From Army Officer to PE CEO: 4 Mistakes Killing Portfolio Performance (Otis Spencer)

The Private Equity Podcast – Show Notes

Guest: Otis Spencer
Host: Alex Rawlings
Episode Title: Lessons in Leadership: From Army Logistics to PE Operating Partner & CEO Success

🎙 Episode Overview:

In this episode, Otis Spencer, a former U.S. Army logistics officer turned private equity operating partner and CEO, shares a compelling journey of leadership, operations, and transformation. From managing global fuel inventories to spearheading Six Sigma-driven improvements, Otis outlines the key lessons that have shaped his value-creation strategy within private equity.

⏱️ Time Stamps:

00:02 – Introduction & Background
Otis shares his 60-second journey from engineering student to Army logistics officer and beyond. He highlights the combination of technical training, leadership experience, and corporate exposure that prepared him for success in PE.

02:25 – Transition to Private Equity
After years in heavy manufacturing, Otis is recruited by an operationally focused PE firm—eventually becoming a portfolio company CEO with a successful exit.

02:52 – The Four Common Mistakes in Private Equity

1. Buying the Wrong Company – Avoid cyclical and capital equipment-based businesses.
2. Ineffective Diligence Process – Insist on a repeatable process and honest assessment of management teams.
3. Weak Board Construction – Build a working board aligned with the investment thesis.
4. Slow to Act Post-Close – Delay in correcting course can derail year-one goals.

10:03 – From Operating Partner to CEO: Key Learnings
Being involved in diligence and growth planning gave Otis an edge as a CEO. He highlights the misalignment between PE growth expectations and founder-led businesses’ readiness.

13:22 – From CEO to Operating Partner: Reversed Lessons
As a CEO, Otis learned the importance of setting culture, managing feedback loops, and avoiding micromanagement—critical insights he brings back into future operating partner roles.

16:14 – Real-World Application of Six Sigma
Otis explains the DMAIC framework and shares two standout Six Sigma projects, one delivering $1M in annual savings through material reduction, and another saving $500K in a plastics facility.

20:29 – Kaizen Explained for Newcomers
A practical walkthrough of how Kaizen events work—including team formation, shop floor involvement, and fast-track execution of waste-reducing improvements.

23:16 – Lessons from Multiple Exits
Otis outlines key ingredients for a successful PE exit:

• Logical, consistent growth (3–5 years)
• Partnering with the right investment bank
• Maintaining forecast performance throughout the process
• Integrating bolt-ons strategically in inorganic growth scenarios

28:50 – What Otis Reads and Recommends

• Wall Street Journal for daily insights
• PitchBook Daily for PE-specific news and trends
• Industry-specific publications when evaluating deals

29:46 – How to Reach Otis Spencer
📧 Email: ospencer1@yahoo.com
📱 Phone: +1 404-372-1778
🔗 LinkedIn: Otis Spencer

Raw Selection partners with Private Equity firms and their portfolio companies to secure exceptional executive talent. We focus on de-risking executive recruitment through meticulous search and selection processes, ensuring top-tier performance and long-term success.

🔗 Connect with Alex Rawlings on LinkedIn: https://www.linkedin.com/in/alexrawlings/
🌐 Visit Raw Selection: www.raw-selection.com

Transcript

00:02
Otis, if you can share a  60 to 90 second breakdown of you, please. Thanks, Alex. Just a little bit about me.  I  started out as an industrial engineering major and undergrad  and was commissioned a logistics officer in the United States Army. So  the piece that I would like to just hit on here is the engineering part. It gives me  a scientific and data driven approach.

00:31
to think about things. It really helps in critical thinking. And then the Army gives just a master class  in leadership and organizational behavior. And then it also provided opportunity for highly specialized advanced training. I think an example of this was  my fellowship with ExxonMobil, which exposed me to  nearly every facet of the oil and gas industry.

00:58
While the Army's internal training in supply chain and petroleum management exposed me to ERP systems, management distribution of  all materials used on the battlefield. I would say this combination  probably gave me the best start I could ask for, you know, to get a career jumped off. you know, upon leaving  the Army for 13 years,  I doubled in

01:27
the petroleum and energy space for a couple of years where I managed the Department of Defense's global fuel inventory for a couple of years  before getting back to my  industrial engineering roots and manufacturing.  This led me to work for eight years for a leading building products manufacturer.  I  ran two different divisions  and these roles really helped me cut my teeth in heavy manufacturing.

