Amplifying Returns Through Talent with Kristen Baily of MiddleGround Capital

Krissie is a Director on the MiddleGround Capital Human Capital team. She is responsible for supporting human capital needs at the firm and portfolio level. MiddleGround grew from 3 founding partners in 2018 to over 100 full-time people today.

 

Q: I feel like the best and worst outcomes I’ve experienced as an investor tend to relate to people. I’m still looking for the secret formula for making better people decisions, do you have the secret formula?

Great question. The average working adult makes (estimated) 35,000 decisions a day. Factor in the deeply human aspect of people decisions, there’s recipe for disaster. Like playing the Powerball, the odds are almost against us to ever find that “secret sauce” you speak of, but I’m happy to share our philosophy to making better people decisions at MiddleGround.

For context, I joined as the 32^nd employee of the firm back in December 2020. At the time I was an individual contributor, but fast forward to August 2022, we’ve built a “human capital dream team.” We cover the full gamut of people operations. Our team is comprised of talent acquisition and attraction professionals, as well as professional development, Total Rewards, and employee engagement and retention professionals. In a nutshell, our team’s mission is to Humanize the workplace.

If you’ve ever read “the Infinite Game” by Simon Sinek, you’ll understand that infinite minded leaders make decisions to continuously improve the organization for its people, its stakeholders, and its future, not a short-term gain.

An example of a people decision you see often go wrong is hiring. One of the most important decisions of a manager, that can either make or break a team’s morale and culture. A study performed by Northwestern confirmed that over 74% of hiring managers have hired the wrong person for the job, and additionally, the US Department of Labor estimates the average cost of a bad hiring decision is at least 30 percent of the individual’s first year expected earnings.

When it comes to decision-making at MiddleGround, we value the outcomes our decisions will have on our culture, which is based on these values: 1. Honesty, 2. Loyalty, 3. Respect for people and the planet, 4. Continuous improvement, and 5. Maximizing every opportunity.

We believe consensus for decision-making is invaluable to our culture, and for hiring specifically, we involve multiple stakeholders across the organization to finalize these crucial decisions. We strive to hire individuals who embody our core values.

Recruiting candidates who embrace our core values isn’t easy – it goes far beyond a candidate search on LinkedIn. It takes time, error, and a mindset of continuous improvement to ensure the process is “fit” for the culture sought. We have come to understand that the more effort we spend truly getting to know our candidates—via in-person meetings (not just Zoom), lunches with the team and behavioral and leadership skill assessments—were better equipped to make people decisions for the firm and our Portfolio. Sure, the rather lengthy and selective process poses its own challenges in times like the “Great Resignation,” but we know that the culture we’ve created is worth the wait.

To summarize, invest time and energy in your hiring process. Hire the right people who embody the mission, vision, and values of your firm.

Q: What sparked your passion for people?  

I grew up in Central Kentucky, not even 45 minutes away from our Headquarters in Lexington, after my parents “transplanted” a few times across the country due to my father’s career as a soldier in the US Army. Naturally, as the middle child, I was a born “negotiator” between siblings and parents, especially when my Father was called for duty.

Growing up in a post-9-11 world, I learned that having teammates (my sisters in this case) and supporting each other was far better than doing anything alone, especially with the challenges we’d faced without Dad home. It‘s similar to what’s on MiddleGround’s “about section” – “we believe there is a middle ground in every situation where everyone wins.”

As for why I’m here and why I love Human Capital? Can you remember the feeling of opening that acceptance letter to the University you were dying to get into? There’s this exhilarating feeling you experience when you start a new chapter of your life. When I offer a candidate a position with MiddleGround, I am on the receiving end of that “acceptance letter.” You can hear the person on the other side of the phone smiling! Whether it is a tenured professional or an Analyst joining our team for the first time, that emotional experience from the other side of the phone is something special. It never gets old to me, and it’s one of the highlights of my job.

What’s fun about coming to work is that I get to meet new talented individuals every single day. I love offering people a position with the firm – it feels like a win for both parties. Managing the growth of the firm has allowed me to connect with some spectacular and very impressive individuals, globally.

