People risk is investment risk

People and leadership rank among the most common reasons funded businesses miss their milestones. We spoke with People Director Conal Scholes about why – and what to do about it

Most funded businesses come in behind the plan their investors underwrote. In one Bain study of mature buyouts, 71% fell short of the margins built into the original deal model, by an average of 330 basis points. On paper the thesis held. The market was there and the product worked. So why do so many miss?

In our experience working with funded businesses across the UK, the answer is rarely in the numbers. It is almost always in the people. That is not because the people are wrong, or bad at their jobs. The more common story is that the people side of the business has not kept pace with what investment now demands of it.

People risk and investment risk are not separate things. They are the same risk seen from two angles, and they are tightly linked.

A familiar pattern

Ask any experienced investor what they see most often and a pattern emerges quickly. A leadership team that performed brilliantly before investment but strains under the pace and governance that follow it. A founder who is exceptional at building and conceptualising but cannot quite step back as the business scales. A culture that gelled at thirty people and starts to fragment at a hundred and fifty.

These are not exceptions. They are among the most common reasons funded businesses fall behind plan, and the research backs that up.

In its 2021 Global Private Equity Report, Bain & Company surveyed 122 PE professionals and found that the quality of portfolio company management was the single most-cited reason deals succeed, and the second most-cited reason they fail. The same study found that 92% of respondents said waiting too long to act on talent issues had hurt portfolio company performance.

The encouraging part is that most of these risks are visible well before they bite, and most are fixable. What they need is the right expertise at the right time, and a real seat at the table for someone who can lead the people side of the business with commercial and strategic judgement.

People: the last frontier of value creation

Most experienced investors have already made this shift, and it shows in their results.

For years, returns came largely from financial and operational levers. Multiple expansion, cost reduction, financial engineering, refinancing. Those levers still matter, but they are well understood and increasingly hard to find an edge in. What is left, the part that now separates a good return from a great one, is leadership, talent and culture.

This is not to set people against finance. Finance has done its job, and is still a vital part of success. People is simply the next lever, and it is one the finance function cannot pull on its own.

As Conal puts it:

The financial and operational levers have largely saturated. Multiple expansion, cost-out, financial engineering, those gains are well understood and increasingly hard to find. Leadership, talent and culture are where the differential return now sits. Finance has done its job. This is the next lever, not a better one.

The data has caught up with this view.

EY’s 2025 Private Equity Exit Readiness Study ranks management and HR among the leading challenges in preparing a portfolio company for exit, well ahead of governance and compliance and ESG. The same study points to a related and revealing issue. 63% of respondents named a CFO without prior experience of selling a business as a top challenge to a successful exit. The lesson is not that one function matters more than another. The whole leadership team, finance included, has to be ready for the particular demands of the investment cycle, and readiness is a people question.

The role itself is changing to match. Russell Reynolds Associates, looking at more than a hundred Chief People Officer placements over three and a half years, found that over 30% were in organisations that had never had a senior HR leader on the leadership team before. The role is being created, not inherited, which tells you a great deal about how investors now value it.

And the timeline raises the stakes rather than lowering them. Hold periods have stretched well beyond the traditional three to five years, with the median for exited companies reaching around seven years recently. A longer hold gives people problems more time to compound. It also gives good people leadership more time to pay back. Either way, the people agenda gets bigger, not smaller.

What people risk actually looks like in a funded business

Some of it is obvious, as above. Leaders who holds on to every decision; teams which can’t quite make the leap from a 40 person business to 120+ one.

Other signs are less obvious: slow, diluter communication, decisions being delayed or second guessed, usually because the informal structures that worked at the old size no longer cope with the pace. You might see good people start to leave, often because they can’t see a path forward, or because the culture they joined has changed. Hiring turns reactive rather than strategic, and the wrong people land in the roles that matter most. You can feel the pressure building, and confidence in the senior team starts to wobble.

Any one of these is manageable on its own. The damage comes when several happen at once, because they compound. In a business running to an investment timeline, compounding risk is the last thing anyone wants.

