To answer the question we administered a skills and psychological assessment of number of high-performing PE BD professionals. Our goal was to identify the common traits and characteristics found in successful deal generation specialists.

To list the characteristics of highly successful PE BD professionals, let me start with what we intuitively know about them; they are highly motivated, very outgoing and able to quickly and clearly articulate what they – and their firm – are about. They have the ability to engage people and easily develop a rapport. They can quickly read people and situations to figure out where they are gaining traction or spinning their wheels. They are able to manage themselves independently.

Since those are not exactly unexpected revelations let’s dig a little deeper and find out what drives those attributes.

The first two things that the members of our test group have in common are that they are planners and tactical thinkers. That translates into being process oriented (tactical) rather than transaction oriented (strategic). Put another way, they tend to be deals focused rather than deal focused. From what I’ve observed, a transaction oriented person in the BD role is at risk of investing too much psychic energy in things over which he or she has no control and therefore prone to getting ‘burnt out’. Because most of them are not on the deal team they have no control over whether a deal they sourced is completed, so if they measure their performance in the short term by deals closed they’re likely to become frustrated. On the other hand, an individual who is process oriented, or deals focused, is measuring outcomes over which they do have control (for example: relationships developed with referral sources, contacts with potential sellers, deals surfaced, management meetings, indications of interest, etc.) As planners and tactical thinkers, they are methodical and disciplined, paying attention to both how and how many, with their eyes, and more importantly their emotions, focused on different performance metrics than a transaction oriented person.

A comment that I frequently hear is that many senior private equity executives are deal focused. They clearly understand structure and process and the importance of having a disciplined approach to the business of acquiring businesses and increasing value, but they tend to get most excited about actually doing the deal. A common refrain from BD professionals is that they will overhear the GP telling someone how he or she found a particular deal that the BD professional spent years cultivating. The GP in those instances has become so invested in the deal that they think they found it even though it was the BD professional who identified it and/or nurtured the relationship that produced it. Since it is not unusual for people to hire in their own image I strongly caution transaction-oriented GPs to resist the temptation to hire for the BD role someone who is too much like they are in that respect.

Other characteristics that successful BD professionals share is that they are mission and vision people. They have to buy into the fund’s mission as well as their individual mission and want to exercise their own judgment on how to execute the role. They are disciplined, but not slavishly bound by established strategies. Members of our test group showed a fairly strong streak of individualism and the assessment revealed that they are more driven by a desire to get results than by a desire to get along. In other words they are strong-willed individuals; self-motivated, self-directed and self-assured. Successful BD professionals want to bring the firm’s Partners and deal team members to meetings with referral sources and management teams, but they wish to be perceived as colleagues, not minions. Referral sources prefer to interact with someone in the firm that has a voice and can speak authoritatively, not just a conduit, so the successful BD professional has to develop credibility both with sources of deal flow and the internal deal teams. Because of all that, cultivating a collegial relationship based on mutual respect within the firm is a critical element of building an effective institutional approach to deal generation.

Other common characteristics found amongst successful BD professionals are that they have excellent insight into people, have excellent problem solving skills, and are naturally flexible and able to improvise. While they have to believe in what they’re trying to accomplish and will try the scripted approach, if that doesn’t get them results they may go off script in search of success and if that doesn’t work they’ll try yet another approach. Consequently, it is really important that they feel they are an integral part of the total process, valued within the organization and on the same page with the rest of the firm.

Most PE BD professionals spend a lot of time on the road (or on the phone) pitching referral sources or business owners, tracking opportunities and developing relationships but are not at the table for most of the deal process. It’s like having a lot of first dates that never become relationships. Successes guide their efforts so the role demands (at least for most people) that performance criteria are both measurable and within control.

Our assessment results also confirmed that successful BD professionals are money motivated; however, I advise against making too much of a BD specialist’s compensation transaction-dependent. In certain respects they’re sales people, but their role is really a hybrid sales and marketing role. They are doing a lot of one-on-one work with referral sources and potential sellers, but only up to a point, since they’re usually not part of the deal team that closes the deal. Therefore, making a high percentage of their compensation transaction-dependent sends a counter-intuitive and potentially counter-productive signal. They need to be focused on the top of the sales funnel more than the bottom and having in place the right incentives really matters. Making their incentive compensation subject to things over which they have control is not only fair, it is more productive.

Now, it is fair to say that PE firms are scattered all over the map on how they measure performance and compensate for this role. There are many models in use with virtually no standardization for performance measurement or compensation, so arguments are made in more than one direction about the ideal balance between fixed and variable compensation. However, based on what we’ve seen and heard, making too much of a BD professional’s annual compensation dependent on the deal team closing a transaction can lead to high levels of frustration and finger pointing.

So what makes a successful PE BD Professional? I believe it is a combination of the personal characteristics and attributes outlined above matched with an organizational culture that appropriately values their contribution and measures performance in a way that encourages productive behaviors.

How does a GP know that the individual they’re hiring has the right attributes to fit into the culture of the firm and excel in the role? It’s not easy. If it were then no one would ever hire a person that doesn’t work out. Based on experience we do know that measuring a candidate’s psychological profile and calibrating their fit with the culture of the firm greatly increases the probability of success.

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