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Great CEOs don't carry over industries
Industry experience
The firm backs CEOs in the industries where they have already created value. That lets them avoid the simple mistakes first-time CEOs make in a new field and the long stretch of learning a new industry.
Company size
Size matters as well. A command-and-control CEO who has ownership of every functional area can do that in a company worth a few hundred million dollars, but not in a $5 billion company. Other CEOs are wonderful at trusting and managing direct reports and setting strategy, and they could run a five or $10 billion company.
The shared trait
The shared trait of the CEOs GTCR backs is a record as a proven moneymaker, someone who created equity value for shareholders. A business that grew 100% in five years doesn't count if its stock price didn't move. Great executives follow these CEOs from company to company.
Why do CEOs excel only at certain sizes?
As a company grows, the number of people, products, and decisions outgrows what one leader can control directly. Scholar Larry Greiner described in a 1972 Harvard Business Review article how firms pass through growth stages that each end in a crisis. Each stage calls for a different kind of leadership, such as moving from direct control to delegation. The article is titled Evolution and Revolution as Organizations Grow.
Why do executives follow proven CEOs?
An executive who worked under a CEO already knows how that leader runs meetings, sets targets, and makes decisions. That shortens the time to get a new team working. Executives also remember the equity payoffs from earlier deals. Private-equity-owned companies commonly set aside an equity pool for management that pays out at a sale.
Why can growth leave a stock price flat?
Revenue growth can be bought through unprofitable sales or acquisitions at high prices. Equity value reflects the cash flows owners expect after all costs and debt. If growth doesn't raise those expected cash flows, the stock price has little reason to move. Enterprise value equals the market value of equity plus debt, less cash.
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