From Blank Canvas to Exit: Leading People Through Change in Founder-Led Private Equity

Welcome to Leadership Quotient, a podcast by The Crucible, where we explore how leadership teams in investor-backed companies are built, aligned, and scaled for impact. I'm your host, Lindsey Kazowski, and in each episode, we'll talk with the people shaping value behind the scenes from operating partners to see sweet executives about what it really takes to drive performance through leadership. On today's episode of the Leadership Quotient Podcast, I chat with Anderson Williams, talent development principal at Shore Capital Partners, about the courage it takes to stare down a blank canvas, understanding people's drivers, and why you need to figure out what the company should look like at exit when planning for leadership. Anderson, welcome to Leadership Quotient. To give context, I was hoping you could share how you got into private equity in the first place. Your background takes you through a weaving path that probably gave you a number of unique insights, but talk about how you got into PE and why it's interesting. Yeah, that's a long story that I'll try to keep short. The prior 10 years before joining Shore Capital, I was an entrepreneur. I had co-founded a technology company and then exited that one and then joined a second technology company at the seed stage. That second technology company was a venture-backed company. The first one was Angelbacked. I'd had some experience with different forms of investors during that period. When Shore approached me, I was approached by Michael Birchum, who had been a longtime friend, had been a mentor, had been a professor of mine, among many other things, who brought this idea to me to join Shore Capital and help build the talent development world. So that's the most immediate path. Good. Well, let's go back a little before we go there with what inspired you into the field of entrepreneurialism? You know, my background is in the arts. I studied art and undergrad. I got a Master's in Fine Arts at Cranbrook Academy of Art. I went to undergrad at Wake Forest University. I studied abroad. I studied the visual arts abroad. And through all of that process, something that I learned that was that creating for me is a necessity. It's not something that I like to do. It's something that I need to do and I'm wired to do. And so for years, I spent time both creating art and teaching art while also starting a number of nonprofits and running in the nonprofit sector for about a decade. Always starting something, always building something or if I wasn't starting it, I was drastically changing it. And so I'm driven by that creative process, ultimately. That's what it boils down to. And so being an entrepreneur is vastly different than being in the nonprofit space often. Simply because the profit motive that underpins entrepreneurship talked me a little bit about the leadership lessons that you took from nonprofit and from your arts background that informed being, you know, a co-founder of a business. Yeah, start with the arts. I think what people don't understand about the arts is the courage it takes to quote, unquote, face a blank canvas. And create something. And so that's sort of step one of courage. Step two is to take that thing and put it out into the world for others to engage, judge, have commentary on, interpret, and otherwise. And so I think that process for me was a massive challenge but also a real rush in understanding what I was thinking and what I was creating and how it related to the world. And so that is part of communication and part of leadership and part of risk taking. It's part of knowing your intent and understanding and accepting where that intent meets the world differently and being able to adjust and adapt on that. So that whole iterative process was really core to my arts background. I think from the nonprofit sector, really, it's about people. And in the nonprofit sector, leading people is a bit of a different challenge sometimes than it is in the for-profit sector. I had a lot of these conversations when I went back to business school. Because if you're in the nonprofit sector and let's say you have someone who's been 30 years, 25 years, a counselor for youth and families in crisis. And that person maybe doesn't want to or is having trouble with updating their data entry process or their technology or they're having other challenges. Well, in that sector, you can't really just fire people because who wants to take that job? It's a hard job and to have someone who's got that kind of experience. You've got to be really adaptable where you uphold standards and expectations, but recognize the challenges that you're asking people to live in and through their work. And so I think that was one of the things where understanding and getting down to people's drivers was something that you had to do because your leverage or incentive wasn't going to be financial, but really ever in my experience. Yeah, those are two really interesting points on the, you know, on the nonprofit side, my mother ran nonprofits for a number of years and it always struck me how adaptable to your point. One has to be in that space because it's limited resources. It's people who feel very passionate about what they're doing. And you're trying to, on one hand, you know, compete for people's monetary resources to fund the nonprofit, but on the other hand, you're really just trying to do good in the community. And that has sometimes a joint purpose and sometimes attention and that adaptability was absolutely a critical aspect of what I saw her do on a day-to-day basis. For sure. And that adaptability and the real leadership challenge is that adaptability without lowering standards. Right. That you can't accept, I mean, the stakes are higher when you're talking about people's lives in that sense, similar to healthcare in many ways. But