01:56
and productivity that is really based on the data driven approach through Six Sigma. That's where I earned my Six Sigma black belt  and  these tools have proved  useful everywhere. After that,  I made the jump into private equity  after being recruited by an operationally focused PE firm as an operating partner and latter served  as a portfolio company CEO where I just

02:25
successfully exited that company. So that's a little bit about me. Appreciate the insight. What's one mistake that you see either private equity or portfolio companies making and what would you suggest to correct them?  Actually, there's probably about four of them if I could  delve into those quickly.  so there's three of these actually occur  before closing.

02:52
And then one of them actually occurs afterwards. But  the very first one I would say is buying the wrong company. Well, that probably seems obvious to most people.  But when I say buying the wrong company,  usually I'm referring to a company that has a high degree  of  commodity or  economy-based cyclicality. A good example of that would be a capital equipment company.

03:21
That kind of company needs a buzzing economy,  Where everything's in growth mode.  The problem with this is if the economy cycles down, then so will your orders.  Your customers will hunker down to manage your cash,  and  then there goes your revenue plan. And there's not a way to stoke that fire, if you will. So the counter to that is to  focus on what is widely known as recession resistant sectors.

03:51
And that would be in sectors like  business services  or non-capital equipment manufacturing.  Those things  don't require  board of directors approval  and  big cash requirements  to get orders.  So you need to avoid those.  Because  if you hit that cycle wrong,

04:20
then  your growth plan, it'd be hard to keep up with it.  That was the first one.  The second one is  an ineffective diligence process.  So again,  before you reach any closing, as you're trying to understand and create a valuation for the company you're actually  thinking about,  you gotta have  a  process, a foolproof process or a

04:50
competitive process that's going to help you to  show the gaps  in the company's ability to execute a growth strategy.  It's some type of an assessment of the functionalities  across the business.  they  good at what they do? Are they proficient? Can they  execute  along their task? If you  do this inaccurately.

05:19
The issue here is if you assess the company as being very proficient across the different functional areas, then you could likely overinflate their ability to do some of the things that's going to be required for them when trying to execute the growth plan. And the other thing about this diligence process is most people in PE will

05:49
probably know this, but if you're in an auction process or if it's a proprietary sourcing, then the diligence timelines could be vastly different. Generally, the auction processes are run by investment banks and they have a much shorter timeline for all the interested parties to perform that diligence. you may not have

06:16
that long of a period to really come up with this assessment of the gaps in the organization. Now, if you're on a proprietary deal,  you may have a much longer time, which obviously benefits you. But either way, you got to have a well-documented and repeatable process. This process has got to have a detailed 100-day plan.  The thought here is you'd want to surely  be ready to go

06:45
on day one after closing, right, to implement and not figure out what's going to happen here.  The other key here is brutal honesty is required when you're assessing the management teams. You have to get this right. If you  assess that the management team  is not  up to par and is able to execute the investment plan that's been developed, you would do

07:14
much better by  going into  the operation with some new leadership.  So a lot on the  diligence piece. The third piece is the construction of your board of directors.  A lot of companies make mistakes,  PE firms make mistakes with  having  board of directors that are not really constructed to help facilitate  what the investment plan

07:44
is going to require. We tend to want to think about  having boards of directors that are working boards of directors.  We like them to be qualified individuals where they can provide some type of strategic  and or operational value or both to the company, right? And then the key thing about this is  you select these people

08:10
And ideally, they can help you during the diligence process. So as they go through the diligence process with you, then they see just as well as the rest of the team what gaps must be shored up  after closing.  And then once you get up and running, of course, the board helps the operating partner who  oversees day-to-day operations  in guiding and coaching the management team.

