Why The Transformation Gap in PE-Backed Companies?

In growth mode, companies are rewarded for:

• Fast top-line expansion
• Market share grabs
• Speed over precision
• Funding over margin discipline

When it’s time to shift toward profitability, those same virtues become liabilities:

• Over-hiring
• Lack of cost controls
• Poor economics
• Inefficient or duplicative processes

Leaders who thrived in a “grow at all costs” environment may not have the skill set or mindset for optimization and operational rigor. In fact, many leaders of growth companies don’t want to be leaders in the next phase. You often see:

• Inexperience with cost discipline
• Lack of accountability frameworks
• Reluctance to make hard tradeoffs
• Leadership turnover

Executives who are going to stay need to evolve from builders to operators, and not all make that shift successfully.

In growth mode, companies tend to say yes to everything: new products, new markets, custom client requests. But profitability demands:

• Ruthless focus on the most profitable segments
• Elimination of non-core activities
• Diligent resource reallocation

The inability to say no becomes a major drag on earnings. And focusing on everything all the time is a drag on employees in addition. 

During rapid growth, the focus is on scale, not systems. So when profitability becomes the priority, companies often find:

• No centralized data to track performance or cost drivers
• Weak financial and operational reporting
• Non-standardized procedures
• Lack of policies to govern how decisions are made
• Inadequate governance or process ownership

What worked when you had 50 people breaks down with 500.

Growth organizations reward activity (sales, launches, hiring), but profitability demands:

• Margin focus
• Operational efficiency
• Customer lifetime value

If KPIs and incentives don’t shift with the strategy, behaviors won’t either.

Growth mode cultures are often built on optimism, innovation, and risk-taking. Moving to profitability often looks like:

• More rules and red tape
• Budget cuts
• Slower decision-making

In addition, employees may feel:

• Out of the loop
• Unheard, undervalued
• Confused by what seems like changing priorities
• Frustrated by a lack of control
• Scared of an unknown future
• Overwhelmed by the quantity and speed of change

Employees may resist the shift, seeing it as a loss of freedom or creativity, unless the “why” is clearly communicated and employees buy in. 

On top of all these pressures, PE firms or external forces often drive the shift to profitability, and internal teams may not understand or feel the urgency. This creates:

• Disconnects between board and leadership
• Miscommunication of goals
• Delayed execution of hard decisions (e.g., layoffs, divestments, priorities)
• Unhappy employees