you can't accept just because someone is paid less or otherwise that there's any less standard of professionalism or performance in those kinds of things. And that really, I think, especially once you're in a more of an executive level, is the tension between the adaptability and the ultimate performance? Yeah. And on the art side, you know, you were talking about that courage to face a blank canvas. You know, there's a part of that that learning to be less precious about what you're putting out to ensure that you can feel fast, that you can get your ideas and your passion and your art onto that canvas as opposed to trying to seek perfection has a lot of lessons for leadership that I'm sure you took with you. 100% and truly one of my most transformative experiences was in undergrad and totally by accident. But I had-- this was probably one of my first or second sculpture classes. And I had built this big sculpture. And I had gone off for summer break and came back. And my teacher was like, you got to get this thing out of here. We've got to clear the studios. And I was like, well, it doesn't go out the doors. Like, all right, well, what are you going to do? And so I had this thing. I had put precious mini hours in. And I took a saw all to it and I destroyed it. Because there was nothing else that I was going to do. And it was a transformative moment to your point of getting out of that idea of this as precious versus this as part of a process. Yeah. So with that underpinning and your need to create, how does that translate into private equity? Private equity often has a bad rap, especially on the talent side of being in some ways a destructive force or a group that is focused on spreadsheets, not people. So I think it's important to understand the version of private equity that I joined and sort of live and work in. Short capital invests in the microcap space. We are typically investing in founders. We're investing in family owned businesses. We're investing in people who have perhaps hustled and built a business to put their kids through school or otherwise. They're now looking at succession planning. We are builders of businesses. And in most of those partnerships, you have people who through their own courage have just figured it out and built a great little business. And sometimes not so little. But for whatever reason, personal, financial, otherwise, they're not able to grow it the way they want to grow it. And so they decide to look for a partner. And it's a really important context because as a growth investor, our biggest challenge is having the people capacity to grow at the rate we need our companies to grow. So our worst case scenario is our companies outgrow really good people. And so the investment in talent is a very strategic investment in making sure that if we've got a great player or a subject matter expert who comes through an acquisition that we have the ability and capability to give that person the management training to scale what they know and do so well. Because we don't just need one of those people. We need five of those people. And so our investment is really about creating opportunities for those partners that in many cases because of constraints and expertise, they couldn't provide some of their best team members, but also the recognition that growing companies create great opportunities for people who are willing and ready to grow. So what processes or structures do you guys have to help grow these leaders and help grow these businesses through talent? Yeah. So we have been building this about four and a half years, the talent development world within shore. And we are constantly growing and evolving as we connect with and meet the needs of our portfolio companies. The range of things are from our learning management system that has a whole series of self-driven courses that all of our portfolio companies have access to. And people can do on their own time. We build all of our own content. That's an important thing to recognize. And the reason we do that is because when you're talking about microcap and you're talking about a five to seven X growth in a five or so year hold period, it's a really specific context to be talking about communication and trust and change. And so everything that we do is shaped by the reality of our investment process. And so we offer courses, like I said, that are self-driven in our learning management system that we've created. We do a series of programs. We have programs that we have a leadership academy. That's a six month program that companies can send anybody they want to-- we have management foundations programming that can be a couple of days that are just laying exactly what that is, the foundations of what it means to be a manager. Just as a side, if you think about microcap investing, most of the companies won't say all, but it's close to all, have not grown to the level where they have a professionalized management layer. They have managers because somebody's done a really good job and has been willing to step up and figure stuff out. But now we need to scale that. So this whole idea of creating a management layer is fundamental to our ability to grow and scale these companies. And so we do a range of in-person, we do custom things, we do everything from a 90-minute virtual that somebody wants on a given topic to a multi-day. What does it mean for this team to shift from a growth mindset to scaling? What's going to break when we double in size and having those kinds of conversations? So it's a broad range. Fantastic. And it sounds like you guys are really intentional about how you're working with these companies, especially because if the founders are still involved, it's still their baby in some ways, even for sure. There's now-- And there are deep relationships there too, right? And so that's where we end up talking so much about change because someone maybe's been