Q: Describe MiddleGround’s culture in 5 words or less

Supportive, collaborative, respectful & genuine

John, Scot, and Lauren sought to establish a firm that was different from other, more traditional PE firms.  Aside from establishing our core values (see question #1),

• Headquartered in Lexington, KY: John and Scot are from Kentucky, and having a headquarters in Lexington means MiddleGround would be the only PE firm (of size) in the entire state. This has enabled our firm to recruit native Kentuckians back home who have moved out of state to pursue the Industry elsewhere (myself included).
• We would celebrate and embrace diversity: In John, Lauren, and Scot’s time in PE, they’d often find themselves in a room full of people with similar educational backgrounds and experiences on their resumes. Our founders embrace these differences and realize that with more diversity, whether it be gender, ethnic or educational, embracing those differences would give us a competitive advantage. Having a diverse team helps the firm make better decisions and consider new perspectives. Today, we are comprised of 60% women or minority individuals, and all team members are afforded equal parental leave (4 months). We joined ILPA (Institutional Limited Partner Association) as a DIA (Diversity in Action) Signatory in 2021, which has provided access and the opportunity to learn from and share DE&I best practices with our industry peers.
• No jerks! PE can get a bad rap, and the Founders didn’t want to tolerate “brilliant jerks,” or people who are terrible to work with, but perform strongly. We respect and support each other, which has created a genuine culture of caring among the MiddleGround team. We are honest with each other because we care, and we support our team’s personal and professional aspirations. We bring our full selves to work each day, and it’s an inclusive environment to contribute meaningfully.
• Collaboration: Each position at MiddleGround Capital has been designed to work within our organizational structure to maximize the performance of the firm, while defining expectations to measure and reward individual’s contributions. Our culture is one where all are welcome to contribute ideas, further refining our approach through the process of “Kaizen”, or continuous improvement. Kaizen is a part of everything we do.
• Leave everything better than we found it: John, Lauren, and Scot are passionate about making positive impacts in the private market, and we, as business owners and operators, have a duty to make our Portfolio Companies better for the employees, the environment, and the community. An example of this is our $25/hr by 2025 initiative that bridges across our ESG, Operations, and Automation teams.  Across our Portfolio Companies, we are automating repetitive & low value-added processes as well as implementing core shop-floor efficiency improvements; both of which will allow our vital workforce to focus their time on efforts that increase enterprise value.  This will provide safer working conditions to our shop floor employees and ultimately allow us to compensate our workers at a minimum starting living wage of $25/hr by 2025.

 

Q: You’ve added more people at MiddleGround in a short time. How do you maintain that culture as the firm scales?

It starts with the support at the top, and our Partners are the strongest advocates of our culture. I am very thankful the Partners invested in the growth of the Human Capital team before we grew from 40 employees in 2021 to over 100 by Q1 2023, but that’s just one piece of the pie to what’s helped scale the culture at MGC.

As we’ve grown, it’s become more imperative to consistently have a pulse on engagement and employee satisfaction, measured by an annual employee engagement survey. We aren’t expert surveyors, but we did learn from some of the “fill in the blank” responses. My favorite answer to “what do you wish had been included in this survey?” was “less questions.” Ha! But, we learned communication was an area of improvement for us. Since then, the Human Capital team hosts monthly “update calls” for the firm, where we provide general updates, including new employee introductions and share employee recognition.

Something unique to our culture, especially in a post-pandemic world, is that we are in office 5 days a week unless traveling to Portfolio Companies or other industry related event. Our Partners want our office spaces to be the hub of our culture. Sure, it’s an awesome set-up, where you’ll find a plethora of snacks, kombucha, and cold pressed juice, but it’s the traditions we’ve created in office that keep our culture “humming.”

Every day at Noon, whether you’re in NYC or in KY, we break for lunch, and eat together. Lunch is sacred – no one schedules meetings during the lunch hour, and when you’re at lunch, you can talk about anything BUT work. Lunch is provided onsite – the partners wanted to eliminate the hurdles that would get in the way of growing bonds, humanizing our teammates and creating a culture of compassion and inclusivity.

When I started in the Lexington office, we were small enough of a team to occupy half of a floor in a tower downtown, the original location of MiddleGround headquarters. Growing pains hit, and once there were no more seats at the already expanded lunch table, we started looking for a new office location.  Needless to say, in Kentucky, we’ve found our new home with plenty of room to grow into, and the Partners have yet again invested in the interest of the employees with plans to renovate, which includes a fitness facility onsite. Have I mentioned that I enjoy going to work?

Lastly, our firm-wide in-person meetings on a quarterly basis have made a huge impact to our culture. Once a quarter, we have an “all-hands” meeting in either Kentucky, New York, or another miscellaneous location (in 2021, it was a Portfolio company bus tour across the US). In July, we had a great meeting together, followed by a fun night at Yankee Stadium, watching the Cincinnati Reds play the New York Yankees.  It was many of our team’s first time in the Big Apple, which made for a particularly memorable experience.

