When you forget to consider people in your financial model

I probably spoke to 200 home services shops in the last year. The number 1 complaint I hear about acquiring entities: they don't understand people.

Case 1 is a classic: PE shop buys privately owned shop. Works backwards from a margin target, resulting in salary or bonus cuts for certain employees. Exodus of technician talent leads to decline in service quality, slowing or reversing progress toward growth targets.

Case 2 is another classic: search fund buys privately owned shop. Doesn't invest in the referral partner relationships. Referral partners mass exodus to newly-minted seller-owned shop w/in 4 years.

Case 3 really brings it home: PE-backed shop installs commission-only technician compensation plan. Technicians oversell new units and incorrect parts, resulting in increased callbacks and maintenance plan defections.

To be clear, I'm a fan of PE and capitalism in general. But when you underinvest in people (case 1: technicians, case 2: partners, case 3: customers), they underinvest back and that hurts your return. And quality people are a scarce resource.