The world has changed massively in the 30+ years since Private Equity firms were stereotyped as Barbarians at the Gate. Gone are the days of LBO-exclusive deals. Private Equity (PE) firms are now relying on the strategy of ‘Buy & Build’ by creatively bolting acquisitions together in search of value, but those deals are getting to be far and few. Instead, enterprise software-centric PEs are increasingly going beyond quick fix initiatives to leverage multiple value creation levers and capitalize on digital transformation. A growing number are now expanding their ‘Buy and Transform’ focus to accelerate product modernization, invest in product line expansion, and optimize engineering talent for their enterprise software portfolio companies.
To discuss these topics and many others, we recently partnered with Zinnov to hold a Private Equity Leadership Roundtable. We were fortunate to have representation from several top PE firms, a PE advisory company, and a portfolio company as well to add perspective from the entire ecosystem.
The conversation was centred around how can PE firms enable and empower their portfolio companies to develop new, innovative, and effective value creation strategies.
Below are notable takeaways that resonated the most with me during this roundtable:
- Product Roadmap: Moving away from the obligation to say “yes”
There is a misconception that being customer centric means delivering whatever the customer asks for. Sure, this attitude can serve some customers. Yet, it is not serving the larger ecosystem of customers and by extension, the future prospects. Our panel shared how in many cases the best intentions towards customization can actually undermine future roadmaps and saddle the organization with commitments.
To help address this, many companies are harmonizing sales and engineering teams to jointly build a product roadmap while understanding the pros and cons of going after certain features/functions.
- The paradigm is changing from cost control to efficiency
There is a new theme emerging while working with companies at all stages of their lifecycles. What used to be a cost-takeout discussion focused on optimizing financial performance, has changed to an efficiency discussion. And while ‘efficiency’ is just another word the implication is critical.
- Measuring run vs build
It is a common pattern across companies of all sizes to spend far more on run activities than build activities. While there is no shortage on the build pipeline, the problems are the clutter and inefficiencies in a run that is constraining how much money organizations can spend on innovation and growth.
Smart organizations are able to measure their run vs build activities to understand the ratio. They set thresholds and the manage performance rigorously. Through this discipline, they learn how past decisions about areas like product roadmaps and customization can end up hurting your long-term ability to invest in build and innovation.
- Refreshing your talent
Our panel agreed that talent is ascending to be one of the most important growth levers for any organization. While the challenge of accessing quality talent is well known, it can be a mistake to resist change.
Many organizations are afraid to upgrade talent in fear of losing the knowledge base that exists with the current employees. Yet new perspectives are critical for any company seeking to make the leap. We are reminded that refreshing the talent pool can prove a valuable tool to powering through issues that have traditional held the organization back.
- Diversity is no longer optional
Younger generations are defining the next 50 years of business. With growing levels of awareness & sensitivity, this generation will not join organizations that do not look like them or reflect their personal values. As said by one of our panelists, “the days of showing up at new business development pitches with a non-diverse team are over.”
When hiring, it is important to focus on diversity. It’s all about how finding places with the best talent that is also diverse.
The panel predicted that this leaves two kinds of companies – those that are ahead of the curve and those that are caught flat footed.
At Persistent we have a deep commitment to establishing partnerships with PE firms that bring value to their portfolio companies. We regularly work together across areas like product modernization, roadmap development, and talent augmentation to enable value acceleration.
Please don’t hesitate to contact us to learn more or if you would like to join one of our exclusive virtual roundtables.