Insights

The four behaviours that predict leadership team success in private equity backed businesses

Can investors accurately predict the success of PE-backed leadership teams? Our research shows that it comes down to four core behaviours.
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Samuel Robberts

November 23rd, 2023

The four behaviours that predict leadership team success in private equity backed businesses

Can investors accurately predict the success of PE-backed leadership teams? Our research shows that it comes down to four core behaviours.

Investors know that leadership teams are pivotal in building successful businesses. But pinpointing exactly what kind of leaders will perform best in a fast-growth environment has never been an exact science. Experience and expertise are important, but leaders must also have the grit to perform under pressure. And while the capabilities of individual leaders are important, how they combine as a team is the critical factor in success. Do they have the right combination of competencies and behaviours to deliver the value creation plan?

Previous attempts to answer these questions have involved a combination of personality assessments, lengthy interviews referencing processes and analysing relevant experience. However, LCap research, developed and carried out with leading psychologists at UCL, shows that a better method is to assess behaviours and that a particular combination of behaviours is key to predicting success in leadership teams.

Behaviours > personality in predicting success

Most psychometric tests focus on personality, but this comes with its drawbacks. Whereas personality is constant, remaining largely unchanged, behaviours are dynamic; they shift depending on external factors, such as those around us, situations, or challenges. In a PE-backed business that is on a three- or four-year growth journey, measuring behaviours gives you a greater capacity to engineer a leadership team where demands change rapidly.

With our study, we wanted to know if there were patterns and commonalities of behaviours among the best-performing leadership teams; those with the highest growth and exit multiples. We analysed thousands of executives and teams, evaluating them against dozens of behaviours in the largest study of its kind, which ultimately led to the creation of our PACE tool. Our findings were groundbreaking, showing that the best-performing teams score more highly than the general population for four specific behaviours:

  • Pragmatism: All the best fast-growth teams are outcome-orientated. They are focused on practically achieving a goal, even if they don’t fully understand the situation that they’re operating in. Pragmatism incorporates four sub-behaviours: practical, proactive, optimism and personal agency. These combine to give leaders a mastery of their own motivations and strong self-belief in their capacity to effect meaningful change in any business they’re part of – and the wider world.

  • Agility: Agile leaders are continually focused on growth and ‘maintain their edge’ by constantly re-evaluating the market and being ready to pivot the business quickly to maximise current and future change. Agility comes from the strong correlation of two sub-behaviours: openness and development. Together these enable leaders to see both success and failure as part of a learning process, to be adaptable, and open to exploring a range of solutions to reach their goals.

  • Curiosity: Curious leaders combine four sub-behaviours: intuitiveness, disruption, comfort with ambiguity, and divergent thinking. This means the best PE-backed leaders are likely to consider problems in the abstract, viewing them from the vantage point of the world of possibilities. Uncertainty doesn’t faze them, and they are happily experimenting with different approaches and perspectives, constantly updating their paradigm based on new information.

  • Execution: Finally, the best PE-backed leaders have a high capacity to put their ideas into action and get the job done. With a strong sense of personal responsibility, they are likely to exhibit four sub-behaviours: work-orientated, outcome-motivated, internal control and challenging behaviour. As a result, they enjoy overcoming challenges, are willing to work hard, believing that success is determined by their own actions and efforts. And they aren’t worried about facing conflict in the process.

A framework for building successful leadership teams

Understanding the central role that these four behaviours play within high-performing leadership teams gives investors a whole new framework for making executive change, providing greater certainty over the ability of a team to deliver. Our PACE assessment has been built around these findings, providing each leader with a profile based on the core behaviours plus key sub-behaviours, while giving insight into their capacity to shift and flex depending on the situation.

Crucially, individual leaders are also mapped alongside their colleagues to understand how the group will interact as a team – a greater predictor of outcomes for the business. The best-performing teams score highly for the PACE behaviours, but also show variation within that, to provide balance and cognitive diversity. The below chart shows an example of an ‘ideal’ team profile, which resembles a DNA helix, with some team members scoring more high or low for each behaviour, but with an overall profile towards the left of the chart.

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Leadership teams are one of the most under-explored value drivers amongst private equity firms because until recently the tools haven’t existed to do meaningful analysis of their competencies and behaviours. But that is now changing and with PACE, investors can finally pinpoint any gaps, understand misalignment within a team, and see what new hires bring to the table. They can see at a glance insights that would have previously taken weeks or months to grasp – if at all. That means faster decisions, less disruption, and ultimately a faster path to growth.

Find out more, and take the PACE assessment for free via the following link: https://web.thelcapgroup.com/cn/advsj/PACE


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