Q: You recently announced the opening of MiddleGround’s first European office. I know you are personally helping spearhead that effort. Any differences in how you’ve approached Europe vs. the US and any lessons you’ve had to learn by doing?  

It’s been a huge personal and professional opportunity for me, considering I had not ever been to Europe until my first round of candidate interviews. We opened our Amsterdam office in January 2023, and have identified three Managing Directors to lead our team abroad. As far as candidate sourcing and recruiting, our process is primarily the same – interviews and ample face-time with candidates, coupled with 3^rd party behavioral and leadership assessments.

The biggest differences have been more about employment abroad, in general. In the States, we give a two weeks’ notice, minimum. In the Netherlands, two to three months of notice are required! While our process has remained the same, this lengthier onboarding timeline has required us to be a bit more proactive introducing new hires to the team and incorporating them into our processes (such as hiring for their future team) sooner.

Q: You shared several talent sourcing and hiring process workflows. By the way, they are very “MiddleGround”. In my experience, most organizations are more like a jazz band when it comes to hiring. You’ve built something very different. How does this lead to better outcomes?

Remember how I mentioned Kaizen is a part of everything we do? The hiring process at MiddleGround is one of many standardized processes we’ve created to ensure alignment amongst stakeholders, yielding a positive outcome – a successful hire. Don’t get me wrong, we have made many changes to the workflow, even since you’ve seen it last, but that’s the art of continuous improvement.

Many times, when stakeholders aren’t completely aligned, recruiters go “hunting” down the wrong path. This time lost recruiting the wrong candidate is waste. One of the most important steps of our process is ensuring alignment between the hiring manager, John, Scot, and Lauren, and physically getting their sign-off on the job description so we are aligned day 1 of the search. During this internal “kick-off” we discuss the hiring process, which typically involves some sort of working product, case study, or technical interview, a 3^rd party behavioral and leadership readiness assessment (Pinsight – more on that later) and a final in-person interview. Altogether, this process takes about a month to complete if we’ve sourced the candidate through referral and slightly over a month, closer to 45 days if we have to source the candidate ourselves.

Yes, this process is thorough, but it’s two-sided. Something I appreciate is before an offer, we allow candidates to perform their own “due-diligence” of MiddleGround, similar to a reference check for the employer. Honest recruiting leads to lower attrition, and at MiddleGround, we have insignificant voluntary turnover – approximately 1% in 2022. The US Bureau of Labor Statistics reports turnover for Financial institutions in 2022 is approximately 38%.

Q: Do you think there is one character trait that is most critical regardless of the position you are hiring for? If so what is it? Or do you think the critical trait changes depending on the role? And how do you authenticate it?

We recently partnered with the HR Master’s Program at the University of Kentucky for a competency development study of our firm. Across 6-weeks, the students performed analysis of a variety of both qualitative and quantitative data (including surveys, interviews, etc) to highlight core competencies pertinent to employee success that you can’t interpret on a resume or CV.

The number one competency for all levels in the organization – junior, mid-level, senior, executive – was adaptability. At MiddleGround, we move with a high sense of urgency, but direction can change. We aren’t a “start-up”, but being in growth mode, requires us to get our hands-dirty when needed, which might mean wearing multiple hats, even if that certain task isn’t clearly defined in our job descriptions. I like to think this speaks volumes about the team-oriented culture we have, furthering exposure to different teams and functions while sharpening project management skills. This can be challenging for someone who likes to “stay in their own lane.” Adaptability is best measured through the Big 5 personality assessment (which we perform through Wonderlic) to gauge candidate “openness.”

The different stages of our screening process are solely focused on the candidate’s soft skills. Since 2020, we’ve partnered with 3^rd party Pinsight to conduct a 3-hour simulation to gather data on our candidate’s personalities, behaviors, and leadership competencies. We offer the Pinsight assessment for all positions we hire for (entry, early professional, mid-level, and senior) with the ability to customize the Pinsight report to reflect the competencies which are most important to us.

As an example, take an individual who may not be the best “test taker” – is the Pinsight the end of the road for this individual? The answer is no. We acknowledge the anxieties individuals have about the Pinsight, and the following step of the process, the STAR interview (Situation, Task, Action and Result) is an opportunity for the team to further investigate the candidate’s competencies in a situational based interview.

