Why Many Value Creation Plans Falter. And What Leaders Get Wrong
The statistics on value creation in private equity are sobering. Study after study shows that the majority of PE-backed companies fail to fully deliver on their value creation plans. McKinsey research suggests that fewer than one in three portfolio companies achieves the performance improvements their investment theses originally projected. Bain & Company found similar results, with the gap between planned and realized value representing a persistent and largely unacknowledged problem across the industry. These aren't just abstract statistics they represent billions of euros in unrealized returns and countless missed opportunities for businesses that had every structural advantage needed to succeed.
When value creation falls short, investors and management teams typically blame the usual suspects: an unfavorable macro environment, unexpected competitive dynamics, operational complexity that proved harder to untangle than due diligence suggested, or a market that moved faster than the plan anticipated. While these factors certainly contribute, they're rarely the root cause. The deeper issue is almost always leadership. Specifically, a leadership gap that prevents the organization from fully embracing and executing the changes required to turn an investment thesis into realized value.
What does this leadership gap look like in practice? Consider a common scenario: a PE firm acquires a mid-market business with a compelling value creation thesis. They invest in a new operating model, commission commercial excellence workstreams, and communicate boldly about the transformation ahead. But the management team continues operating exactly as it did under the previous owner. Decisions are made using the same processes, success is measured using the same metrics, and the same behaviors are rewarded. The plan changes, but nothing else does. Within eighteen months, the initiative has quietly lost momentum and the organization has reverted to familiar patterns. The exit, when it comes, reflects a fraction of the value that was originally within reach.
The investment thesis is rarely the limiting factor in value creation. Leadership most often is. The organizations that succeed are those where leaders fundamentally change how they think, decide, and operate - and inspire their teams to do the same. - Philipp Paul, Managing Partner, 2P Partners
The common problem is that many leaders approach value creation as a planning exercise rather than a behavioral transformation enabled by the right operating model. They engage with consultants, review workstream updates, and approve initiatives but don't fundamentally change how they lead. This arms-length approach virtually guarantees underperformance, because it signals to the organization that the value creation agenda isn't a genuine priority. It's just another layer of reporting to manage around.
True value creation requires leaders to personally own the agenda. This means making decisions with data and rigor rather than instinct and convention. It means becoming genuinely comfortable with the pace and disruption that PE-backed transformation demands. It means breaking down the organizational inertia that protects underperforming processes and people. And it means modeling the urgency, accountability, and commercial orientation that define a high-performance portfolio company culture. Leaders who aren't willing to change themselves will never successfully change their organizations.
The challenge is compounded by the fact that the leaders who rose to senior positions in most mid-market companies did so by mastering the operating model of the previous ownership era. Their expertise, judgment, and instincts were developed in environments where stability and incremental improvement were the dominant logic. Asking them to fundamentally rewire how they operate - to move faster, decide with less certainty, and accept that some initiatives will fail - isn't just uncomfortable. It feels threatening to the identity and self-conception they've built over decades. This is why genuine value creation leadership is so rare and so consequential.
Another common failure mode is treating value creation as a finite program rather than an ongoing capability. Organizations launch transformation programs, declare victory when certain milestones are achieved, and then disband the teams and return to normal operations. But the competitive dynamics that made the value creation plan necessary don't pause while the organization consolidates its gains. Markets keep moving, customer expectations keep rising, and the exit multiple the investment thesis assumed keeps depending on performance improvements that haven't yet fully materialized. Organizations that treat value creation as a destination rather than a journey quickly fall behind again.
The Mindset and Capabilities That Define Value Creation Leaders
If traditional executive attributes are insufficient for value creation leadership, what capabilities actually matter? Through our work with PE-backed businesses across the DACH mid-market, we've identified several characteristics that consistently distinguish leaders who successfully deliver on the investment theses from those who struggle.
First and foremost is execution orientation. The ability and willingness to drive outcomes, not just manage processes. Value creation leaders don't need to be operational specialists in every functional area, but they must be genuinely focused on results and deeply intolerant of the gap between plan and reality. They invest time understanding emerging trends, ask probing questions of their technical teams, and stay connected to how digital is reshaping their industry. They hold their teams accountable with clarity and consistency, ask hard questions when performance lags, and stay close enough to the work to distinguish genuine progress from activity without impact. This isn't about micromanagement; it's about maintaining the standards that PE timelines demand.
Closely related is commercial instinct. Value creation in most mid-market businesses ultimately runs through the top line - pricing discipline, sales force effectiveness, customer retention, market expansion. Leaders who think primarily in operational or financial terms, without a genuine feel for the commercial dynamics that drive revenue, often improve the machine without growing the business. The most effective value creation leaders combine operational rigor with a natural orientation toward where and how their companies actually make money.
The best value creation leaders also demonstrate adaptive leadership. The ability to calibrate their style and approach to the demands of the specific situation. A turnaround requires a fundamentally different leadership posture than a growth acceleration. A business in the early stages of professionalization needs something different from one preparing for exit. Leaders who apply a fixed playbook regardless of context, or who can only operate effectively in the conditions they know best, consistently underperform across the varied situations a PE hold period typically presents.
Other critical capabilities include:
- Investor alignment: Value creation leaders understand how to work productively with their PE sponsors without becoming subservient to them. They communicate proactively, manage expectations with precision, and push back when the direction is wrong while remaining genuinely committed to the shared objective.
