Lets Talk Private Equity

I recently had the opportunity to interview the chairman of a mid-level private equity firm. Here's what he had to say about private equity, business degrees, and people skills.

Q: How did you find your way into this business?

A: I started my career as an attorney working on numerous types of mergers and acquisitions. I brought one of my clients into a deal based on my judgment and in turn made them about $350 million dollars. Soon after they asked me if I would be interested in starting a private investment firm with them and a few others. The rest as they say is history. We’ve been doing business for fourteen years now.

Q: It was tough to find much information out about your firm prior to our interview. Do you guys keep a pretty low profile?

A: We like to be mysterious. We find that being under the radar we are able to target the specific types of investments we want. When everyone knows about your firm you tend to get hundred of business plans and phone calls a week – most of them are exactly what you are not looking for.

Q: So how do you approach prospective businesses you may want to invest in?

A: Actually we don’t. We have a third party marketing firm create the initial marketing tools to contact prospective businesses. The reasoning behind this is that the marketing firm knows how to make us stand out from the crowd. If we just sent a letter out chances are it would get thrown away.

Q: How does communication play a role in what you do?

A: Communication is one of the most important aspects of this business. When we’re involved in a deal with a business and we need to find very specific people or resources, we are on the phones networking with everyone we know to find what we need. The interpersonal skills are invaluable in this business. We are a small firm so our ability to leverage our contacts and networking to find what we need is imperative.

Q: Leveraging resources is so important in this business. As a small firm, how are you guys competing with other firms how have so much more at their disposal?

A: We started a fund a few years back. We have social events for members to interact as peers and get involved. The events are huge for networking. People know what we’re investing in and since they have a stake they start sending us referrals for top-tier finance and management professionals we otherwise wouldn’t have known about. Since everyone has a stake in the investments people are eager to give us names and numbers. It makes getting your foot in the door that much easier. I can call a CEO and set a meeting. No gatekeepers, no voicemails.

Q: How do you primarily communicate with your team members and prospects?

A: I love email. While we do have a team, most of us are involved in specific things. One person usually stays somewhat involved as a back up person. Usually we keep each other informed primarily through email.

Q: One of the main documents you are giving me as a writing sample is the Letter of Intent. Can you tell me a little more about it?

A: The letter of intent is what we send businesses we are seriously interested in working with. It’s essentially a loose contract that formally states that both parties are interested in conducting business with each other. It’s very wordy and there is a reason for that. If we begin to work with a company and things go wrong before we commit [financially] we can get out of the contract. It’s important to build a back-door into everything. Sometimes things are not what they seem going into something.

Q: You graduated from Harvard Law School. Looking back, has a brand name like Harvard given you opportunities that other schools could not? Does the School make or break your options?

A: I’ve worked with people from all over that have been to top law schools and average law schools. Typically the person either has it or they don’t. The law school you go to doesn’t guarantee anything. I will say that going to Harvard provided me with excellent connections. All in all, going to a top school just makes it easier to get where you want to go.

Q: What’s some sound advice you would give to a business student who is on their way to graduating?

A: Two things come to mind. The first is to make sure you are very familiar with balance sheets and have a good financial background. A lot of people forget the basics. Don’t forget that stuff. Secondly, get solid experience. I can not count how many highly intelligent kids come out of top business schools with MBA’s but have no real experience.

Companies Want Intercultural Managers

In today’s world the list of qualifications for many management positions is of more and more resemblance to the Renaissance man. Sure you must understand some finance and economics and of course business strategy is a must-have for success. Then throw in some leadership and marketing know-how with a dash of sheer creativity and what do you get? You get someone who still needs to understand how to deal with people from a multitude of different cultures and then capitalize on burgeoning international markets.

Cultural diversity is extremely prevalent in our work force and populations. A company who wants to be successful needs management that both embraces this notion and understands it. The reality is that this is not happening enough. “Many leaders are operating on an old conception of the world around them and of human nature, including the nature of work, the worker, and the management process itself,” John Saee explains.

Further, many international assignments bring along with them high costs, low performance, and social challenges for involved parties. “The predominant reason for such failure is not a lack of managerial technical competence but the dynamics of intercultural experience”. What are these overpaid managers lacking? It turns out that our list of skills just lengthened. “These ‘dynamics’ include differences in cultural perceptions, in values and practices that influence understanding, in attitudinal satisfaction with living in a foreign culture, in relationship development, and in the accomplishment of goals”. In other words many international ventures involve people who cannot adjust to these environments.

As organizations begin to understand these complexities the first step they have taken is for the installment of language training programs for employees. While this is a step forward most make the assumption that speaking a language and understanding culture go hand in hand. The author notes, “Cultural dimensions to communication go far beyond syntax and vocabulary”. He goes on to say “Studying intercultural communication without studying culture is analogous to studying physics without looking at matter”.

Obviously placing emphasis on cultural understanding is important, but how do we become inter-culturally competent managers and people? Saee emphasizes Cultural awareness, the valuing of differences, and being non-judgmental as some of the most significant ways to improve on being culturally proficient.

How we become more culturally competent is important but for arguments sake we need to understand more clearly why it is important to diversify our cultural competency. In one word that answer is opportunity. The world is becoming interconnected. International trade is growing year after year and people want what developed nations have had for decades. It means that as more and more people make more and more money in emerging economies the demand for products and services is going to increase significantly. For example, think of the fraction of the 1.2 billion Indians who can now afford DVD players and Play Stations? What can your company bring to their market? It’s happening now. The companies who are successful in penetrating these markets will be the ones who are culturally diverse and understand how to work with all kinds of people.

This article is a testament in and of itself to the importance of globalizations role on our accepted business practices and management theory. It is quickly shifting the status quo of what is necessary for success. The list of qualifications may be long for top-tier managers but if you take the time to educate yourself and embrace cultural diversity you may find yourself in a much better place than you thought possible.

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