Client example:  At Echion Technologies, People Puzzles worked with a founding team moving from a close-knit, technically led culture to a commercially scaled organisation. The challenge was not capability. It was structure, clarity and readiness. Working through those things early put the leadership team in a position to drive the next phase of growth rather than be held back by it.

 

Building people strategy into the value creation plan

When capital is deployed, most of the early attention goes to financial planning, commercial strategy and market positioning. People strategy, if it features at all, tends to be treated as something operational to sort out later.

The businesses that perform best under investment do it the other way around. They treat people planning as a value creation lever from day one. These businesses will tie workforce plans to growth targets, build in accountability frameworks before the organisation outgrows the old ones, assess leadership capability honestly, and act on the findings with development already in motion. And they make the desired culture explicit deliberate and measurable rather than leaving it to chance.

It is no accident that many of the most growth-focused investors now bring experienced people leadership into their portfolio businesses early.

Each of these elements has a direct commercial consequence. Lower turnover protects EBITDA; clear accountability speeds up decisions; strong succession planning de-risks the exit; and a leadership team that is ready for scale delivers the plan – while one which is unprepared will struggle to do.

Client example:  Camena Bioscience, a Cambridge biotech backed by venture capital, tripled its headcount while sharply reducing recruitment costs by making most of its hires directly. By focusing on the people side, employer brand, recruitment pipeline, salary benchmarking and culture, we helped the leadership team build the foundations for scale before the growth pressure arrived.

 

What good looks like, and how to get there

At every portfolio review, investors are right to look past the commercial targets and ask whether the people infrastructure can actually sustain and accelerate them. Is there a credible people strategy in place? Does the leadership team have the depth the next eighteen months will require? What happens if a key person leaves?

For business leaders, the question is simpler. Are your people set up to deliver what your investors are counting on?

The honest answer is quite often “almost”. The capability is there and the intent is there, but the structure, clarity and senior people expertise to pull it together have not yet been put in place. That is a very solvable problem, and it is almost always cheaper to solve before a milestone is missed than after. We see it constantly in our line of work, and it is a large part of what we fix for clients, whether they are investment-backed or not.

As Conal puts it,

The CPO in an investor-backed business isn’t a senior HR role with extra pressure. It’s a different role, in a different system, judged against a different yardstick.

So if your business has investment or is looking to scale, having the right expertise in place to lead your people function with a strategic, commercial lens may just be the most important factor in achieving your goals. And your investors probably know that already.

Sources

1. Bain & Company, Portfolio Company Talent Decisions: A Left-Brained Approach, Global Private Equity Report 2021 (survey of 122 PE professionals, conducted with Hunt Scanlon Media). Management quality the most-cited reason for deal success and second most-cited for failure; 92% said acting too late on talent issues hurt portfolio performance.
2. EY, Private Equity Exit Readiness Study 2025. Management and HR cited as a top-three exit-preparation challenge by 36% of respondents (ranked 4th of 12 overall), ahead of governance and compliance (20%) and ESG (9%); 63% named a CFO lacking prior experience of selling a business as a top challenge to exit.
3. Russell Reynolds Associates, The Rise of the Portfolio Company Chief People Officer. Over 30% of the 100+ CPOs placed over three and a half years were for organisations that had never had a senior HR leader on the leadership team before.
4. Hold periods: PitchBook data cited in Commonfund, Private Equity 2024: Year in Review (median hold for exited PE portfolio companies rose from ~5.5 years in 2019 to ~7.0 years in 2023); Preqin reported North American PE funds averaging 7.1 years in 2023. The most recent industry figure (2025) is described as nearly seven years.
5. Bain & Company, Integrating Due Diligence to Build Lasting Value (2019). Analysis of 65 mature buyouts, with full access to fund and management projections, found that 71% fell short of projected margins, by an average of 330 basis points below the deal model forecast.

If you are working with a portfolio business that is scaling, or a funded business preparing for the next stage of growth, we would be glad to have a conversation.

Find out more at peoplepuzzles.co.uk or speak to your local People Director today.