- Data-driven decision making: They insist on evidence and measurement, replacing intuition and opinion with rigorous analysis while still trusting their judgment when data is incomplete.
- Talent upgrading: The best value creation leaders are ruthlessly honest about the capabilities their organizations need versus what they currently have. They make difficult personnel decisions quickly, build strong teams around them, and create environments where high performers are retained and developed.
- Ecosystem orientation: They understand that value creation increasingly happens across organizational boundaries and build partnerships and platforms accordingly.
- Speed and iteration: Rather than seeking perfect solutions, they favor rapid progres, early wins that build credibility, and continuously improving based on feedback and what data actually shows.
Perhaps most importantly, effective value creation leaders possess the courage to challenge established norms and make difficult decisions. Delivering on a value creation plan almost always requires disrupting comfortable patterns, retiring legacy structures and processes, and sometimes making painful changes to the leadership team itself. Leaders who prioritize harmony over performance, or who lack the conviction to push through institutional resistance, will never drive the kind of transformation that justifies a PE investment thesis.
The leaders who successfully deliver on value creation plans aren't necessarily the most experienced or the most polished. They're the ones who combine genuine commercial instinct with the courage to challenge how things have always been done, and the persistence to see changes through despite inevitable setbacks. - Sebastian Leonhard, Managing Partner, 2P Partners
It's worth noting that these capabilities aren't binary. Leaders don't either have them or not. They exist on a spectrum, and most executives have some but not all of them at the levels that value creation demands. The key is honest assessment of gaps, combined with deliberate decisions about where those gaps can be developed and where they require a different profile entirely.
Organizations should also recognize that value creation leadership might require different profiles for different phases of the hold period. The early phase typically benefits from a leader who can drive rapid diagnosis, build momentum, and make the bold early decisions that set the trajectory for everything that follows. The later phase, as the business prepares for exit, often calls for someone who can tell a compelling strategic story, stabilize the organization, and demonstrate the sustainability of the improvements achieved. Understanding which profile the current moment requires is essential for getting leadership selection right.
Finding and Developing Your Value Creation Leaders
Given the critical importance of leadership to value creation success, how should PE investors and portfolio company boards approach finding and developing the executives they need? There's no simple answer, but several principles can guide the way forward.
The starting point is honest assessment of current leadership capabilities against value creation requirements. This means going beyond traditional competency frameworks to specifically evaluate the characteristics that matter in a PE context: execution orientation, commercial instinct, investor alignment, talent upgrading capability, and the rest. Many organizations discover that their current management team, while experienced and capable in conventional terms, has significant gaps when assessed against what the investment thesis actually demands.
This assessment should drive decisions about development versus replacement. Some leaders can successfully develop the capabilities value creation requires through targeted support, clear expectations, and the right operating environment. Others will struggle to make the transition regardless of what's invested in them—because the behavioral change required runs too deep, or because the pace and intensity of a PE-backed transformation environment fundamentally doesn't suit how they're wired. Being clear-eyed about who can adapt and who cannot is essential. Retaining leaders who aren't capable of executing the value creation agenda is one of the most common and costly mistakes in private equity.
For roles where external recruitment is needed, the search process must be specifically designed to identify value creation capabilities. Traditional executive search approaches, with their emphasis on industry experience and functional credentials, systematically miss the characteristics that matter most in PE contexts. Assessment should go beyond the resume to include scenarios and structured conversations that reveal how candidates actually think about commercial opportunities, how they respond under pressure, and how they approach organizational change when the organization isn't fully on board.
Reference checking for value creation roles also requires a different approach. Beyond confirming track records, references should explore how the candidate actually operated in PE or transformation contexts. Did they own the agenda or manage around it? How did they respond when performance lagged? Did they build genuine capability in their organizations, or did they depend on external resources to compensate for internal gaps? These behavioral patterns are far more predictive of future performance than anything a CV can convey.
Once the right leaders are in place, the work doesn't stop. Value creation leadership isn't a static capability. It requires continuous calibration as the business evolves, the investment thesis develops, and the challenges of each phase of the hold period shift. This might involve ongoing coaching conversations that keep leaders sharp and self-aware, deliberate exposure to perspectives from outside the business, or structured reflection processes that challenge assumptions before they calcify into blind spots.
Organizations should also consider how leadership development, succession planning, and talent management more broadly need to be oriented toward value creation requirements. Are you identifying and building execution capability at every level of the organization, or only at the top? Are the incentive structures genuinely aligned with the value creation agenda, or do they reward the wrong behaviors? Is the leadership pipeline preparing the next generation of executives for the demands of active ownership environments? These systemic questions are often overlooked in favor of more visible senior-level initiatives. but they determine whether value creation is a one-time event or a durable organizational capability.
Finally, leadership transformation isn't just about the top team. Middle managers play crucial roles in executing value creation initiatives throughout the organization. Investing in their development is equally important and often overlooked in favor of more visible senior leadership initiatives.
At 2P Partners, we've developed specialized approaches for identifying and assessing leadership capabilities in value creation contexts. We understand that finding leaders who can genuinely deliver on an investment thesis requires looking beyond traditional criteria to evaluate the mindsets, behaviors, and potential that matter most under active ownership. If you're preparing for a critical leadership transition or simply want to assess your current team's capabilities we'd welcome the conversation. The right leader can transform what's possible, and in today's PE environment, getting this decision right has never mattered more.
