Crafting Engineering Strategy

Chapter 18. Private Equity Ownership Strategy

This chapter’s documents take on the role of an engineering organization attempting to navigate new ownership by a private equity group. It’s an increasingly frequent scenario: after many years of learning to operate under the direction of its original founders, and the brief excitement of going public, now there’s a short runway to change operating models.

Let’s call this company Fungible Ecommerce Company. It’s a platform for supporting online commerce, and Document 18-1 is its Engineering leadership team’s attempt to think through their options while waiting for the new ownership to provide concrete guideposts.

One of the trademarks of private equity ownership is the expectation that either the company maintains its current margin and grows revenue at 25% to 30%, or grows more slowly and increases its free cash flow year over year. In many organizations, engineering costs have a major impact on free cash flow. There are many costs to reduce—cloud hosting and such—but inevitably, part of the discussion is addressing engineering headcount costs directly.

One of the largest contributors to engineering headcount costs is an organization’s seniority mix: more senior engineers are paid quite a bit more than earlier career engineers. Document 18-2 models how various policies impact an organization’s seniority mix.

Reading These Documents

The documents in this chapter are combinations of real documents addressing several similar circumstances ...