In the lower middle market our management teams are the biggest contributors to investment returns. When you are lucky enough to inherit a great management team you can usually count on sustained growth and sequential profitability. Good managers immediately understand the vital few objectives and are typically honest about organizational capacity and risk mitigation.
Spam or Fritos?
However, when you have to recruit new managers you often enter an employment lottery where your chances decline dramatically, especially in a full employment economy. I talked to a friend who has worked in management recruiting for his entire career and he admits recruiting for the lower middle market is tough, but he believes careful and skillful recruiters can usually spot a problem in the interview process. So far that has not been my experience.
One of my colleagues referred me an interesting study from Harvard Business School conducted by Rakesh Khurana, the Marvin Bower Professor of Leadership. He asked the question over the last 5 years did Pepsico or Hormel create more value for shareholders? In a head to head competition between Spam and Fritos, Spam not only won on saturated fats but Hormel ($21.73-$41.40) also won by lapping Pepsi ($84.09-$112.35) in stock performance. Here are their 5 year stock charts.
Professor Khurana thinks the secret is not the Spam, but rather how the two organizations hire. Pepsi has a reputation for hiring leaders who look the part. If you are 6’2”” and have flashy credentials you are a great candidate at Pepsi. In the recruiting industry they call it “Pepsi pretty”. Also, if you happen to have worked at McKinsey, Bain or BCG you are what Professor Khurana would call “central castings”.
Hormel is Midwestern in its attitudes and hiring practices. Its CEOs are not flashy and they don’t come with either stage presence or management consulting backgrounds. The current CEO, Jim Snee, is also the Chairman and President. Jim has worked at Hormel for 28 years after getting a BA at New Mexico State and an MBA from the University of St Thomas in St. Paul Minnesota. Hormel has had only 10 leaders in 125 years. The rest of the management team also has humble origins with only Jim Snee and Jeff Baker having attended Harvard and Wharton’s executive programs. By contrast Pepsico’s management team is not only highly degreed but they are also from “central casting” for public company management teams.
Neutralize Good Presenters
I often find I am drawn to articulate candidates. Good presentation skills often shift the energy of the interview process from the recruiter who is trying to get honest answers to the presenter who wants to answer questions with his spin. Mike Miles, the former chairman and CEO of Kraft, Inc. and Phillip Morris Cos realized early in his career that most of his information came from people presenting to him and his understanding of facts and circumstances was greatly colored by people’s presentation skills. Miles knew he was influenced by “stage presence” so he standardized the format to neutralize good talkers. In a similar way we have talked internally about putting our emphasis on what a candidate’s peers and direct reports say about him or her. Some candidates do a great job of managing up, but fail to motivate their direct and indirect reports. The trick is getting these people to share their experience.
Quirky Leaders May Outperform
As one of our recruiting firms put it;” Everybody wants a team player. Rockstar leaders seduce us with their congeniality, but the highest performing CEOs actually tend not to be great team players. Research on European “mittlestand” businesses- less than 500 employees- shows these small company leaders are not great cultural fits. The terrible fits get fired. The perfect fits thrive by becoming “one of the gang”. The leaders who are just a little bit off tend to perform the best.”
What This Means For Small Business
Maybe you can compete for talent after all. You just have to look for “mutts” which I define as leaders who have a good following but not deep friendships with their employees. While they lack that leadership “look” and their presentation skills may lag, they can energize and inspire with their sense of the possible. They don’t bounce around jobs every 3-4 years. They often graduate from state universities and local business schools at night. They succeed through grit, determination, and a solid grasp of what their team can accomplish. Since they rarely had the benefit of a central castings head start, they tend to prove themselves with performance. More than anything they also tend to make their teams successful and never forget to share the Spam with high performing team members.