After a private equity firm invests in your business, everyone expects twelve months of significant change. So what should you do as CEO? How should you lead during this period? And what should your priorities be? Georg Ell, Smoothwall’s CEO, explains his key activities during Smoothwall’s first post-investment year and how they set Smoothwall up for a successful sale four years later.
Whether you’re the incumbent CEO or a new CEO who’s been brought in to lead the company post-investment, you need to start working towards your next sale process from day one. I did this by laying the foundations for strong future performance during the twelve months after Tenzing backed us in 2017.
Here are the major activities we completed at Smoothwall in the year after Tenzing’s investment. Plus, my reflections on the approach I took and whether I got it right.
Quick wins create confidence
After the investment, the first thing to do is deliver a few quick wins to build credibility with your board and staff. One of our earliest successes at Smoothwall was the delivery of a full re-brand. When I joined, the team was midway through a brand refresh which I didn’t think was quite right. We ended up changing the Marketing Director in the first couple of months. And had another, much better go at the re-brand.
The second quick win was the closure of our second office, over 200 miles away from our HQ in Leeds. It had become so detached from the business’ values and culture it was no longer possible to fix the breach. We offered relocation and gave the team 11 months’ notice to effect a successful knowledge transfer and give people time to find new jobs.
Only a few people took up the offer to move to Leeds. So we hired about 30 new Software Engineers from overseas and around the UK. This was brilliant because we ended up with a much more diverse team on the basis of gender, ethnicity, nationality, age and experience. This new team was much more innovative and significantly more customer-centric, which helped us with our product development.
In addition to these bigger projects, we also kicked off wide-ranging systems improvements, began weekly All-Hands meetings and started a series of in-depth staff engagement surveys and follow-ups. These changes built a real sense of momentum in the team.
Keep developing your products and services
When I joined Smoothwall, our product was deployed on a physical server on the customer’s premises. We decided to add an option to deploy via the cloud which:
- Made it easier and faster to install and less prone to error.
- Met increasing customer demand for this type of deployment.
- Reduced lead times, failure rates and the number of support tickets raised.
- Drove top-line revenue growth and helped us retain customers and improve margins.
In addition, we built and launched two new SaaS products to broaden our range of product offerings.
As we serve the education sector, our sales cycle has a heavy seasonality, particularly in the US. To hit the very tight window of opportunity in our first year, we had to operate with enormous urgency. But the pressure was worth it. Because these new products and services were later fundamental to the success of our eventual £75.5m sale in 2021, which provided a 5.6x return on investment.
Strong operations are vital for building your business
Invest in your systems
With Tenzing’s full support, we decided to upgrade our internal systems. This project expanded until we had changed every single system, including our CRM, Finance, HR, productivity, telephony, ticketing systems, development tools, staff surveys and more. It’s unusual to change quite as much as we did. But the business hadn’t invested in internal systems for some time, so this was overdue.
Moving to better systems helped us achieve a lot more with the same effort. The new systems were also more cost-effective in some areas, significantly improved productivity and supported wider changes in the business. Like being able to drive our monthly manager one-to-ones and performance review process.
Ensure your work environment supports your culture
Lots of meeting rooms and executive offices had created a siloed, closed-door culture. Conversations with staff revealed they wanted more collaboration. So we remodelled, getting rid of the big executive offices and putting the senior team on desks in the open plan area with everyone else.
Some people loved this, but some really struggled with the change. They’d been used to sitting in their cubicles and not having as much interaction with other teams. But that wasn’t the culture we wanted. To make it work, we brought key people with us who brought the next level of folks along too.
Continually improve your management practices
I think that management practices and culture are foundational for any business. To understand what needed to change, we empowered our people to have more of a voice in the business and listened to what they had to say. We made a raft of changes including:
- Introducing OKRs throughout the company
- Ensuring every employee had a monthly one-to-one with their manager
- Company-wide all-hands meeting each week
These new practices created connections between people and regularly got everyone on the same page so people felt bought in and connected.
Seize the right opportunities to expand
When time-contingent opportunities present themselves, you just have to take them. One of our acquisitions happened because the business fell into administration. So we had to act fast to acquire it. Our second acquisition we went after more purposefully. We’d been tracking the business for a while, and it felt like the right time to convince the founder to join us.
A new acquisition comes with a serious consideration – a significant management overhead. It might seem too difficult when you’re already very busy. However, when the right opportunity pops up from your horizon scanning and the time is right, you have to go for it. After all, being strategically opportunistic is a major part of your role as CEO.
Build your senior team
To change your business’ culture and ways of working, you need to bring people with you. But they also need to get on the bus. And, if you can’t get everyone on the same bus, you might need to change the people too.
As already mentioned, in our first few months we hired a new Marketing Director. We also replaced our US VP and hired a new CFO and Financial Controller to make sure we could deliver the reporting capability needed as a private-equity owned business. We also re-hired some great talent that had previously left the business and were excited about the new changes we were bringing in.
When I reflect back on the twelve months after our sale, I sometimes wonder if I pushed too hard at the beginning. I know I did, at times, stress the organisation. But, on reflection, if I hadn’t pushed so hard then, we wouldn’t have been able to make the changes we did when COVID hit. And then we wouldn’t have had the growth we achieved in late 2020 and 2021, which was fundamental to our 2021 sale. So, I’m glad we pushed hard early on when we had the opportunity. However, there are still a few lessons I can share.
Balance speed of change with careful management
The year after the sale is a time of rapid change, and this can cause stress. Some people are more comfortable juggling multiple projects and delivering at pace, and others hark back to the ‘good old days’.
I think the stress of changing so many things all at the same time was felt by certain people across the organisation. The team was also very tired at the end of the first nine months. And that reflected in some of the engagement and culture scores and 360 feedback.
The solution wasn’t necessarily to slow the pace but to manage it and some of the individuals a bit better. To improve situational leadership to get the best out of people who don’t all think the same way. And to work even harder on achieving buy-in and ensuring the whole leadership team is onboard and honest about any concerns.
CRM migration is really hard
Your CRM is the lifeblood of the revenue side of the business. Life gets pretty challenging if you struggle to know things like who your customers are, when your contract started, what you’re charging people and who the channel partner is.
In this migration, we had all those difficulties. We assumed that our data was good and that a new implementation with simple out-of-the-box functionality would work well for us. With hindsight, I’d have spent more time and money interrogating the data quality and making the necessary improvements. You really need proper project management, a dedicated, in-house CRM developer and a big data cleansing exercise upfront.
The year following the initial private equity investment is a time when everyone expects significant change. As a private-equity owned business, you’ll need to capitalise on this period so you can do the work that will ensure accelerated growth in years two and beyond. Then, come the third, fourth or fifth year you’re back in sales mode again.
Get your first year right, and you’ll unlock two to three years of consistent growth that will help you secure your next sensational sale.