The New Criteria for Ideal Executive Candidates

For decades, the top criterion for senior hires was a history of past successes. However, this is changing.

While there has always been skepticism about candidates whose success stems solely from being in the right place at the right time, there was a strong belief that a candidate who had multiple successful experiences indicated pattern recognition and an understanding of how to replicate success in their new potential company.

Today, while successful past experiences still matter, shifts in how companies are valued, and expectations of future success are driving a reevaluation of what to pay attention to and what should be considered when making a hiring decision. This is particularly true with growth-oriented private equity firms and companies once considered likely targets for fast growth.

What are these changed candidate criteria and the reasons for this change?

We Live in a World of Disruption

While there have always been disruptive geopolitical and social events, technological advancements resulting in rapid communication and greater connectivity of markets, economies, sector-specific ecosystems and people, mean localized disruptive events now have far reaching impact. Disruption leads to uncertainty. In business, uncertainty leads to inaction, and inaction leads to a lack of investment and growth.

A direct implication of this is that expectations of what constitutes success, and the definition of the criteria to determine success, have changed. This has directly impacted the valuations of companies.

For much of recent history, companies that demonstrated continuous growth, even if that growth occurred with minimal profitability, were the most highly valued. Starting in the late 1990s with the first dot-com boom, the most assured pathway to the highest valuation was growth. Dependent on time, growth has been quantified by a variety of criteria spanning eyeballs, users, revenue, and market share. The working hypothesis across both public and private marketplaces was that continuous growth eventually would lead to profitability

Within the public market, many companies received valuations in anticipation of their ability to achieve profitability, regardless of their EBITDA. If profitability did not occur, it was assumed that the marketplace would correct in retrospect what were prematurely given high valuations. Within the private sector, even though valuations were weighted towards growth, profitability has always played a more dominant role. As a result, overall valuations were generally lower than those in the public market.

Prior to 2021, this led to a gap between public and private valuations, with public valuations veering much higher. However, this began to change mid-pandemic. By the end of 2020, we began to see the same level of valuations being given to companies regardless of whether they were public or private, or whether their exit was via an IPO or a private acquisition. Many private equity firms began to consider IPOs as a viable strategy for their portfolio companies. For these growth-oriented private equity firms, the prospect of a capital raise via public markets did not alter their hold strategy. It was more an acknowledgment of the opportunity to leverage the public markets to raise significant working capital while achieving a faster than normal return to their LPs.

The 18-to-24-month time frame spanning 2021 to 2022 represents perhaps the apex of the trend to granting the highest valuations across both public and private sectors based on growth. Not coincidentally, during this time, one of the most sought-after positions within private equity-backed technology companies was a CFO with prior successful IPO experience. This is no longer the case.

Current Criteria for Valuations

Today, many public and private market companies have seen their valuations decline. To receive the highest valuation today, a company must have at least 25% EBITDA with minimal to moderate YoY growth, e.g., 10% to 30%. Not too long ago, companies that had the highest YoY growth rates of 75% or greater were achieving 10X to 40X revenue valuations.

Private companies with revenues between $100 million and $300 million that had raised hundreds of millions of dollars for a C or D round at valuations that were as high as 40X revenue are now valued at a fraction of what they were at the time of their capital raise. Companies that went public with similarly high valuations have seen their stock fall precipitously.

When this new reality of valuations is combined with continuous disruptions and uncertainty, inaction, lower investment, and lower growth results in lower expectations. In turn, the criteria for what constitutes success for a company changes. This impacts the criteria that hiring managers, CEOs, and partners of private equity firms are using to evaluate candidates.

The Changed Criteria to Evaluate Ideal Executive Candidates

CEOs, private equity partners, and boards still want to see a track record of growth in the careers of top executive candidates, but it does not need to be the 50% YoY growth that was sought after in the past. Profitable growth has been elevated over unbridled growth. While being in the right place at the right time still suggests a candidate has made smart career decisions, the most sought-after individuals are those who have either learned from less-than-ideal circumstances or, better yet, found ways to overcome adversity and achieve success.

There is an old saying: luck is being in the right place at the right time. But luck is more than this. It is knowing that you are in the right place at the right time and having the skills and experience to take actions that allow you to take full advantage of when and where you are.

In this context, the smartest hiring managers, CEOs, and private equity partners are leaning into understanding more thoroughly what someone did, and the degree to which, if they were in the right place and the right time, the results produced were reflective of the actions that a candidate took, reflecting their ability to fully leverage their knowledge, skills and experience.

Increasingly, private equity partners and CEOs are no longer discounting a candidate for leaving a company with a less than stellar track record if there are additional data points post-departure showing successes.

What My Clients Say About the Way Executive Recruitment is Changing

• A PE Partner recently told me that changed marketplace conditions necessitate a deeper analysis of a candidate’s results. Were their successes driven by factors outside their control, such as overall sector growth, or were they a direct result of their own actions? Similarly, if someone failed, was it due to poor decision-making or external factors beyond their control? The PE partner said, “I am looking for executives with the business maturity to recognize when they are entering a losing situation and avoid it altogether. Sometimes, market forces can make a situation unwinnable. I want to understand whether someone made a bad decision or found themselves in a challenging position due to these shifts. If it’s the latter, I want to know how they responded to it.”
• A Talent Partner at a PE firm recently expressed concern about their portfolio CEOs who have never faced true adversity or dealt with difficult circumstances amid unfavorable market conditions. The firm is now seeking leaders who can demonstrate the ability to steer through uncertainty and overcome challenges, rather than simply capitalizing on favorable market trends.
• Another Private Equity Partner recently told me, “Many of our portfolio company CEOs grew accustomed to receiving funds from us whenever they needed it. However, circumstances have changed. While we still prioritize growth, it cannot come at the cost of profitability. We now require our CEOs to effectively manage the business rather than simply relying on us for financial support to make things work.”
• For a recently completed search for a private equity portfolio company, the PE Partner expressed interest in candidates who demonstrated “resilience”—those who had been in difficult situations, confronted adversity, and applied the lessons learned to their next opportunity. Interestingly, one candidate with a history of continued success at a succession of successful companies was looked at less favorably, reinforcing this shift in thinking.
• A client CEO conveyed that while he wanted to see success, he really wanted someone who had “maturity” from being in a variety of situations and produced results by getting the best out of people rather than other factors, e.g., increased budget, favorable market conditions, etc. 

The Questions All Hiring Managers Should Ask

Today, astute hiring managers want to know where a candidate has succeeded:

• Despite the circumstances?
• By their own actions and decisions, rather than the rising tide lifting all boats?

Or if a candidate was in a non-winnable situation, was it the result of that executive leaning into their own hubris, or marketplace changes outside of their control?

And if the latter, is there evidence the executive learned from this experience and applied it to future success?

This is the new and evolved ideal candidate criteria.

About the Author

Greg Selker is a Managing Director at Stanton Chase, the Regional Sector Leader for  Technology in North America, and the Global Subsector Leader for Growth Equity. He has been conducting retained executive searches for 35 years in technology, completing numerous searches for CEOs and their direct reports at the CXO level, with a focus on fast growth companies, often backed by leading mid-market private equity firms such as Great Hill Partners, NexPhase Capital, and JMI Equity. He has also conducted leadership development sessions with more than 50 executives from companies such as BMC Software, Katzenbach Partners, NetSuite, Pfizer, SolarWinds, Symantec, TRW, and VeriSign.