What to Look for in an Operating Partner – Key Qualities for Success

Introduction

In recent years, the highly competitive deal market has shifted the private equity industry’s emphasis away from financial engineering and put pressure on firms to drive operational value growth in their portfolio companies. As a result, operating partners, whose job is to facilitate on-the-ground value creation, have become key components of investment strategy for many firms.

While there is agreement about what operating partners do, they work intimately with portfolio companies to create value, there is widespread disagreement about who makes a good operating partner and what mix of analytical, experiential, and temperamental qualities predict success in the role.

The Role of an Operating Partner

As the primary liaison between a private equity firm and its portfolio company, an operating partner ensures that the portfolio’s executive team has the people, processes, and tools it needs to meet the goals established by the PE firm’s investment thesis.

Though the role requires extensive operational leadership experience, the exact requisites vary according to the industry and the expertise gaps in the management team, an operating partner’s essential tools are communicative. They assess, oversee, socialize, and guide the executive team in the execution of its strategic plan.

Poor communication can cause schisms between the deal team and the portfolio company, often translating into losses. Misalignments about investment thesis, strategy, performance expectations, and timelines can lead to unplanned CEO turnover, which negatively impacts internal rates of return, lengthens hold time, and erodes performance and morale.

Key Qualities of a Successful Operating Partner

1. Portfolio Company CEO Experience

To advise CEOs effectively, operating partners should have firsthand experience running an institutionally backed portfolio company. This familiarity creates empathy and improves communication.

Former portfolio CEOs understand what it’s like to work under private equity oversight, implement investment theses, follow strict timelines, and facilitate exits. This experience helps them set realistic expectations, socialize strategic changes carefully, and adapt strategies based on real-world conditions.

However, former CEOs may need to adjust their leadership style, shifting from directive to persuasive methods. Additionally, operating partners must embrace rigorous travel schedules, which can be a challenge for late-career professionals prioritizing leisure time.

2. Consulting Experience

Operational executives with management consulting backgrounds tend to transition well into advisory roles. Consultants excel at delivering difficult advice and adapting to demanding travel schedules.

While the ideal candidate combines consulting and CEO experience, former consultants without private equity backgrounds can still succeed if they have operational leadership experience. They may, however, require an adjustment period.

Successful operating partners understand they are not there to run the company but to mentor and influence the management team. Collaborative skills are essential.

3. Board Experience

Current or former board members often thrive as operating partners. Board experience provides several advantages:

• Navigating Board Dynamics: Operating partners can help new CEOs interact effectively with their boards.
• Valuable Connections: Board members bring networks of talent, industry experts, and potential customers.
• Strategic & Operational Balance: Like operating partners, board members balance long-term strategy with day-to-day operational oversight.

Board members and operating partners also share a communications-based leadership style, relying on persuasion and consensus rather than top-down directives.

Conclusion: Finding the Right Operating Partner

Hiring the right operating partner takes time, and even the best candidates may require a learning period. When evaluating candidates with CEO, consulting, or board experience, thorough reference checks are critical.

For consultants and board members, assess whether CEOs found their contributions valuable. For former portfolio CEOs, evaluate how effectively they implemented private equity strategies.

At Value Driven Solutions, our 360 Client Alignment® approach evaluates not just core competencies but also a candidate’s learning methods and adaptability to ensure long-term success in the role.