Q&A: Executive relations

How does JMI communicate its strategy for a company with management?  

Barber

Barber: The first thing to note is that we are active strategic investors, not operators. To effectively communicate with management, we take a seat on the board of each company we invest in, which involves quarterly board meetings and monthly update calls. Beyond this, we are always available on an ad hoc basis as issues and opportunities arise. However, early on in an investment there is a higher level of activity as we are getting to know each other and, importantly, we decide what exactly the company needs to do in order to grow.

Our job then is to empower. We are trying to attract and retain high quality people who we want to be successful. For us to do that we stay active at the board level, helping implement strategy and bring about operational excellence. The point is to help the founders of a business, who want to retain control, do so while taking the company to the next level.  

At other times we bring in a new chief executive, typically when the founder is ready to exit the business they created but want their life’s work left in safe hands. For instance, with library software provider Innovative Interfaces, we partnered with Rich Lawson and Steve Young from Huntsman Gay. There, we used Scott Dunklee at the Lancer Group (an executive search firm) to recruit a proven Thomson Reuters executive, Kim Massana, to take the company to the next level.

But regardless of which team we work with, we are monitoring and tracking progress all the time to ensure the right things are happening. We are very metrics-driven. Each year we’ll go through how did we do, how can we do better? Our job is not to run the business but to push and probe so the management teams make the best decisions.

So what does that relationship look like in practice from a chief executive’s perspective?

Wessinger: When we went out to look for a partner (because we had no institutional investors before), we knew we were looking for something more than just a check. What we needed was somebody who could really bring in pattern recognition and practical expertise. Somebody who has looked at thousands of similar style businesses over the years and can recognize the things you are doing well, and are not doing well, and then communicate that effectively.

Wessinger

With Paul’s partner, Harry Gruner (founder and managing general partner at JMI), it’s like having Yoda on your board. All wise, all being, all knowing. You’ll be sitting at a meeting and you have got somebody who has seen a particular situation multiple times before. It is really valuable to have someone who has seen the movie already and can guide you on the big decisions.

My experience has been that JMI acts like a fitness coach. They can see we have been successful so they are not coming in to say you need to do this, or you need to do that. It’s more like ‘what would it be like if you tried this’. We engage pretty closely with JMI. So much so that we even include the two board observers and board member in our annual strategic retreat because we think they provide a lot of value. At no time do we feel it’s intrusive, or that they are trying to push us down a path towards their own agenda. They make comments and suggestions on how they think the business can improve. I’m still on the frontline making the decisions, but they are there backing me up.

How does the relationship work best with a hand-picked chief executive officer?

Massana

Massana: There is a lot of interaction, but it is usually me raising issues for discussion and JMI acting as a sounding board. Obviously, if they see something we should be thinking about, they will raise it, but it’s a coaching approach. There’s an element of feeling empowered and being more aligned with the board. The management team here is very aligned with JMI to drive value creation.  

The speed at which the board and the management team can agree on the key initiatives also gives us a big advantage – especially compared to a public company environment where I came from.  Here, we’re all in the same boat, we can make decisions quicker, and focus on execution.  I came in to a phenomenal platform at Innovative, built-up over 35 years by the employees.  Now we’re leveraging that deep domain expertise and combining it with new executives to take the company to the next level.

What areas does JMI have to work with management on most often?

Barber: You need to spend time with the entrepreneur, understand their business, their market opportunity and then help them figure out what the gaps are. Generally this is in three areas: people, process, and product.

In a lot of founder-owned companies they only know their own business. We work closely with the founder to ensure he has the right team around him or her. If we can bring in people that have grown businesses – especially those in similar industries or sectors – we can take out a lot of risk and help accelerate change and value creation.

Process is how we help founders professionalize and scale their businesses. Usually by force of will and personality, the founder has created a great business, but in order to scale it you need to professionalize it. This means helping them understand what data to collect and measure. Being metrics-driven, and putting in place processes that are repeatable and scalable, is an important message to instill.

For instance, in the early days of PointClickCare, a small team would go out and sell the product. But as the business has grown, you’ve now got a 30 or so person sales team. Now it’s actually very metrics-driven, especially when hiring employees, measuring their performance, and managing the sales pipeline.

Lastly, product. Many companies and founders we work with have an initial product that has driven their success. We help them invest and expand their offering through core development and complementary acquisitions.

And that’s really how we try to work with companies to provide the resources and support they need to take their businesses to the next level. 

JMI Equity is a growth equity firm focused on investing in growing software, internet, business services and healthcare IT companies. Founded in 1992, JMI has invested in more than 100 businesses in its target markets and has over $2.1 billion of committed capital under management.  Representative investments include Innovative Interfaces, PointClickCare, DoubleClick, Eloqua and ServiceNow.