Succession planning is all about mitigating risk. It ensures that when turnover inevitably occurs, new talent is ready to step into critical roles, keeping the business running smoothly. In the fast-paced, private equity-backed environment, maintaining operational stability is essential to achieving maximum returns. Executives can help mitigate obstacles like shifting strategies, agile skill sets, and turnover by implementing robust succession planning to safeguard operational continuity.
Why Should Your Portfolio Company Invest in Succession Planning?
In the PE-backed middle market, portfolio companies often aim to operate lean in order to maximize EBITDA. While reducing costs is essential, this must be balanced with a long-term investment in talent, which is more sustainable and ultimately less expensive than turnover. Developing internal talent requires upfront investment, but the return on a well-prepared workforce is tenfold.
Private equity-backed companies face unique risks from employee turnover. Losing key talent amid competitive markets and demanding growth timelines often disrupts operations, delays projects, and hinders promised value delivery to clients. A common pitfall to avoid is the “single point of failure” — where the loss of a key employee jeopardizes growth because only one person held essential knowledge and skills, putting progress and client relationships at risk. Contingency plans are essential to ensure stability.
“You need to know what skills you have in-house to best leverage human capital, including people’s expertise and bandwidth, to maximize value to clients. Eliminate single points of failure if one key employee leaves, especially if that skillset was pitched to a client....