How do search funds approach talent management and hiring post-acquisition?

Talent management represents one of the most critical yet challenging responsibilities for search fund CEOs, as they must quickly assess inherited teams, retain key personnel, upgrade weak positions, and build organizational capacity—all while learning the business themselves. The first 90 days post-acquisition focus on assessment. Searchers conduct one-on-one meetings with all managers and key employees to understand their roles, capabilities, motivations, and concerns. This listening tour serves multiple purposes: building relationships and trust, identifying who has critical knowledge or customer relationships, assessing cultural fit and leadership potential, and detecting flight risks who might leave without intervention. The inherited management team presents a paradox. These individuals know the business intimately and maintain customer relationships, making them invaluable during transition. However, they may lack skills required for growth—the comptroller who maintained books adequately for a stable business may lack capacity for financial planning and analysis needed for expansion. Sales managers comfortable with existing customers may resist prospecting for new business. Searchers must balance retention with upgrading, typically retaining most staff initially while identifying 1-2 positions requiring eventual replacement. Retention strategies for key employees include clear communication about the business's future and their role in it, competitive compensation reviews with adjustments where market data shows underpayment, professional development opportunities that may have been unavailable under previous ownership, and increased responsibility for high performers ready to grow. The search fund CEO must avoid the trap of trying to do everything personally. Effective delegation requires building trust that subordinates can handle responsibilities, implementing systems and processes that enable autonomous decision-making, and accepting that some mistakes will occur as part of development. Board members often coach searchers on delegation, pushing them to focus on strategic priorities rather than operational minutiae. Hiring needs emerge in several areas. Financial talent often requires upgrading from bookkeeping to strategic CFO capabilities, particularly if add-on acquisitions or sophisticated financing are planned. Sales and marketing expertise may need strengthening if the previous owner handled these functions personally. Operations management depth becomes important if the searcher lacks technical expertise in the industry. However, hiring carries risks for small companies with limited overhead capacity. Each new hire represents significant fixed cost. Moreover, search fund CEOs lack extensive hiring experience and may make poor selection decisions. Board members help by providing interview guidance, participating in final candidate meetings, and leveraging networks for referrals. Company culture management requires particular attention. Small companies often have family-like cultures built over decades. The searcher must respect this while potentially introducing more professional management practices. Moving too quickly toward corporate processes alienates staff; moving too slowly prevents necessary improvements. Successful searchers find balance by preserving cultural strengths (customer focus, craftsmanship, relationships) while gradually implementing systems for accountability, performance management, and career development. Compensation philosophy often requires evolution. Family businesses sometimes underpay market rates but offer job security and flexibility. Search funds may need to adjust compensation toward market norms while clarifying performance expectations. Incentive compensation tied to company performance can align interests, though designing effective programs for small companies requires care to avoid unintended consequences. Succession planning within the organization starts early. Identifying and developing future leaders ensures the business isn't perpetually dependent on the search fund CEO. This also provides career paths that retain ambitious employees who might otherwise leave for opportunities elsewhere. The talent management challenge intensifies if the searcher pursues growth strategies. Expanding into new markets or acquiring companies requires management depth to handle increased complexity. Growing too quickly without organizational capacity leads to execution failures and burned-out teams. The board's mentorship proves invaluable in talent decisions. Investors who've built and scaled businesses share pattern recognition about when to upgrade positions, how to structure compensation, and where to find specialized talent. This guidance helps first-time CEOs avoid expensive hiring mistakes and cultural missteps.