working with a company 10, 15 years, and they built a great company. And yes, we're a growth investor. And we honor our founders. And they are the subject matter experts. But there's still a lot of change that's about to happen. So from the founder to the manager, to the frontline team member, talking about change and setting expectations about change and managing resistance to change and understanding where that comes from, that's a very, very context-specific conversation. And so most of-- that's just one of the topics. But most of the topics that are just off the shelf are just too vague or abstract for this particular context. Yeah, that's an excellent point. As you guys are going through that process of trying to figure out how to help build not just the existing leaders but formulate teams that are going to help them get to those next levels and appreciate the culture and growth that has come to that point, what are the critical traits and skills you're looking for in both that top level leadership and that managerial level that you're trying to develop as well? I mean, ultimately, it goes back to our conversation about being entrepreneurial, right? And it has to be adaptability. And it has to be-- if you're working as a founder or as a new CEO, you're navigating a lot of different stakeholders that you may not have navigated before, from an investment team to a board of directors to a new acquisition and their leadership team and so forth. And so at the end of the day, you have to be able to connect with people and you have to be able to understand what the process of integration is as an example, beyond a change in a CRM or an EMR. It's not just the technical changeover. I use the example all the time that if you join a company and you're the person who's been running this great business that has chosen to partner with us and we've decided to partner with as well, you've run that business maybe off of a spreadsheet for the last 10 years. And you're the master of that spreadsheet. And you've built that thing. Well, when we come in and say, we've got to move off of a spreadsheet. We've got to move to a different system. We aren't just asking you to change technology. We're asking you to change what it means to go to work. We're asking you to let go of something that is your expertise. And so you go from an expert in this spreadsheet to a novice in the new technology. Well, that's very risky and can feel very threatening. And so we need to have those conversations with those people. But we also need to have those conversations with the leaders who are leading and managing those people and wonder why someone who was a top performer for the last 10 years is suddenly drawn back or is withdrawn or isn't stepping forward to the opportunity the way they expected them to. So people have to be able to recognize and read people. They have to understand and recognize the context and the expectations of growth from the board and from the investment team. But still recognize at the end of the day all of these businesses are people businesses. Absolutely. And I think that is a hallmark of sure relative to a lot of your peer firms is that you guys have recognized that people aspect and are leveraging that in a way that I think others will be catching up to shortly. Yeah. Well, when we talk about all the time, Justin says, we want this to-- if you choose to partner, we're sure that it's the best professional decision you've ever made. And I see my role in talent is for that to then shake out to the team that becomes the best professional opportunity their team has ever had sitting in front of them. And to me, that's part of the challenge of our range of talent development from frontline team members right up through the new executive team that all has to stay aligned in that same kind of idea. So what do you see as the biggest leadership bottlenecks that you find at different stages in the investment period? I mean, talk a little bit about what you see up front and then maybe mid-hold how that's changed. Well, I think in the early stages, you're trying to figure out who are the right targets and the right opportunities for partnerships. And that is not just a business that looks healthy on a spreadsheet or in the numbers. That's got to be a business whose leadership and whose culture aligns with the business you want to have in five years. And that is a really arduous in many ways process. And when it works, it works really well. And when you make a mistake, you pay for it for years. And so finding that momentum and that niche and that process in the acquisition process early for finding those type of people is where we lean a lot on our board of directors and industry experts where we invest is to find those good matches. That's really fundamental to those first few to make sure the new platform starts strong. I think when that begins to pick up momentum and you've done a number of acquisitions and you've kind of got that muscle flexing pretty consistently, often we do some initial integration, but we have to think seriously come mid-hold about what the one company looks like on the back end of the hold so that when we sell this company, that it is a company not only that has integrated and consistent performance and processes and technologies, but that we're showing that we have made every company we've partnered with better, that we're showing organic growth that meets or exceeds the market as a result of being able to build this platform. And so it shifts to some degree from the typical hold for us, the acquisition driven early process to thinking about the integration or organic growth process. As then on the backside of the hold, you're thinking about what's the story of this company to the market when we go to sell the company. - And so within that, especially if you're working with entrepreneurs who have their individual cultures and businesses, how