08:37
So  really vital part of the process. If you get that wrong, it  could actually hurt as well.  Now, the fourth and last one I wanted to talk to was after everything's  up and running and  you've got the keys to the company,  you're trying your best  to  execute towards the timelines associated with your plan. Well,  the first time you see indications that something may be running afoul or something's off track,

09:06
The key here is people have a tendency to act too slowly. So this fourth one is acting too slowly is a mistake you have to avoid.  Things generally don't get better with time without some corrective actions being taken. So you don't want to wait more than a quarter or so before you need to take strong actions, whether that's a personnel action or whether that's a process action, but either one

09:33
These things that I'm naming are all pointing to help you hit the first year targets. It's critical to hit the first year targets  if you want to keep your plan on track. The further you fall behind in that first year, it becomes really hard to claw your way out of that. So those are my four things  I see as  mistakes. There's more mistakes than that, but these are the ones I've seen up.

10:03
close and personal. Well, for the price of one, thank you very much. So what did you learn from, obviously as a dual role operating partner and chief exec, what did you learn from your role as an operating partner that made you a better CEO? Yeah, this is an interesting one because having started on the operating partner side, then you're in full participation with

10:30
if  the diligence process with evaluating  and selecting the companies that you're going to buy.  And so you're intimately involved with what it's going to take to execute the  growth plan if you actually  close on the deal.  Well,  that gives you  a  really outstanding advantage  as a CEO. One of the things that we have seen is

10:59
Um,  especially in smaller middle market companies that are,  are, uh,  led by, you know, first time entrepreneurial ownership. They, they have no idea  of the  environment that,  uh, private equity firms operate within and especially the timeline. Right.  They are,  and I guess even further, uh, they feel pretty good about themselves because  they've enjoyed pretty good success. They're being,  acquired.

11:29
So  the things that they've done in the past have worked for them. Well, unfortunately, the growth plan that's coming along with the  private equity firm is going to be a lot more aggressive because of the debt that's going to be placed on the company.  so timing  and  aggressiveness  is going to be probably way different than they're  used to.

11:57
So  by the fact of  understanding that intimately, then if you're now acting as a CEO, which I was, then you know, and you've been a part of these growth plans and a part of  the construction of what we believe is going to take to achieve the targets.  So now you can pace  the company, you can set the priorities of the company,  and  then you can actually facilitate the resources

12:26
probably better than they can.  One of the things you get from being an operating partner is exposure across a wide network of resources. And not just from my experience of being an operating partner, but even  in other roles and jobs that I've had, then you've put your hands on a number of different resources to help  bring in improvements.  So you're able to bring it out the box, if you will, and then

12:53
fast track some of these things you need  to get the  growth plan  going. And on the vice versa, what did you learn from being a CFO,  sorry, from being a chief exec that would make you a better operating partner? Right, now, sitting in, now flip the table.  You're sitting in the seat and you're there day in, day out with your team, right?

13:22
Whereas on the  other side of that, you're just kind of  monitoring and  following in.  But  this  as a  CEO puts you in full control of culture creation, full control of, like I said, trying to articulate  the plan and what it's going to take  for completion of that plan.  It lets you.

13:50
put  a theory concept that I call put the organization into a state of self-control. You're sitting there every day and that's simply ensuring that everybody understands the expectations of what they should do, right? And then as CEO, then you've got to set the conditions  for those things to be accomplished, right?  And then the third piece of the state of control is

14:17
giving everyone the feedback relative to their performance.  So  those are the things that  you really have to hammer home, right?  And you get that also from being an operating partner and just from being previously  holding leadership positions. But those is critical that everybody is on the same page  and  growing in the same direction, if you will.

14:46
and you helping by setting the conditions to giving them  if it's training,  if it's a new software system, if it's whatever it is,  giving them that and giving it to them in rapid fashion.  The final piece is  this is critical. It seems obvious, but it happens all the time.  Do not  overwhelm the team  with  the hot.

15:16
data requests, right, and unnecessary reporting, right? And so as a CEO, you can see that now on the other side of the table, as the firm is calling you and say, hey, can I have this? Can you send me that? This request, right? We need to look at this. And so it can come across as micromanaging, which can kind of kill.

15:43
killed, I guess, the trust and the confidence in the team that the firm believes that you know what you're doing. And so you just, in general, don't want to micromanage. That makes sense. you mentioned at the start about your Six Sigma green bell. Share with us an example of how you've utilized that across your career and also in your role as chief exec and also as an operating partner.

