When Dr Phil Gaudin, co-founder of PEHA, was thinking of hiring executives his mindset used
to be: “I didn’t want to bring on cost. I thought it will lower earnings and that will lower the value
of our business.” Looking back, he thinks his approach was wrong. Now that PEHA has a full
executive team he says: “You need to spend money to get wealthy.”
Founders see what others miss, move when others hesitate, risk their personal wealth, and
have the work ethic and conviction that separates them from everyone else. These qualities
make founder-led businesses succeed in their early years. They can also make it hard to
attract the senior talent required to succeed longer term.
By the time a founder-led business is ready for a C-suite the business has outgrown the
founder’s capacity to do everything themselves. The best executives, for example a CFO who
can institutionalise the finances or a CRO who can build a repeatable sales engine, tend to be
sceptical about joining. They have heard that decisions get made by a Board of one, equity is
promised but not delivered and founders ask for a partner when they want a deputy. The result
is a talent gap that does not show up in the numbers until growth stalls.
The patterns are familiar
The reasons founders lose, or never attract, top talent are almost cliches. Naming them plainly
is the first step to fixing them:
- Sticker shock on remuneration: The founder is surprised by the market rate for genuine
C-suite talent and compromises on a cheaper, B-grade hire. - Lieutenants with C-suite titles: The existing executive team is really the founder’s first
hires. They are loyal people who have risen through time served and carry titles like CFO,
CRO and COO when, in reality, they are capable middle managers. - No real autonomy: Every decision is second-guessed or reopened, so accountability
never genuinely transfers. - No governance: There is no functioning board to hold either the founder or the executives
to account. - Family in the business: Children or relatives occupy roles that block or complicate
professional appointments. - Business as a personal extension: The company is run partly to fund the founder’s
lifestyle, mixing personal and commercial objectives in ways good executives can see
immediately. - Founders sometimes don’t know what good looks like: Recruiting great executives is
usually outside a founder’s specialist domain. For example, a software engineer founder
will be excellent at recruiting a great CTO, but struggle to assess and recruit a great CFO
or CRO.
The best executives have encountered all of this before and therefore decline. The founder
rarely loses the business as a result, but they lose the leverage that great people would have
given it.
The hardest transition a founder can make is changing from the person with all the answers
to the person who attracts people with better ones. The founders who make that transition are
the ones most likely to see their businesses continue to flourish well into the future.
What private equity does to attract and retain talent
Private equity has spent decades solving this exact problem. The mechanics are not secret,
and founders can adopt them directly:
- Clear delegations of authority: Executives are given defined decision rights, autonomy
to make decisions, but accountability for outcomes. They can approve, spend, hire and
commit to plans without referring to the founder. Autonomy stops being a verbal promise
and becomes a documented mandate the founder commits to respecting. - Real role descriptions and accountabilities: A CFO is hired to a CFO’s scope, not a
bookkeeper’s role with a grander title. Each executive owns a measurable part of the
value-creation plan, with clarity on what success looks like. - Equity incentives with a path to liquidity: Meaningful ownership matters, but only if it is
tied to a defined timeline and a credible liquidity event. Skin in the game has to convert
into actual wealth on a known horizon, not sit as a perpetual promise that never
crystallises. - A functioning board: A proper board with independent voices replaces the board of one.
It holds the founder to account as much as the executives, which is exactly what good
talent wants to see before committing. - Market-rate reward: Top executives know their worth. As Phil noted, paying it is not a
cost to be minimised but an investment that, in our experience, generates a significant
return. - A genuine, well-capitalised growth agenda: A-grade executives are motivated by
challenge and responsibility. A clearly defined agenda backed by real capital turns an
attractive opportunity into an irresistible one.
We have seen this play out in our portfolio several times. Phil notes he is “completely freed
up” now that PEHA has added key executives to its team. If he didn’t have this team in place
he would be “doing a thousand more flights to Melbourne, Sydney and Brisbane”.
Moving from founder-led to executive-led is uncomfortable and confronting. Founders can
implement some of the tools that private equity has implemented to help with this transition,
which will help ensure sustainable growth.
Final comments
Building a team that can take a business beyond its founder is one of the hardest things a
founder does and one of the most valuable. If you are weighing your next senior hire, how to
structure equity so it genuinely motivates, or how to build a board that lifts the business rather
than slows it down for over 40 years Advent Partners has helped founders make exactly this
transition and we are happy to share what has worked (and not worked!). Please don’t hesitate
to contact us.