do you ensure that cultural fit or identify which leaders should be the ones to take that one company forward versus being an advisor or getting a payment to write off into the sunset? - Yeah. Well, part of it comes down to our investment model. In very few cases are we someone's immediate retirement plan. I mean, our goal is to find partners. You've heard me say that word very specifically such that yes, they have the chance to have an equity event in the partnership, but that they are incentivized for the hold period to be a part of this company and exit on the back end of that. So that in itself starts to direct us toward the people who are still invested in the business. And so that's a key. They're still hungry, they still want to grow. They're still a part of building something even if they're not the sole person leading it. So that's a critical part of it. Our sure teams and all of their ranges from our resource team to our talent dev team, to our talent acquisition team, to our investment team, it's a partnership approach to making sure that we understand what we're buying. And from not just again, the financial side, but the culture side and the, I mean, we're everything from key man risk to key customer risk to all of those things that help guide us along that path. And I mean, part of it is recognizing that in many cases for us, that founder is also the person who has the personal relationships with every customer that has the personal relationships with every vendor. And we have to evaluate, is that something that we can transition or is that just a giant risk? So I think there's lots of ways to approach that question that our process of investment really helps solve and it still doesn't mean we get it right every time, but it at least reduces the risk. - That's fair. Are there, you know, I think people like hearing examples where there was a leadership challenge or a challenge within a business that was solved through leadership, do you have any fun stories that you could point to that highlight where a leadership issue either made or broke a company? - Well, I can, I'll go back to what we were talking about before I think that, I mean, of course, I'm biased. The earlier executives engage us, the better chance we have to do this in a proactive way versus a reactive way. But I do think to some degree that we're describing that kind of middle hold period and we start to talk about integration more specifically and some of those changes that have for strategic reasons kind of been put off, but now we're evolving as a company and need to integrate. It's often just communication and expectation setting. And so if leadership has not, even if you haven't done the integration on the front end, but everybody knows what's coming, then you face less resistance down the pike when you do say, okay, now it's time for us all to get on the same, you know, XYZ system. And that may be a multi-month project and it's gonna be a little painful, but you knew it was coming. I think the biggest leadership challenge for us is when people going through this process, they've obviously, most of them have never gone through an acquisition process for the first time. And the fear of not having all the answers and having that mean they go silent. I've talked with doctors, I've talked with founders, I've talked with so many people and it ends up being a conversation about change at least as a front door or it starts as conflict and we get to the point that people don't understand. And I always say, I say, if you don't wanna talk to them about what private equity is, your alternative is they're gonna Google it. Which would you rather? Do you wanna talk to them about shore and our approach? Do you wanna connect them with us and our resources? Or do you want them to go see what the broader world says about private equity? And so part of it is just coaching leaders to communicate transparently even when the transparent answer is I don't know yet, but I'll find an answer or I'll let you know when it, like it's this process of just leading by example, being flexible by example, being adaptable by example, saying I don't know by example, asking for help by example. These are all the things that enable the best founders and the best partners to keep some of the noise at bay when the evolution of the platform happens, when leadership changes, when decision-making hierarchies change, when technologies change and so forth, 'cause that can feel really disruptive if no one knew it was coming or they don't know where to ask for help or they don't have the opportunity to ask questions. So some of this is really foundational, fundamental, leadership stuff that is just a new context to put it into practice. - Yep, that's, I think that point about communication and the perceptions around private equity and the fears that a lot of the people who are reporting into those founders may have is so salient. It's, so I built and sold a family business in the plumbing space and we sold into private equity. And we tried to provide information, we had always structured it with the intention to sell, but the challenge was that as soon as there were rumors that we were having meetings, all the guys that were out in the field were trying to Google things and ask their friends about it and there was a lot of fear that was generated when really part of why we weren't saying things was because we were trying to create a plan that would allow them to participate in the urn out. And it's a scenario that I think we could have avoided a lot of stress for everybody. If we'd been a little more upfront with the idea that hey, we're seeking to take care of you. We can't share everything. We can't make this as widely known here are the people that need to know things and here's what we can tell you right now, but we want you to be a part of this going forward and we're excited about the contributions