16:14
Yes.  So  this one was kind of easy, Alex, because as a lifelong leader, right, and then an operator,  you've always looked for ways to make  database decisions.  And I think that Six Sigma gives you a neat tool to do that, right?  And mainly because it's based on the DMAIC  process, and the DMAIC stands for define.

16:44
measure, analyze, improve, and control. So  as the basis  of  thinking about a  problem, walking through those steps  ensures that  you will have  made a more database decision and not just acting on knee-jerk reactions, which can really hurt you, right?  And really blow confidence if you...

17:12
constantly come up with, as I call it, the idea of the week.  This helps you from not doing that.  So when I look at the uses of this,  can  be, 6.6.1 can be applied  in  the formal projects, right? So the full blown formal projects where  your black belts will go through all of those steps, right? Collecting data, measuring.

17:38
coming up with solutions and putting  the fix into a control situation,  or you can use pieces of it. And so what I found that depending on the size of the company  and  resources available, it lets you use partial  or  all of the concepts, right? But any of it applied is good.  So  as I look back,

18:04
When I was in the building products company,  I managed a team, I think in my second role, of about 20 black belts and green belts.  So in about four years, we were able to complete about 38 projects, realizing almost $6 million  in savings.  And one of those projects I'll specifically  describe here was  in the building products industry when you're manufacturing asphalt shingles.

18:32
The key ingredient there is asphalt, which is also  one of the most expensive pieces of the shingle.  Well, through using the formal  demaid process, I was able to  reduce the amount of asphalt  that was being applied to the shingle  that actually yielded about a million bucks in annual savings. So quite substantial and accretive to margin expansion.

19:02
So that was just  one of them. Another one I'll quickly  talk about was one of my portfolio companies  that was a blow molding operation.  And so I used  the concepts in this operation to reduce the amount of material, because again,  the polymer, the plastic polymer,  is your high cost item there.  The amount of waste that we were generating in unplanned line breakdowns  and prolonged

19:32
startups, right? So once we look  at that  random process, we're able to come up with more than 500,000 in  annual savings. So those are probably two examples of more formal projects. But then, then Alex, there are countless example of  the Kaizen, which which  most people are familiar with.  And that's a more quickly executed  way of trying to eliminate waste and make some fixes.

20:01
EO in  short order in like three days or something, right?  Versus the more long  term designs of experiments of  full blown  projects.  Just on the Kaizen stuff, just walk us through what the kind of, is it like a headline kind of step guide on there for people that aren't as familiar with that,  that maybe want to look into Lean and Kaizen type work?  What would you?

20:29
How would you approach Kaizen? What's the kind of step process  that comes with that? Yeah, so generally you need someone who is familiar with  the Kaizen  concepts, right?  And so you have a leader in your facility or wherever it is,  and you  establish a team  of the workers there,  a team.

20:57
And so what you do is identify some opportunities, right? Some things that you list. starts with the team sitting there and say, okay, what things are stopping you from your task on a daily basis, giving you problems. And so you kind of whiteboard this thing and come up with that list. And then you kind of agree on, okay, and about

21:24
three days, right, or no longer than a week,  what,  which of these will we tackle, right?  And,  and then you say, okay, we're going to tackle these, these 10  or whichever it is, right?  And then once you decide on  the projects you want to tackle, then the key here is that team involvement, the, the, the workers there  in your facility help

21:53
facilitate the solution.  So that's where you get buy-in because it's their solution rather than the solution coming  down, right?  Coming down, right?  So they generally like that, right? And then understand, hey, this is an elimination of waste, then this will help everybody, right?  As far as an efficiency.

22:21
And it also will help the,  probably  overall quality and or safety, right? So there's the  5S process where you organize the shop, clean up the shop, throw away things that are unneeded, right? You put the things closer to the workers and the work sales that they use all the time.  So it's  a more,  it's a short term common sense approach.

22:49
that you can incorporate  workers in and get these  improvements in very fast. Thank you. Having been part of multiple private equity backed exits, what is some of the lessons that you've learned  along that process? OK, yeah. I've got some. Alex, I've got some common threads  that I'll share.

23:16
Uh,  what I would say I've been a part of four, four exits and, and, and then on several others that I wasn't on the board of directors, but,  uh, generally a good exit has a shorter hold time, right? Probably three to five years.  And it shows logical growth, but the key is growth, right? It has to kind of jump off the page.

