Private Equity in Aesthetics: Is Bigger Always Better?

Navigating Private Equity in Aesthetics: Staying True to Your Core Values

In today’s aesthetics industry, many business owners are enticed by the growing influence of private equity (PE) firms, a topic discussed in Episode 225 of The Fierce Factor Podcast, “Times Change, Values Don’t”. These firms offer appealing benefits like rapid expansion, financial security, and competitive compensation packages. However, both owners and employees must recognize the long-term implications of such deals, which often bring significant shifts in decision-making, culture, and operational priorities.

For business owners, one of the main temptations of aligning with private equity is the promise of rapid scaling and access to capital. PE firms provide a financial boost that can propel a business to new heights, allowing for expansion, better facilities, and cutting-edge technology. In return, these firms typically require a percentage of ownership, reducing the founder’s control over daily operations and long-term strategy. While this may not seem like a significant trade-off in the beginning, it can lead to challenging decisions down the line, especially if the firm’s objectives clash with the original vision and values of the business.

Beyond ownership concerns, private equity presents a unique challenge to smaller aesthetic and wellness businesses in the area of employee retention. Private equity firms can offer highly competitive salaries, bonuses, and equity shares, which are hard for independent businesses to match financially. For example, one of our clients recently found herself in a difficult situation when her top employee was offered a significantly higher salary and enticing benefits by a PE-backed firm. While the employee was initially drawn to the financial opportunity, the personalized culture of her current opportunity compelled her to recommit to her current position with our client. 

While medical wellness and aesthetics are certainly experiencing a climate shift, I think it’s important to look at all the facts to empower yourself (and your team with the knowledge to make the right moves aligned with personal and professional core values. Let’s have a look: 

Addressing Cultural Shifts and Ownership Concerns

The dilemma for many business owners is how to compete with these financial incentives without sacrificing their core values. PE-backed companies operate on profit-driven models, often leading to cost-cutting measures like layoffs, downsizing, and operational restructuring. As these firms focus on quick returns for their investors, the emphasis on long-term relationships, personalized service, and workplace culture may take a backseat. Employees attracted to the larger paychecks and benefits might find themselves in an impersonal environment where their individual contributions are not as valued as they once were.

For employees, moving to a PE-backed firm might seem like a promising career move, but there are several risks involved. A crucial consideration is the shift in workplace culture, which is often more hierarchical, with less flexibility and personal connection. Decisions are driven primarily by profit, and employees may feel disconnected from the company’s original mission. The emphasis on financial performance also adds stress and can lead to unrealistic expectations that negatively impact work-life balance. Employees may also find that once the PE firm achieves its investment goals, the company is sold again or restructured, putting job security in jeopardy.

There’s also a trade-off between short-term financial gains and long-term career growth. PE-backed firms are primarily focused on scaling quickly to provide maximum returns to investors, often at the expense of fostering a nurturing, long-term career path for employees. The company’s focus shifts from team-building and employee development to meeting quarterly goals, which may stifle creativity and professional growth opportunities for staff members.

Business owners must be aware that partnering with private equity will likely result in major shifts in company culture. PE firms prioritize profitability and scalability, which can lead to operational changes that may not align with the business’s original vision. For example, decisions regarding staffing, client interactions, and even service offerings may be dictated by financial performance rather than client or employee satisfaction.

Additionally, owners may find that they lose some of the autonomy they previously enjoyed in managing their businesses. When PE firms acquire a company, their goal is to maximize returns within a relatively short period, typically through expansion or restructuring. This often leads to decisions that prioritize profit margins over maintaining the company’s original ethos or nurturing its relationships with clients and employees.

The relationship between private equity and aesthetics businesses is further complicated by the rise of larger PE-backed chains that have the resources to dominate the market. These chains can afford to offer higher salaries, bonuses, and more robust benefits packages than smaller businesses, making it difficult for independent owners to retain top talent.

Retaining Employees in a PE-Dominated Market

To compete with PE-backed firms, independent aesthetics and wellness businesses must focus on the unique advantages they offer—namely, a personalized, values-driven company culture. Here are some strategies for business owners to consider:

1. Create Career Development Opportunities: Invest in employee growth by offering continuous training, leadership roles, and mentorship programs. Employees who see a clear path for advancement are more likely to stay loyal, even if their salaries are slightly lower.
2. Cultivate a Positive Workplace Culture: Encourage a culture of collaboration, flexibility, and inclusion. Employees who feel valued and supported in their roles will be less tempted to leave for higher salaries.
3. Offer Non-Financial Perks: Smaller businesses may not be able to compete on salary alone, but they can offer valuable perks like flexible work schedules, professional development, and a better work-life balance. Highlight the personal satisfaction that comes from being part of a mission-driven organization.
4. Foster Strong Relationships: Emphasize the close-knit relationships that often exist in smaller businesses. Employees who feel personally connected to their colleagues, clients, and leadership are more likely to remain loyal to the company.
5. Promote Long-Term Stability: While PE-backed firms may offer immediate financial rewards, independent businesses often provide greater long-term stability and job security. Highlight the benefits of being part of a company that prioritizes steady growth and employee well-being over rapid expansion and profit.

The influence of private equity in the aesthetics industry presents both opportunities and challenges for business owners and employees. While PE firms offer enticing financial rewards and the potential for rapid expansion, they also bring cultural shifts, increased pressure to meet financial goals, and the potential loss of autonomy and personal connection within a business.

For business owners looking to compete with PE-backed firms, it’s essential to focus on the unique strengths of a smaller, independent business—personalized service, a values-driven culture, and a commitment to long-term employee growth and satisfaction. By emphasizing these qualities, aesthetics and wellness businesses can retain top talent, nurture client relationships, and remain competitive in an industry increasingly influenced by private equity.

To further support your journey in optimizing your aesthetic practice, consider joining the POP Leadership Academy. This 12-month business incubator is tailored for female leaders in aesthetics and wellness, offering over 50 business trainings, world-class coaching, and strategic advisory calls. The Academy provides essential tools and community support to elevate your business, focusing on developing a CEO mindset, building a robust brand strategy, and assembling a high-performing team. Learn more and apply today: POP Leadership Academy.

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