PE’s Power Trio: Leadership, Partnerships and AI with Gary Greenfield

Nilesh: So we’ll get started. In the next five years, how can private equity companies leverage AI advancements to streamline operations and create value? Could you share some successful AI integration case studies by PE firms? What challenges were faced and what ROI metrics were used?

Gary: Yeah, Nilesh, as I think about AI, it’s hardly new. The first company I was president of back in 1985, which I think was around the time you were starting your master’s degree, was an AI firm. That was 40 years ago. So, I don’t see AI as just a concern for the next five years; it’s more about the ongoing evolution of technology and its integration with other technologies moving forward. While this isn’t a private equity example, think about mapping technologies in our cars. We can now predict travel time and get directions—all powered by AI, but unimaginable without location-based technologies.

To give you a specific example, I worked with a firm that improved the operational efficiency of their services. They monitor major networks to check if they are on air, if there’s a blackout, or if the correct episode is broadcasting. Traditionally, this required people to physically watch the screens. By integrating AI with image, audio, sound, and optical recognition technologies, they significantly enhanced operational efficiency by reducing the need for a person to monitor multiple screens simultaneously.

Did this save costs? Absolutely, but more importantly, it improved customer satisfaction. When we evaluate AI metrics in private equity, we look beyond mere operational efficiency and cost savings. We aim to drive innovation and enhance customer satisfaction as well.

Nilesh: Obviously, you use AI and various technologies together, but to make all of this work, the right leadership and team are crucial. So, what key qualities and experiences should private equity firms look for when selecting leaders for their portfolio companies across diverse industries and maturity levels? How should these leaders align with the vision and drive performance? I know you’ve hired many leaders for these firms; perhaps you can help us identify what makes a leader successful in these environments.

Gary: Yeah, when we think about the types of leaders that succeed in private equity, we need leaders who have had diverse experiences. While we discuss AI and machine learning, we also need humans who can perform pattern recognition. They need to identify trends and challenges that are not immediately obvious. However, it can’t be a one-size-fits-all approach. If you look across the portfolio of any individual private equity firm, you’ll see a variety of companies, often serving different industries.

So, what we need is an executive with adaptability—not just someone who is willing to change but someone who actively encourages change. Obviously, we’re looking for very bright individuals, but trustworthiness is key. We also need leaders who can work closely with management teams. Operating partners and firms should act as resources to the portfolio companies, not try to run them directly. We’re looking for adaptability, a broad skill set, sometimes with deep domain or functional expertise, but importantly, there’s no universal solution for every company.

Nilesh: Obviously, in addition to having the right team and leadership, many private equity companies and their portfolio companies work closely with partners. Strategic partnerships are critical. I’ve learned from you over the years how important this is. What partner selection criteria should firms use? How can these partnerships be structured to align interests and drive sustainable growth? Could you share some common pitfalls, avoidance strategies, and examples that showcase substantial value enhancement? Basically, how do you choose the right partners to help with this?

Gary: And as you know, we met through a partnership, which I think is a perfect example of the kind of partnerships we aim for—ones that must be a win-win for everyone. The mistake people often make in forming partnerships is thinking, “Great, this is going to be a win for me but not for my partner,” or vice versa. It has to be beneficial for all parties involved. There are different types of partners—those that help drive revenue, where each can offer something valuable to the other, and those that help us understand the business better, complementing our operating partners with their external insights.

I always consider a good partner as a combination of the individual and the company we choose to partner with, along with their broader resources. The same qualities I discussed for an operating partner apply to external partners as well: adaptability, innovation, a willingness to change, and of course, the readiness to work closely and transparently with each other.

Nilesh: Continuing on that, you’ve talked about internal partnerships and the dynamics within a PE firm, particularly between the operating partners and the deal team. How can operating partners effectively bridge the gap between the deal team’s expectations and the operational realities? Could you share effective strategies to improve company performance through KPIs? Given your experience on both sides of the equation, you’re ideally suited to help us understand this.

Gary: Well, you know, about 25 years ago, I worked with a large firm that now boasts a comprehensive operating bench, and back then, I was an operating partner. There’s been quite an evolution in what operating partners contribute. Today, the best PE firms involve the operating partner right from the due diligence phase. In the past, PE firms would formulate an investment thesis, close the deal, and then introduce the operating team to this thesis.

Now, it’s about fostering a closer relationship, sharing the investment thesis with the company during the investment period, and actively engaging the operating partner. This approach ensures that once a transaction closes, the transition is seamless, and it’s an opportunity to accelerate the business.

The operating team and the deal team must work very closely and maintain constant communication. In fact, right after we finish here today, I’ll be on a call with a deal team and the operating partners from one of the firms where I’m an advisor. We’ll discuss opportunities and challenges and strategize together. The most crucial element here is communication. Effective communication, both during the diligence and post-closing, strengthens the relationship between the deal team, the operating partners, and importantly, the management of the companies.