Everything Operating Partners Want Their CFOs to Know

October 22, 2019

By Lorna Garey, executive editor at Brainyard(opens in new tab)
9-minute read

In short:

  • Operating partners represent a growing trend in private equity. Grow Wire spoke with a handful of OPs at last week’s PEI Operating Partners Forum about what they’d like CFOs to know.

  • OPs gave insights on how CFOs can better relate to and work together with them, win PE funding and more.

  • Main themes of the OPs’ feedback include CFO transparency both with them and employees, managing threats smartly and investing in next-gen tech now.



Couldn’t make it to PEI’s New York Operating Partners Forum (opens in new tab)last week? Not to worry. We were there and collected observations relevant to CFOs — even those whose companies don’t have private equity relationships.

The operating partners(opens in new tab) in attendance and on panels represent a growing trend in private equity. Their firms are typically independent from PE groups and are staffed with former C-level executives and technical experts from a variety of industries. The OPs we spoke with, under the Chatham House Rule(opens in new tab), said the rise of operating partners is good news for CFOs whose companies receive investments. More use of OPs reflects PE’s shift from buying and flipping to actively putting money and manpower into improving portfolio companies’ products, people and processes, thereby “increasing value,” a term we heard frequently. 

OPs often embed within companies, augmenting or replacing existing executive and technical staff. While the role is not without some controversy(opens in new tab), reflected on a panel of limited partners, many conference-goers have deep understanding of verticals, from financial services to retail, while others have functional area expertise, such as human resources or advanced technology. It’s easy to see why a portfolio company could benefit from an OP.

Topics of discussion included human capital and toxic cultures (both are problems), AI (it’s coming, they just don’t know exactly when) and the recessionary outlook (ditto). 

Top takeaways:


Reporting, financials and pricing

  1. Often the financials the board or a PE sees don’t reflect reality. Everyone likes to put a little shine on their numbers, and that’s fine. Too much, though, and CFOs set themselves up to be replaced — even if the CEO drove the dupery.

  2. If you want a successful PE deal, start working on a process to proactively and consistently communicate between the firm, the CEO and the CFO. Not many do, and OPs say inconsistent messaging — where the CEO and CFO deliver sometimes wildly divergent information — is worrisomely common.

    OPs say inconsistent messaging — where the CEO and CFO deliver sometimes wildly divergent information — is worrisomely common.

  3. Deal numbers and valuations are still high, but OPs say PEs are baking(opens in new tab) the risk of a downturn into all decisions now. What wasn’t universal is agreement on severity. Will it be 2001 or 2008? Opinions varied.

  4. Pricing is one of the first factors a PE/OP will scrutinize. Maybe you can’t raise prices across the board, but you can take a hard look at discounts. Even a small adjustment in which manager approval is required — from 20% to 19%  — can add up. Spit out granular discount reports showing which AEs are selective vs. which always discount. 

  5. Generating a scatter plot chart of sale price by SKU and customer can also reveal outliers and, potentially, easy wins. Consider launching an A/B test of a slightly higher price, say 10%, for a control group. The goal is always value-based pricing versus a cost-to-deliver calculation.

  6. Capacity to serve customers versus capacity to sell. Do you have a grip on both metrics?

  7. Run deep post-mortems of select lost deals. What value proposition and price did you present? What was it about the vendor that won the deal? 


Working with your OP

  1. Never trickle out bad news. OPs say they’re there to fix problems, and putting it all on the table is the only way to start a successful turnaround. Waiting for more shoes to drop is exhausting for all stakeholders and damaging to reputations. Surprises should be few and far between. 

  2. Don’t shoot the messenger. Most problems are fixable if caught early. You say you want preemptive warnings? Then act like it.

    Don’t shoot the messenger. You say you want preemptive warnings from your OP? Then act like it.

  3. One OP says just 29% of CFOs in its PE partners’ portfolio companies say the operating partner “meets expectations.” Panelists admit that they don’t always do a good job explaining what they can offer CFOs. So if you have an OP on call, ask what resources are available.

  4. To succeed as a PE/OP-backed CFO, say attendees, you must have a tolerance for oversight and frequent requests for all sorts of data. However, if a report will take an inordinate amount of time to pull, don’t be afraid to say, “Why do you need that number? Because here is what it will take to generate it.”



