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Introduction
Interpersonal relationships are the lifeblood of the private equity industry. Even though some may think the central focus is on generating financial gains, many forget that these gains and investment opportunities don’t fall out of the sky. They are built between two or more parties assessing potential projects and investing in them in savvy ways. Having solid connections to people and firms creates greater opportunities for building financial assets. These ventures help grow portfolios, secure new customers, and solidify strategic partnerships. This article explores the reasons that building meaningful relationships has so much impact on private equity businesses.
Trust and Credibility in Successful Partnerships
Trust comes from consistency and reliability. When someone can’t know whether or not your firm is going to be able to perform the way they need it to, a chance to earn trust is wasted. For people to have confidence in a business, that company must show itself to be worthy of that trust. And the key is making sure that everyone that your enterprise interacts with is treated appropriately, gets their goals met, and sees the overwhelming value that your firm has to offer.
Building Trust Person by Person
Whether you happen to be dealing with the CEO of a business, someone who inherited generational wealth, or a fellow professional in the financial industry, building trust in that one-on-one rapport is important. This means treating them with respect by doing things like showing up to meetings or events on time and writing about or referring to them appropriately (being sure to use correct titles, preferred names, or suffixes). It’s always helpful to have technical know-how and strategies that will earn them the kinds of revenue that they are seeking. But people tend to want to work with other people whom they like. And the people they like much more easily become people they trust.
Your associations with others can start more superficially. Covering common interests during a conversation may mean discussing collectibles, reading habits, sailing techniques, beloved art galleries, and more. Eventually, these exchanges can lead to finding deeper links that you have with one another, such as mutual acquaintances, shared vacation destinations, or favorite video game franchises. Whenever human beings see something of themselves in another person, they are more likely to feel comfortable around them. This is called affinity bias. Lifelong friendships, productive work relationships, and long-lasting romantic partnerships all usually begin with affinity bias when one person sees one of their characteristics in another person (liking similar things, wearing similar clothes, etc.). This is a critical component of trust that helps you more quickly start the path toward a lasting bond with a potential business partner or client.
Building Trust in Business Relationships
Reliable alliances from person to person aren’t all that different from trusting relationships between business partners. Being a reliable colleague is often the most crucial aspect of the professional relationship. When there is little or no certainty between companies, the relationship lacks the safety needed to openly share information with one another because there’s no confidence that it will be used appropriately. This shuts down the lines of communication and begins the deterioration of the collaboration.
But when partners share information about projects, resources, strategies, and that information is handled with care, this opens the door for further exchanges of a similar type. The more often partners can swap ideas with each other in a safe and productive manner, the more powerful the trust grows. The stronger the trust gets, the better the communication becomes. With more secure communication comes greater gains and more lucrative deals, as each enterprise works with the other to help them both grow more formidable in the industry. Partners with honest, open discourse with one another learn from each other, innovate with one another, and serve their clients better than any lone agency possibly could.
Driving Deal Flow and Value Creation
Having robust bonds with investors and other industry experts can provide access to higher-quality investment opportunities. These strong associations can also introduce you to new strategies that may be more efficient than the ones you had been using up to the point that you partnered up with another business. Learning from the processes that other enterprises incorporate into their sourcing, assessing, securing, managing, and exiting of projects can help you drive growth and increase portfolio value for your own company.
An employee at any job can work their way up in a business by being consistent in their behavior, doing great work in the scope of their position, and treating their co-workers with dignity each day. Similarly, when people see that you bring a positive, consistent, lucrative, and friendly service experience to your partners and clients, they are more likely to want you to be part of the projects they have been introduced to or are facilitating on their own. You may see a marked increase in the prospects that your team evaluates and invests in, thereby benefiting your firm and the wealth management of the clients that you serve.
Successful Private Equity Means Focusing on People
How a team is managed can make or break investments of any kind. Human capital drives and delivers value to companies and customers. This means connecting with and hiring the right people for available roles, training and nurturing those team members to become the best at what they do, and pooling the talent resources of specialists both inside and outside of your agency to be leveraged on behalf of your clientele and your brand. Building trust with entrepreneurs, high-net-worth individuals (HWNI), management teams, and industry experts helps you identify opportunities by having a large network of people who can bring you new business. A larger network also means being better able to conduct thorough rounds of due diligence before stepping into any major deal. Having this kind of built-in oversight ensures that you protect the time and financial investments of your company, as well as the financial stakes that your clients have poured into a particular project. This level of security guards against major investment mishaps that could harm your reputation in the industry.
This is why the investment decisions firms make are inherently people-centric decisions. The people involved are what make every aspect of private equity deals work. The social aspects of the private equity business are just as important as the financial aspects. Any establishment that overlooks the power of relationships in private equity is risking driving its business into the ground.
Conclusion
Relationships have been key to the survival of human beings as a species. We’ve always known that hunting, gathering, farming, living, and traveling together provide a level of protection from negative outcomes that we could never be able to achieve on our own. We are social animals. We were never meant to survive all by ourselves. This is why so much of what we do in life is better when we get other people involved. Businesses thrive, communities grow, and survival becomes easier when we all work together toward common goals that benefit both us and our society.
Private equity as a business is no different. Even though firms may often consist of smaller teams, those teams still include seasoned, intelligent specialists who do their jobs with integrity and precision. Those team members will be looking for the same level of respect that is provided to clients and partners. Not getting it can mean risking them leaving the team, lowering their productivity, or damaging the accuracy with which they normally perform their duties as they feel increasingly disconnected from the team and the work.
But when strong relationships are built starting from junior analysts on up the ranks, this feeds out into other business partnerships and individual clients as well. Having a solid network of employees, business partners, clients, and prospects can foster more productive collaborations and create more effective daily operations within the firm. While there may sometimes be the odd case of someone selecting a firm based on the technical skills of the team or past business triumphs, don’t underestimate the power of familiarity and comfort when it comes to enticing clients and other businesses to partner with you and your team.
Besides growing portfolios, building an impressive brand reputation, and serving clients well, long-term partnerships allow you to have the crucial support and resources needed to weather storms in the market. With a greater ability to bounce back from any major blows to the projects the firm has invested in, you’re more likely to survive any investment turbulence that may come your way. Just as a human can better survive a storm when they are able to do so with a group of people to turn to for support, instead of having to try to survive the storm on their own.
As your private equity business grows, remember that investing in the people who generate the revenue is just as important as growing the money itself.