23:42
that you've been able to take this company and add value that will show consistently over time. to be, it can't be two weeks or two quarters. It's gotta be a couple of years before you have real sustainability, confidence in sustainability. Now, the other piece here is a good investment bank. Not all investment banks are created equal, right? So you would certainly want

24:11
Uh, an investment bank that's associated this familiar with the space that you're trying to sell the company because then they've got, you know, tons of experience in that industry and, and, and know how best to position the asset. Right. Because, because they, they are going to have their key in helping you craft the story. Right. It's, it's, uh, you really want to want to craft a story that nobody can pass on and are willing to pay.

24:42
premiums  to get this asset.  And a part of that is  them working with your management team  and rehearsing them  really, really heavily.  And so  when they are up in front of the prospective buyers doing the management presentations, they come across strong, knowledgeable, and confident. It's like, OK.

25:09
These guys are going to work. We don't have to replace these guys.  I got faith in these guys, which is really key  when people are evaluating  the  company.  So  the investment bank is  key. The  other piece here is during the sale process, the company's performance cannot slide.

25:35
you must maintain good performance during the process. So whatever the forecast are, you need to hit it.  If you don't hit the forecast during the process, that's a red flag. That's a red flag. And  it brings up questions  of sustainability. So it's like, can we really sustain  what's going on here?

26:03
Has this growth been a blip on the radar? Is there something else  that we don't know here? And so you could wind up either getting a heavily discounted offer or, heck, buyers could pull out of the deal  altogether.  So  the final  piece that  I would mention is just  the difference in

26:29
telling the growth story,  organic versus inorganic. Sometimes there's a combination of both. And what I'd say about the organic growth is  that's usually straightforward and buyers, no problem. They get it. Cause  you've  probably commercially expanded your market share, right? Maybe  you've introduced new products or services, right?

26:57
done things that are just easy to follow that are sustainable. So  people generally follow that like, yeah, we'll really like that.  Now, if  your growth is more  inorganic, then that means that you've executed some type of consolidation or roll up strategy, right? And you bolted  companies onto a platform company.

27:24
On those, while  you can show explosive growth by doing that, because essentially what you've done is bought EBITDA. So you can show or can show explosive growth, but more sophisticated buyers are going to look at this and look deeper to see if these companies that you bolted on have been actually integrated. And do these companies actually make sense

27:53
strategically given the overall platform and the direction that it goes in. So I've  seen some companies  that have executed what appear to be  a successful bolt-on strategy and really explosive growth, but  have had a couple of busted auctions, right? Because buyers sniffed out that

28:22
these companies weren't integrated or maybe they just didn't make sense strategically on why they were bolstered on in the first place. So just a little more tricky on the inorganic part. So tell me, what do you read, watch, listen to, I just say you recommend that others should check out, please. Yeah, I'd say it starts with every day with my mobile version of the Wall Street Journal.

28:50
So, yeah, and I've got it set to alert me on different things. So I'm constantly looking at that.  And then the other thing that I think is just imperative on the PE side, Alex, is  PitchBook. The PitchBook Daily  comes out  and it's a daily newsletter  of recent trends, the latest transactions,  just different things that are going on in the PE space in general.

29:18
uh, finance financing, uh, uh, uh, indicators, all of the above. So, so those things, uh, kind of stay close to, and then any and everything that has anything to do with, uh, specific markets that I'm, that I'm in or, or looking at, want to stay abreast of those. Right. So if you were chasing a deal in, um, aviation repair, so any of those trade magazines.

29:46
associated magazines with specific industries. If anybody wishes to reach out to you Otis post this podcast, how best they can get in touch please. Yeah, they can see me on LinkedIn and they can hit me by email directly, ospencer1 at yahoo.com and my phone number, my cell phone is 404-372-1778. Perfect.

30:16
Well, thank you very much for coming on, sharing your journey in private equity, both as an operator and also operating partner. So thank you very much for coming on and sharing everything you have done, Artis. Thanks for having me, Alex. And as always, thank you very much for everybody who's tuned in yet again to the Private Equity Podcast. If you haven't done so already, please do subscribe. You'll be notified of the podcast that comes out every single week. But till the next time, keep smashing it. And thank you very much for tuning in.

30:48
Thanks