Board and C-level hires can undoubtedly make or break a small business. Appointing the right calibre executives has a serious impact – not only in terms of securing initial investment support, but also when it comes to reaching business goals or maximising opportunities. The lifecycle of the high-growth, entrepreneurial venture is such that these talent challenges are encountered frequently, and faced by all business owners once their organisations grow and reach critical mass.
So how do small businesses go about making senior appointments that will have a positive impact on growth and the company? And what are the risks if you get it wrong?
Startling new findings from our report, A Board Fit for Purpose, reveal investment-backed businesses face damaging growth prospects when they fail to make the right senior hires. The report finds that 90% of VC and CVC fund managers have experienced an unsuccessful executive appointment – often resulting in lost annual growth of between 10% and 60% in a portfolio company.
Our survey also discovered that an astounding 80% of respondents typically fail to achieve expected business plan forecasts because of failed appointments. Another 73% report missing commercial milestones. These can have serious ramifications on the future viability of a business. It can result in a failure to attract further funding (70%), staff leaving (52%) and delayed exit plans (48%).
With figures like these, it’s no wonder there is often some caution around making senior hires. But delaying a boardroom appointment can be equally damaging. If the UK hopes to produce the next tech unicorn, organisations can’t miss opportunities by putting off senior hiring.
However, they do need to ensure they have the strategy and resources in place to de-risk the executive hiring process. Finding the right person to take a company where it needs to go is not an easy task, and there are many different facets to consider and address in order to ensure a successful appointment.
Firstly, the processes used to find senior appointments should be as rigorous as possible. They should also be constantly be reviewed and improved to attract candidates who enhance the team by bringing something different to the business. Setting ambitions high and looking beyond existing networks, geographies and known sectors to find those world-class individuals who can make the biggest impact is key.
If organisations are clear about what good looks like to them, then the risk of failed appointments will be much reduced. Mapping a person’s experience and skills against the business’ vision and needs is absolutely critical but there are other factors that will influence the likelihood of success.
For instance, it is important to think about what traits the leadership team need as a whole: is the CEO’s entrepreneurial passion complemented by the COO’s commitment to the day-to-day running of the business, for example? A lack of just one of these assets could be detrimental to success.
Furthermore, bear in mind that a candidate’s skillset and career history is only part of the equation. More subjective qualities – such as an entrepreneurial mind-set and cultural fit – need to be carefully assessed and matched if an appointment is going to prove successful. In our study, 84% of investors say finding people with entrepreneurial experience, mind-set and cultural fit is the biggest issue when searching for talent.
Our detailed report surveyed 100 CVC and VC fund managers from around the world and asked for their views on how they make their investment decisions. The results around failed appointments are compelling with two thirds of respondents saying this frequently led to lost opportunities, due to the upheaval and distraction caused at management level.
While organisations do their best to avoid this, it is clearly still an issue for many entrepreneurial businesses. Fortunately the tide seems to be turning and an increasing amount of companies now give talent capital equal weighting to investment capital. I believe it is these companies that will thrive in the years ahead and gain a competitive advantage across the market.
If you’re interested in reading more about this topic, download our latest report, A Board Fit for Purpose, here.