  1. Sales is frequently out of the strategic loop. Blue Ridge Partners(opens in new tab) surveyed 600 companies sponsored by 100 private equity firms and found that just 15% have provided growth playbooks to sales reps and managers. Not surprisingly then, just 50% said they’re confident sales reps have the right skills. Try communicating, say OPs.

  2. The No. 1 roadblock to the fuzzy but popular concept of digital transformation(opens in new tab) is cultural resistance to change. No surprise. But operating partners discussing culture said toxic CEOs are the problem much more often than CFOs or other leaders, or the employee base. 

  3. In an M&A scenario, the larger entity is not always the one whose culture will, or should, dominate. Culture eats strategy — and toxic culture(opens in new tab) eats profits and growth. You must be able to clearly define what a “great culture” means for your firm. OPs take this seriously and may arm “culture champions” with a new values statement and competency model and embed them throughout organizations to create “leadership DNA.”

    Culture eats strategy — and toxic culture eats profits and growth. You must define what “great culture” means for your firm.

  4. There are plenty of tools to assess organizational culture and employee satisfaction, from the relatively straightforward employee Net Promoter Score(opens in new tab) to the in-depth OCAI(opens in new tab). PEs love data, so consider being proactive if you’re seeking funding.



  1. Security is often sacrificed when companies are in fast-growth mode. Big mistake. OPs say the time to establish best practices, such as separating corporate and production environments, is when you’re small. The bigger a company and its network and data stores get, the more difficult it is to backfill security.

  2. “Threat modeling is a lost art,” said one OP security expert. Don’t just pile on expensive tools. Know your threat profile(opens in new tab) first.

    "Threat modeling is a lost art." Don’t just pile on expensive tools. Know your threat profile first.

  3. Ransomware is common, and wildly expensive; one OP provided an example of a portfolio company that paid out $250,000 in ransom — that’s before consultants and scrambling to find out what happened and prevent recurrence. His advice: Run tabletop “what if” exercises and invest in end-user training. Better yet, be able to recover without shelling out Bitcoin. Here’s how to do that.(opens in new tab)

  4. One PE firm has a Slack channel open to all the CISOs within every company in its portfolio. For CISOs in many industries, like auditing and healthcare, similar associations exist(opens in new tab) and are well worth joining, as attackers often specialize. Trucking companies are now in the crosshairs.(opens in new tab)


AI and other next-generation technology 

  1. The bots(opens in new tab) are here, and RPA is hot(opens in new tab). In one session, almost the entire audience said they have robotic process automation projects underway in at least some portfolio companies. Is this true AI?(opens in new tab) No, but it can save serious money and open new lines of business. In one example, a company spent $15,000 and one week automating a lab process. That slashed data analysis from six weeks to six minutes and generated a new market opportunity. 

  2. With RPA and AI/ML, remember: Processes are now completed by technology, supported by people. In the past, the reverse was true. It’s better to automate a simple process end-to-end, with no need for human intervention, than to start many automation projects, each with human “red lights” built in. Quick wins are golden.

    It’s better to automate a simple process end-to-end, with no need for human intervention, than to start many automation projects, each with human “red lights” built in. 

  3. Think big about big data. No, even bigger — as in, how can it let your company go on the offense. Think about the high-frequency-trading game-changer(opens in new tab) for your industry. Here are some use cases to get you started.(opens in new tab)

  4. A “hugely successful” AI use case: One Medicare supplemental insurance provider uses AI to predict which customers may intend to leave the plan. The company then proactively reaches out with incentives. This has cut attrition dramatically.

  5. Any AI project is only as good as the data set it’s based on. As with prioritizing security early, fast-moving small companies that invest in good data hygiene practices(opens in new tab) are setting themselves up for future success.

  6. Reach out to suppliers for data insights. ADP, for example, processes payroll for 30 million people per month. Its labor market analyses and predictions(opens in new tab) are regularly more accurate than those from the Bureau of Labor Statistics.


Hiring and HR

  1. You can’t easily buy AI or security talent, and tribal knowledge is priceless, so invest in training current employees who show aptitude.

  2. It takes months to find the right person for executive, security and data analysis roles, even for OPs with fat Rolodexes. If you believe a key person is a flight risk, discreetly start your search now.

