Demand for proven operators has never been higher. The firms that win the next decade will be the ones that develop more of them.
Every firm in the lower middle market is trying to hire the same few hundred people. The executives who have already run an investor-backed company, already answered to a board, already carried a business through to a successful exit form a small bench, and it is not getting bigger.
The numbers bear this out. In the U.S., roughly three-quarters of sitting CEOs and CFOs at investor-backed companies previously held a leadership role at a similar business. Experience begets the next seat, which is rational hiring, but it also means the industry keeps drawing from one pool. Recruiting from that pool, however well executed, does not add a single operator to it. Meanwhile, leadership has moved to the top of the value-creation agenda: when executives across the investment world rank their priorities, leadership now comes first by a wide margin, cited well ahead of efficiency, growth initiatives, or add-on acquisitions. Demand is rising. Supply is not.
Which is why the more interesting question is not “how do we recruit great CEOs?” It is “where do CEOs actually come from?” And the answer creates a real opportunity for the firms willing to act on it: don’t just draw from the pool. Add to it.
The experience paradox
Every growing company wants a leader with pattern recognition. Very few are positioned to give a rising leader the reps it takes to develop it. Call it the experience paradox: the market demands executives who have already done it, yet somewhere, someone had to give every one of those executives their first real shot.
The lower middle market turns out to be uniquely suited to solving this paradox. The companies here are often founder-built, family-run businesses coming together and professionalizing for the first time. They don’t need a caretaker executive. They need someone who can build the machine while operating it: installing systems, integrating acquisitions, and earning the trust of founders who have spent twenty or thirty years in the industry, all at the same time.
That environment, the one that looks most demanding on paper, may be the best classroom anywhere for producing the next generation of CEOs. The work is unavoidably general-management work. There is no layer of corporate infrastructure to hide behind and no strategy department to hand the plan to. The distance between a decision and its consequence is measured in weeks.
A rising leader inside a microcap company will touch pricing, operations, hiring, integration, and board communication in a single quarter. A peer at a Fortune 500 company might wait fifteen years for that kind of exposure.
In short, the lower middle market holds a leadership production advantage. Capturing it takes deliberate design.
What building actually requires
Deliberate is the operative word, because dropping smart people into hard jobs is not a development strategy. It’s a stress test. Research on leadership pipelines is consistent on this point: development compounds when it is tied directly to business strategy, when potential is assessed separately from readiness, and when rising leaders get real responsibility with real support rather than symbolic rotations.
In practice, solving the experience paradox requires three conditions.
Ambiguity with accountability. The developmental role has to be genuinely undefined, broad enough that the person must find the messiest problems and claim them, yet accountable enough that results are visible. On a recent episode of our Bigger Stronger Faster podcast, Owen Miller, who joined the packaging distributor 360Pack in its first year through Shore’s CXO Fellows Program and now runs the company as CEO, described the role’s ambiguity as the entire point: a chief-of-staff seat inside a company still writing its own playbook, where the job is to build trust and capability without waiting for formal authority.
Proximity to experience, not a substitute for it. Young leaders don’t need to out-know the founders in the room. They need to sit close enough to absorb decades of judgment while contributing something the veterans don’t have, whether that’s command of the data, fluency in the systems, or a fresh read on the market. The founder’s thirty years can’t be replicated, but they can be borrowed, and preparation plus hard work covers the remaining distance far faster than a resume would suggest.
A network that outlives the role. The most underrated feature of any leadership program is the cohort. Peers who go through the same fire become a permanent advisory bench, a group of operators who share what worked, what failed, and which tools to skip. That network keeps paying off long after the formal program ends, and it’s a big part of why built talent tends to stay in the ecosystem instead of churning out of it.
The case for building
Building doesn’t replace hiring. Seasoned executives will always anchor leadership teams, and the strongest organizations do both well. But run the economics of building forward and the advantages compound.
A firm that develops its own operators is creating a proprietary talent pool in a market where leadership is the top value-creation lever. Leaders grown inside the model arrive already fluent in it, so companies get momentum from day one instead of a learning curve. And the ecosystem gains something no search fee can buy: executives whose loyalty runs to the community that made them, who mentor the next cohort, and who occasionally, as Miller’s five-year path from fellow to CEO shows, compress a twenty-year leadership arc into a single fund cycle.
Firms that ask “who can we hire?” are competing in an auction. Firms that also ask “who can we build?” are compounding an asset, and expanding the bench for everyone.
In a market where proven operators are the scarcest input to company-building, the answer to where CEOs come from is a choice each firm makes. Ours is to make them.