you've made. That's a very different message than, hey guys, guess what? Here's your new ownership group and nothing's changing except also everything's changing. Yeah, and I always might kind of refrain as silence is never silence. There's a story. Do you want it to be yours or do you want it to be theirs? There's is gonna be worse than yours almost every time. If they're having to make it up in the absence of what's really happening 'cause it's not just that they know private equity is happening. Your people know you're not in the office at the same cadence you used to be in that you're on more calls than you used to be in that you dressed up oddly for one day and then we're out of the office for, like people are perceptive and they know something is different and people get nervous when they know something is different. And in leaders have the ability even without being able to disclose everything, even without having all the answers to settle that in a way that's appropriate to their team and their culture and so forth. The worst case scenario is just, is the silence. And as you said, your people got nervous and it's like the counter to what you were actually doing was actually trying to set them up for long term success but abs in a story and a change in behavior and the story is gonna come from them and it's gonna be more fear based, it's gonna be something you're gonna have to unravel. So that's one of the things that we talk about. It's like whatever version of your story you can tell now just as a way of keeping the temperature low because none of our partners would be partnering with Shore Capital if they thought it was bad for their teams. That's why people partner with Shore Capital is because they know Shore is invested in their teams. And so the absence of that story in any way actually creates a counter story. It's not even like a close story. It's the opposite story. - You know, I bet there's data out there and for it previously, but about how founders going through sale processes, probably stall at their growth and probably create negative returns for themselves and their new owners when these processes are kept secret as opposed to communicating in a way to run along with them. - Yeah, and I love over here. - Sorry, we got a little lag there. I thought she'd stop, sorry. I know that sort of anecdotally because as you know, I get the chance to do podcasts for Shore Capital as well and get a chance to interview a lot of our founders and have had people say, my biggest, I lost six months because this process drug out longer and my team started acting a little weird and the performance started to shift a little bit. And so I don't have the data, but I have the stories and anecdotes from a range of industries where that reality does play out. And to some degree, they're wondering why and because they're so preoccupied with the process and the heft of the diligence process, they have even less capacity to be in tune with where their team is at the time. - And it probably leads to some retraining with certain funds that they're saying, well, your numbers dropped, you were expecting this level of growth and now you only have this level of growth because there was this focus on the sale not on the people and the processes that got you to the successful place where you couldn't sell your business. - Yeah. - Okay, well, in wrapping this up, I'm curious about what role you think talent and leadership will play in driving the next wave of value creation in PE? - Well, I think there's a lot been written about the evolution of PE and that this investment in people and operations and not financial engineering is where the value is moving forward. And so I think that as I said before, you can't build a growing company without growing people. And for us, that also means growing the bench of our next CFOs, our next CEOs, our next board members, all of our next N-1s and N-2s that this isn't just like those people don't just come out of the woodwork ready to build a private equity firm. And so if you're gonna grow and invest in 50 or 70 or 100 different companies, well, that's a hundred different C-sweets or a hundred different board members or boards. And that's a lot of talent and to do that well and to do that with the expectation of the kind of growth that we have for our companies, there's no way to do it without cultivating it. So we also have programs for cultivating and preparing those next waves of executives as well through internal consulting teams and those kinds of things to prepare for those because that's the Achilles heel. You've gotta have the people to lead these companies not just well but ethically and with the right spirit that matches our culture, that matches the culture of the companies we wanna build. We've been recognized and very much pride ourselves on being a founder friendly. And so that has to be a component of any executive team that we're building as well. So I just, for me, and obviously I'm biased because I come from the people side of the world. You can go build a company that has okay returns with an okay team. Sure just isn't okay with okay returns. Our goal is for the people, for the founders, for the investors that we are doing and seeking to be the best at everything we do. And that is the culture here. And so I mean, I just think that fundamentally still comes down to the people. (upbeat music) - And that wraps up another inspiring episode of Leadership Quotient. I wanna thank Anderson for sharing his story and thoughts with us today. To our listeners, if you found this conversation valuable, be sure to subscribe to Leadership Quotient wherever you get your podcasts. You can also learn more about the Crucible and how we're helping investor-backed companies align leadership teams for scale at the Crucible.com. We'll see you next time for more real conversations on leadership, talent, and value creation.