Cutting Through the Noise to Accelerate Value Creation
Operating partners as value creators
As part of ACG’s Operators’ Summit, Craig Group’s Libby Covington led a session titled ‘Cutting Through the Noise’ with panelists Kamal Advani, Operating Partner at NewSpring, Ellen Kim, Operating Partner at Rotunda Capital, Zorian Rotenberg, Operating Partner, GTM & Revenue Growth at Charlesbank and Prabhu Soundarrajan, Operating Partner at Sound Equity Partners.
In the dynamic world of private equity investments, success hinges on the ability to enhance a portfolio company’s scalability through effective go-to-market strategies and growth initiatives. This process is instrumental in achieving a successful exit.
Covington led panelists in a discussion about some of the key factors that drive value creation in private equity backed companies: recruiting great talent and developing a revenue machine, making the process scalable and having the right go to market metrics. The discussion also touched on how operating partners can best help private equity firms with their acquisitions.
THE ROLE OF THE CHIEF REVENUE OFFICER (CRO) AND THE REVENUE ENGINE
Rotenberg noted that a CRO role should not be confused with the CRO title which extends far beyond being the head of sales. While sales primarily focuses on new customer acquisition and expansion, the CRO is tasked with overseeing the entire revenue life cycle, from marketing and lead generation to pre-sales engineering, customer support, and the operational facets of sales and revenue.
As the chief executive officer of the revenue domain, the CRO is the one who accelerates revenue growth and manages capital efficiently, which becomes especially crucial during periods of economic uncertainty. Leadership also matters when it comes to assembling a high-performing team.
Building a robust revenue engine is a complex process, involving various components, and a skilled CRO understands how to construct this entire system, manipulating different elements across the entire sales and marketing funnel.
ALIGNING SALES AND MARKETING FOR PROFITABLE GROWTH
Soundarrajan underscored the fundamental importance of synergy in sales and marketing which is a must when private equity investments aim for returns that exceed market expectations.
Often, family or founder owned businesses, the primary targets of lower middle market private equity platform investments, lack well-established sales and marketing engines, relying on relationships and references instead.
To address this gap, a process-driven, CRM-supported sales engine, bolstered by marketing leadership is a complement to a company’s existing strengths. There is no honeymoon period in the private equity hold period, so the integration of sales and marketing must start from day one.
Having both sales and marketing reporting to a common authority facilitates alignment, as does operating from the same playbook with shared goals and incentives.
ASSESSING GO-TO-MARKET ACTIVITIES IN DILIGENCE
Advani emphasized a market assessment during the diligence phase of a potential investment that involves in-depth analysis of the addressable market using third-party research, surveys, and industry data to gain insights into market size and growth potential. Product-market fit evaluation focuses on aligning the company’s offerings with customer needs through surveys and feedback to shape product development and positioning.
Moreover, the significance of the value proposition underscores the need for clear and resonant messaging materials aimed at the target customer base while considering competitive positioning. A robust competitor analysis will further inform strategic positioning. Pricing strategies will include examining methodology, competitiveness, and historical pricing changes, along with marketing metrics for efficiency.
Sales organization effectiveness is a key area of focus during diligence. This includes considerations of customer acquisition costs and how scaling will impact these costs.
ENHANCING SCALABILITY FOR A SUCCESSFUL EXIT
Rotenberg breaks the successful exit strategy into five key factors: achieving faster organic growth, ensuring capital efficiency, improving margin expression, facilitating accretive add-on acquisitions, and enabling debt reduction. All these elements work in concert to drive value creation, ultimately impacting the multiple achieved during an exit.
A strong company with compelling products or services and effective go-to-market activities is an important piece of a successful exit. A company’s online reputation is increasingly important too. To articulate a company’s strengths, vision, and potential to potential buyers, leadership will package operating and market data, and actively promote the company’s reputation as a leader in its market.
Kim underscores the importance of laying the groundwork for a replicable and scalable business early on, particularly in lower middle market companies. There is an urgent need for process documentation and system implementation to ensure that the business can absorb growth effectively.
FINAL TAKEAWAYS ON GO-TO-MARKET STRATEGY AND GROWTH
- Identify opportunities for creating alpha within portfolio companies, advising a focus on areas where meaningful contributions can be made while leveraging expertise as necessary.
- Monitor leading indicators, especially at the top of the sales funnel, to proactively address issues and ensure downstream success.
- Where an operating partner exists working with a portfolio company, approach the role of operating partner with empathy, passion, and leadership, understanding the value of building strong, collaborative relationships with portfolio company executives.
- Take time to deeply understand the organization, its culture, and its challenges before implementing significant transformations.
Any good roadmap to create value will include the right team in the right roles as well as process driven strategies for growth and constant analysis of results. Furthermore, a comprehensive value-creation plan should prioritize adaptability, foster a culture of innovation, and stay attuned to market dynamics to ensure sustained success.
For further insights on how private equity-backed businesses can drive revenue growth both quickly and sustainably, visit craiggroup.io.