Recently, while interviewing an Operations Associate, one of the core competencies we assessed on the Pinsight was “Overcoming Individual Resistance.” Essentially, the ability to negotiate or lead through a time of conflict. A STAR question for this competency would read as follows:

“Can you tell us about a time you faced a conflict internally? Whether with a peer or a superior? What was the conflict and how did you overcome it?”

Then, the candidate would respond addressing the following:

• T – Describe the Situation and/or Task at hand related to their example
  • Describe the situation, circumstances surrounding the situation, item to be achieved and/or problem to be solved
• A – Tell us the Action that was taken by you in reaction to the situation or task at hand
  • Describe exactly the actions taken, be specific about your involvement, describe where you led or followed
• R – Tell us the Results achieved based on your specific Action
  • Describe the result(s) for all parties involved, were the results sustained, replicated, etc.

This allows us to completely understand the depth of the candidate’s experience, and how they’ve exemplified the competency in a previous role. This covers the “blind spots” associated with test taking, and if a candidate scores relatively low in a preferred competency, such as this one, we are able to dive deeper and gain more context, instead of writing off a low score.

Prior to a candidate joining MiddleGround, we provide a Pinsight report debrief with the employee. This provides them an immediate professional development opportunity and a roadmap for immediate improvement. We are all human, and no human has scored a 100 on the Pinsight, to date.

Q: Where do you see your function going within MiddleGround over the next 3-5 years? Or said another way, what are you not yet satisfied with?

It’s certainly exciting to be on the Human Capital team during this phase of growth. Since I’ve joined MiddleGround, we’ve been in mega growth mode – we’ve almost tripled our headcount in less than 2 years. In 3-5 years from now, we are determined to improve our ability to source organically from our personal networks and from the professional partnerships and intermediaries within our network. Approximately 20% of our team has been hired as a referral, and by the end of this year, we strive to be closer to 25%. We are just getting started establishing a candidate “bench” and expert network database – I feel like the sky is the limit for incorporating proactive procedures to supplement talent acquisition.

MiddleGround’s involvement and partnerships with the University of Kentucky College of Business has allowed us to partner with both students and faculty to share Private Equity locally. Being based in KY, we can provide internship opportunities with students of all majors. Starting Day 1 of the internship, the Intern is assigned a project focused on continuous improvement at MiddleGround, to be presented to the Executive team in the final days of the internship. The presentation provides a unique opportunity for college students to develop their public speaking and business acumen skills, and our leadership listens and learns from the new perspectives shared about our organization. The team has either helped our Interns secure full-time jobs in Industry or we’ve also hired these interns on staff full-time. We see this program as one of the best ways to hire high potentials at an entry-level into our organization.

The internship program is a stellar way to immerse our local students in Private Equity and to keep them from moving out-of-state to pursue their PE career prospects. We have recently extended the internship program to our New York office, and next for us, we will seek more partnerships with underrepresented demographics in Industry.

Our next big step is to tackle professional development. There are a lot of things we can learn from experienced professionals on different teams, and one practice we’re implementing in 2023 is a MiddleGround ex-pat rotation program in the Netherlands. This will allow even early to mid-level professionals to gain experience in PE abroad, but also serve as leadership to the incoming team members and share our processes that our firm is built on (i.e. the deal flow process). This is an invaluable experience you can’t get from a weeklong training, and long term, those individuals will gain valuable personal and professional experience.

With the recent build out of our competency matrix, Human Capital will prioritize more soft-skill training in 2023, and build out a custom professional road map for each employee. We are implementing a new practice with Pinsight that provides supplemental professional development coaching after the report debrief, giving employees additional support to maximize their learning potential.

Employees will be happy if they’re personal, professional, and financial interests are met. MiddleGround checks a lot of boxes – offering employees the opportunity to live abroad, compensation ranking in the top quartile for industry, and dedicated professional development plans for each employee – but we are continuously improving our offerings so we can be an employer our team is proud to work for.

Q: Final question, what are your interests when you aren’t focused on human capital at MiddleGround?  

My husband and I love hiking and exploring the great outdoors with our two pups, Kona and Layla, and since our move back home to Kentucky, we’ve become quite avid foragers and adventurers. Our current project is timber stand improvement in our “Holler” – think of it as continuous improvement to an old growth forest. We live just north of the Daniel Boone National Forest, so pretty much anything outdoors catches my interest. It’s our way of being “unplugged” and truly enjoying the beauty and peace around us.

Aside from our hobbies in the Bluegrass state, we enjoy traveling and hope to cross off some trips from our bucket list in Europe and Asia. Our next trip on the calendar is to Tulum to celebrate a Milestone birthday.