Increased competition for PE deals means you’re paying more. So, as an operating or managing partner with more ground to cover, you feel the pressure. While financial reengineering and operational efficiency plays are still critical, they are not enough to guarantee the desired investment returns. Being able to generate consistent organic revenue growth needs to play a greater role across the lifecycle of an investment.
This is the first of a five-article series that explores this approach, providing actionable insights and advice you can leverage with portfolio companies as part of the value creation plan.
Central to this approach is applying industry-savvy expertise and resources at critical points in the investment lifecycle to maximize growth. It requires an operator mentality and experience that is often difficult to get from management consulting firms like McKinsey or Bain who can show you where to play but lack the hands-on experience to help you win.
Assessing growth potential and understanding how to unlock it in each of the four investment phases below is the key to maximizing growth and value creation. The focus at each phase of the lifecycle is outlined below and then explained in more detail throughout this article.
Each phase requires asking the right questions and a slightly different approach to generating growth grounded in operational reality. We’ll introduce the phases here. But stay tuned for dedicated posts on each phase to follow in the coming weeks.
You need to know up front. An Assessment of Growth Potential answers the important pre-signing questions.
Analogous to a Quality of Earnings Report, an Assessment of Growth Potential tells you if a company has the market and customer insights, talent, processes, programs, and technology necessary to operate a highly functioning growth engine.
The right industry domain expertise applied at this point to generate such a report or its equivalent reveals the size of the opportunity and confirms or invalidates the asking price. Don’t sign without it.
Starting in the right direction saves time and mid-course corrections. You need to clearly identify the low hanging fruit and 4-5 longer-term plays to execute that will drive outsized growth and performance. Getting a jump on your value creation plan becomes a top priority.
The Growth Gears of Insight, Strategy, and Execution applied here mean that you pull the right growth levers to get where you want to go faster.
This is where marketing plays a starring role. From the outset, you need growth experts with relevant industry experience directing the value creation plan, the insights and strategy generated along with the execution of the go-to-market plan
Midway through, you want to re-assess the growth engine at the heart of your value creation plan and fine-tune the roadmap and organization to maintain momentum.
Fixing growth challenges and gap filling take center stage in a somewhat different operating context where the competitive and market dynamics have often changed.
At this point, you need someone who knows how to evolve or redo the product and program innovation roadmap to stay the course or get back to plan. The right talent with an appropriate industry lens will construct the go-to-market efficiency plays that improve margins and boost long-term EBITDA.
The best stories generate the best outcomes at exit. The positioning and narrative you pitch to potential acquirers require skilled preparation. You need to demonstrate that you have a clear growth roadmap as part of the value creation plan.
You want to fine tune your structure while executing efficiency and effectiveness plays.
At the same time, you’ve got to keep the momentum going to make sure the wheels don’t fall off while everyone eyes the exit. And don’t forget about balancing growth investment opportunities relative to the exit timeframe to extract the highest multiple.
The key to generating the desired investment return in the new PE reality is making organic growth central to the value creation plan. A win in the current environment depends on how you think about value creation at the different phases of the investment lifecycle and understanding that the growth levers you're able to pull change over time.
Actions to take now:
Chief Outsiders can help maximize growth at each phase of the investment lifecycle with industry depth, a network of expertise and resources, lifecycle knowledge, and proven connections.
The Tribal Power of such a network combined with an increased focus on growth is up to the challenge. The old playbook of operational, financial reengineering, and efficiency plays alone are not going to get it done.