June 25, 2024
Josh Belcher

Scaling Portfolio Companies

Seven actions for private equity to better identify partners, navigate growth

The Want: Developing Win-Win Engagements

Businesses that seek private equity clearly understand what’s in it for them in terms of funding, guidance, and becoming part of a successful portfolio. The flipside of this coin is recognizing what private equity needs if a win-win engagement is to occur. 

In addition to identifying right-fit companies for portfolio diversification, minimizing risk by understanding what levers will need to be pulled to activate growth, and properly allocating funding based on that work, become the make-or-break decisions. This also is where friction can enter the equation. To no fault of their own, those in private equity might not be best positioned to recognize the realities and deep nuances of those make-or-break decisions, and that places any perceived win-win engagement into a more risky and precarious position. 

So how does private equity minimize this risk? Let’s start with a simple analogy – if you’re planning to build or grow something great, then bring your best skilled mechanics along for the ride. 

 

A Pragmatic Need: Growth-Driven Partnership

What private equity and venture capital needs, and struggles to identify, is reliable field guidance in the trenches – the kind of trusted partnership that identifies the right work so it receives the right funding, and then gets implemented to perfection to return the desired results. It’s a partnership that understands growing portfolio companies to help them deliver on their promise is what matters most. Even further, the right partner has a diverse and nimble skill set that is in tune with today’s technology-first business landscape. They have proven processes and can repeatedly diagnose problems, develop and deploy hands-on solutions, and deliver outcomes across a diverse portfolio.

 

Stepping Into The Void To Bridge The Gap

We are a growth-minded company. We pilot, practice and improve upon what we preach, meaning we hold the mirror up to ourselves first.

As we work with other growth companies, we approach challenges with a keen awareness of both sides of the growth proposition – the need to improve a company’s margins/ratios while also being strategic in activating a company’s vision both inside and outside of their walls.

Many levers can be pulled in the name of growth. The job is to know which ones to focus on to drive impact, and that’s the work we do extremely well.

 

Scaling The Portfolio: A Growth Checklist

To help private equity navigate portfolio growth, we’ve outlined seven actions to consider when vetting existing companies and prospects, as well as partners who can help scale the portfolio by helping each company realize greater potential.     

  1. Solving vs. showing up. Hundreds of potential partners would love to show up and work on your challenges. But truth be told, they might not solve any of them, let alone realize desired growth. For example, where some companies could have accelerated a mid market growth company to an enterprise-level juggernaut by budgeting for work across 15 portfolio companies, we saw the strategic opportunity and long-term value of consolidating 15 acquisitions into one cohesive brand. Realizing 400+ percent growth since 2020 is the kind of solution we show up for, which helps private equity build an enviable portfolio and esteemed reputation.

  2. Seeking workhorses, not unicorns. We’ve never collaborated with a unicorn company because they don’t exist. Workhorses, however, do exist. Strong, adaptive and resilient, they represent the companies we roll up our sleeves for and do our best work to achieve clearly defined goals and objectives. We also know how to spot the mules, the ones that are stubborn, immovable and growth-stunted. Our experience in discerning one from the other, quickly, determines what can be achieved. Knowing who to hitch your wagon to is important work before the hard work begins, because optics and hype can be deceiving and expensive.
  1. Focusing on fundamentals, then features. Think “cool app” without a practical, repeatable need for using it. This is the distraction-not-disruption fallacy, where makers of digital and tech have a bias for building their cool thing, not the user-centric solution that is better suited for profit and growth. Most problems aren’t feature-focused, they are failures to nail the fundamentals. As we address business case, reason to exist/market need, audience segmentation, UX and more, there’s no feature we can’t improve on in the future. The fundamentals ensure there is a future.   
  1. Building brand resonance to adapt to changing markets.. Nuance. It can be the difference in becoming a beloved brand or another failed startup. Positioning matters, and it can undermine a lot of things if not done well. So when a successful B2B company turned to us with an opportunity to pivot from B2B to B2C by launching a premium CBD brand in an undefined space, egos and B2B expertise took a back seat to get all aspects of the shift right. Everything from naming, packaging, narrative and language, and products and services that speak to an entirely new audience needed a different perspective. At the core, it’s about building a brand that’s built to last. Every company has potential to redefine its brand to better resonate and expand in current or adjacent markets – if they are willing to adapt.   
  1. Assessing organizational health. It’s overlooked, undervalued, and notoriously destructive. Brilliant big-picture founders often lack the basics of standard business operations. Our collaborative work with sister company Several Thousand Alliance assesses leaders and levels up the systems, people and culture to realize a company’s growth potential. Org health might seem secondary in the pursuit of growth, but unhealthy structures that are left undetected or unchallenged lead to self-sabotage and unrealized potential.       
  1. Measuring growth metrics that matter. KPIs. Blue chips. The strategic plan and go-to-market strategy. The jargony business of doing business often stands in the way of intentionally moving the needle. We cut to the chase knowing what moves the interests of private equity: cost to acquire a customer; return on ad spend; lifetime value; profit margins and business expenses. Traction is one step beyond spinning your wheels, and movement alone is not enough. We narrow the gaps and exploit what works well. Some companies will look at and talk around the numbers. We use them to drive what’s next, get to work and earn better results.    
  1. Spotting misguidance: fix what’s broken. Sometimes the hurdle to growth is hiding in plain sight, but you’re too close to the work to see it. Worse, you’re led to believe an area that’s been addressed means it wasn’t at the root of the problem. This boils down to trust – in those who came before and who are on board now – and their ability to identify growth deterrents and either fix, replace, or remove the obstacle so acceleration can happen. In a culture of “move fast, break things” speed only matters when the things don’t break. Partners who can build and repair are positioned to race faster when it counts.  

 

A lot is riding on PE and VC investments. Results can best be earned when it’s a shared endeavor among trusted, hard-working partners, companies and investors who are aligned on outcomes.   

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