New infrastructure ‘platform builds’ introduce a host of leadership challenges to investors. The perfect team that can take a business from startup to scale while navigating institutional investors doesn’t exist. Instead, investors must assemble an evolving combination of leaders, to steer a company through key business milestones and growth phases.
Understand your value creation strategy & build as you go
For infrastructure investors, developing a leadership strategy for a new platform is much more nuanced than for an established enterprise, where robust governance exists, with mature supply chains, ‘relatively’ predictable revenue streams, and investment needs.
In the realm of platform builds, investors often encounter entrepreneurial business plans led by ambitious founders. However, these founders may lack experience in working with institutional investors and steering a business toward the future scale they aspire to achieve.
Entrepreneurial founders may not be accustomed, or naturally inclined, to operating within the tighter planning and reporting parameters imposed by private equity. Simultaneously, private equity investors often need to abandon their traditional playbook and risk appetite when engaging with early-stage or growth businesses.
The journey of building a large enterprise from a small base involves a high level of ambiguity, constant change, and problem-solving, where strategies can pivot or be abandoned very quickly. Investors and leadership teams therefore need to foresee, cope with, and manage these complex dynamics, to navigate this journey, and think more creatively about leadership planning in this context. This contrasts significantly with a more established infrastructure business, where a ‘near but not always finished’ enterprise-level team often comes as part of the investment and the levers for value creation are a little more controllable.
How do investors and leaders compose their top teams in these complex build-out situations?
In the case of earlier stage platforms, “Building upfront seems like the right thing to do, but the danger is that you build something and then it’s not fit for purpose the minute the business undergoes a significant pivot,” says Badar Khan, a former senior adviser at Global Infrastructure Partners, and recently appointed CEO of EVgo.
“Management team evolution, and sometimes revolution, is something that a lot of institutional investors are not used to, or they struggle with. It’s not like the venture capital domain where it is normal, and they’re more used to taking businesses from concept to global scale with mass customer adoption - with all the challenges along the way”.
Three key phases of growth and leadership
1. Building the foundations for value creation and driving execution
In the early stages, leadership teams are focused on building the foundations, raising capital, securing and completing projects, and starting to generate revenue streams. Rolling out a new infrastructure model demands leaders with a focus on pipeline conversion, commercialisation, an ability to exploit domain knowledge, and an understanding of their customers.
Often built around one or two highly driven, visionary founders, leadership teams at this stage are typically weighted towards honing and realising their mission through tactical delivery, with a slant towards technical or product expertise that is often critical to building out the product concept. This contrasts with traditional infrastructure businesses where the leadership focus is often on long-term strategy, value measurement, and corporate affairs.
“The energy sector is one segment of the infrastructure market that has witnessed considerable disruption, with new technologies and business models becoming a necessity to achieve ambitious net zero targets,” says Khan. “This has opened up an opportunity for a new class of entrants and innovators to enter what has historically been a fairly traditional asset class. This is exciting but the existing value chain is still layered with lots of complexity and building next-generation infrastructure is capital intensive, and thus bringing together those with transformative business plans with the larger institutional shareholders to achieve the sort of scale that will derive real impact is critical”.
2. More execution, dynamic leadership, and augmentation
As a business looks to scale, investors should build out the depth and breadth of their team, balancing aptitude, experience, and behavioural attributes that align with the short and long-term business priorities, the situational journey ahead (value creation levers), the culture you are trying to engineer and operating environment – which can range from steady state to outright chaos.
The sequencing of management change and development is also important. Inevitably, there will be leaders, whether founders or brought-in executives, who are experientially and behaviourally better suited to certain phases of a platform’s lifecycle from inception to its first major liquidity event.
For example, some leaders deliberately seek out challenges in high-growth, high-change environments where problems can be solved and creativity can be constantly flexed. Indeed, if a business succeeds in its plan, it will inevitably mature, reach a level of steady-state and institutionalise. This phase exerts very different demands on talent and, depending on the ownership structure post-event, might necessitate a very different team than the group on the way in. Succession in this context should be planned for and embraced, not seen as a failure.
The liquidity event and beyond
Last in the lifecycle of a platform investment is the exit process and by what means - i.e. a trade sale, public listing, or fund-to-fund sale - which could incur further leadership change, due to the very different shape of the ownership structure or shareholder expectations. This is particularly the case with an IPO, which demands much greater compliance and transparency that not only entrepreneurial founders struggle with but also those who have worked predominantly for private financial sponsors.
Where public listing is on the horizon, this brings the need for strong functional experts, who will build the systems, processes, and governance required to operate with public scrutiny. Khan stresses the importance of planning leadership change in advance and not within weeks of the intended event. Adding to the team and bringing in different skill sets is much more efficient than expecting the current management team to learn on the job and hope that they will embrace a new regime.
“As a business founder under private ownership, conceiving a business plan and growing 3x per year, business planning is more dynamic and flexible,” he says. “But as a listed business, your forecasts need to be narrower, you have to take external market communication very seriously and do what you say you’re going to do.”
A focus on behaviours
While experience and competencies are key, the applicability of individual or team behavioural profiles is critical throughout the growth journey. Analysing behaviours alongside experiential fit ensures that an individual can balance the diverse demands of platform businesses.
"Depending on the requirements for a specific role, team, and needs of a unique company, platform businesses may benefit from leaders who track highly for self-monitoring and can utilise their emotional intelligence to understand customers and a diverse range of stakeholders," comments Dr Julia Wagner, LCAP's Head of Behavioural Analytics.
"High levels of agility, learning orientation, and divergent thinking may also be beneficial for bringing proficiency in evaluating business needs, ability to pivot when required, comfort with risk, ambiguity, and failure. These individuals are effective at utilising their perception (over data) to innovate complex strategies. Investors could also look to obtain leaders who track highly for internal locus of control; individuals who lead by example, are prepared to get their hands dirty and take responsibility and accountability. However, business objectives, cognitive diversity within a team, and functional responsibilities of a role must be understood together, and at depth, to ensure the composition of a winning team within a distinct context".
Continuous succession planning
Platform businesses require a proactive approach to leadership development and change. They demand continuous forecasting of where the business will be in the future, how the top team will need to change to enable that, and ensuring the right individuals, with the right behavioural profile, are in place ahead of time to minimise delays and disruption.
In this kind of environment, the only way to manage leadership change effectively is by taking a data-led, analytical approach. Having the data to back up leadership decisions helps to frame difficult conversations, balance the competing factors at play, and look beyond the usual leadership template, to identify those individuals that can deliver the change and growth required. It is an ongoing juggling act, requiring tough decisions. But as the infrastructure sector adapts to a rapidly changing world, so must its approach to leadership.
If any of the themes in this article resonate with you and you would like to discuss them further please be in touch. You can email me here.
Adam Mahmood
If you missed part one of 'Architects of Growth' you can find the article here.