  3. Use a scorecard(opens in new tab) for evaluating prospects and to calibrate interviews. There are plenty out there. The key is picking one and being consistent. Include in hiring decisions standard questions and role-based criteria, qualitative and quantitative guidelines, psychometrics assessments(opens in new tab) and a process to check references. As with culture, there are many models and consultants to help here. Just don’t wing it, especially for senior hires. PEs want data, not gut feelings.

    Use a scorecard for evaluating prospects and to calibrate interviews. PEs want data, not gut feelings.

  4. Recruiting firms have varying areas of expertise. There’s no reason to limit yourself to one or two.

  5. When they identify prospective hires, PE/OPs use a mix of methods and assessment tools. Often cited are the Hogan Personality Index(opens in new tab), GMA(opens in new tab) and Ampersand(opens in new tab). But make sure you have the right context and expertise to make sense of what can be complex results.

  6. In an AlixPartners survey of 54 managing directors and operating partners, 63% said human capital is the most pressing problem facing portfolio companies in the near-term, just behind growth (73%) and well ahead of cost-related issues, cited by just 24%.



  1. The business drivers for moving to public cloud boil down to speed: of updates, new releases and scaling up or down. But make sure you rethink application architectures to realize full value. And layer on a cloud cost containment system(opens in new tab), such as Flexera or Scalr, right from the start.

  2. Cloud may well be more expensive than running workloads in-house. But PE/OPs quantify better uptime, improved security and compliance and the cost of staff with domain knowledge when comparing on-premises vs. cloud for any given workload. 

  3. Investors — PE, OP, VC — and M&A advisers expect all companies of all sizes to have comprehensive cloud roadmaps. Why? “It’s the ‘golden plumbing’ problem,” said several OPs, referring to the tendency for private companies to over-build internal infrastructure and pile on CapEx.

    Investors — PE, OP, VC — and M&A advisers expect all companies of all sizes to have comprehensive cloud roadmaps.

  4. The hardest part of a cloud migration? Cultural change. One unexpected benefit an OP found: Better accessibility for vision- and hearing-impaired end users and customers. 



  1. Travel and freight costs are one of the most unmanaged and unexamined expense silos, say OPs. Speakers suggest combing through carrier bills for sneaky add-ons, like fuel surcharges, that are not in your contract. OPs recommend ensuring you have a right-to-audit clause — and using it.(opens in new tab)

    OPs recommend ensuring you have a right-to-audit clause — and using it.

  2. Consider having employees purchase insurance on rental cars, because your general policy may not have the coverage you think it does. And in any case, do you want to manage putting in a claim for a minor ding?

  3. We all know last-mile delivery(opens in new tab) is changing. Now, “Uberization” is taking place, where empty delivery vehicles can be hired to carry goods on their return trips. Logistics firms like DHL offer this,(opens in new tab) and there is a crowdsourced app(opens in new tab) or two for that as well. 

  4. Speaking of Uber, if you’re going to have a corporate-approved ride-share provider, one OP says Lyft is a better choice for liability reasons. But the best choice may be not to formally recommend either.

  5. In retail, a common problem is too many ideas and not enough resources. OPs say they commonly compile a list of initiatives just begun or on the docket and have each individual executive rank them. Then the group comes together to hash out which ideas can realistically be executed.

  6. Got a lot of salespeople cycling in and out? Most UCaaS solutions(opens in new tab) (that is, unified communications as a service) allow you to assign a phone number to a territory, not an individual employee. So when the California account rep walks out the door, the 10-digit number on her business cards will redirect to the new rep, keeping business from walking with her.


Finally, the (unattributed) quote of the conference: “You can’t save yourself rich. I’ve tried.” 

OPs advocate for investments of money, technology and expertise in portfolio companies vs. the cost-removal strategy that PE firms may be known for. The operating partners we spoke with had a unified message for CFOs: We want to work with you to grow the business. 

☎️ Lorna Garey is executive editor of Brainyard(opens in new tab). She was formerly editor in chief of Channel Partners and Channel Futures and content director, digital, of InformationWeek. Got thoughts on this story or want to contribute to Brainyard? Drop Lorna a line at lgarey [at] netsuite [dot] com.

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