Roll Up Your Sleeves and Improve Commercial Operations

A recent article published in The Economist, “Welcome to a New, Humbler Private-Equity Industry,” says that the new phase in private equity, “…favours investors willing to roll up their sleeves and improve operations.”

Those operations include Commercial―Marketing, Sales and Post-Sales―functions accountable for delivering profitable, organic, top-line growth.

Alexander Group’s Private Equity community is on trend as cited. They are honing their commercial value creation playbooks and collaborating with management teams to pull levers that drive profitable, organic growth.

Four Areas of Focus

Profitable, organic, top-line growth requires more than hiring the right number of quota-carrying salespeople. Sure, you can assign a number to them, put a good percentage of their pay at risk, and let them sink or swim, but all you will get are near-term results. For lasting value, you must install or improve foundational commercial operations.

Alexander Group observes that private equity firms most commonly collaborate with their management teams on (4) areas of commercial operations―pricing, segmentation, demand stimulation and enablement. Build baseline pricing capabilities, point the organization to the best customers, demonstrate an ability to predictably drive funnel and actively enable marketing, sales and post-sales teams.

1) Pricing

Of all the commercial value creation plays, none is more popular (or concrete) as pricing. Few companies have mature pricing strategies, operations and discipline. Installing foundational capabilities and acting on near-term opportunities, while difficult, creates consequential value, especially when actioned early in the hold.

Conduct quick-hit 4–6-week assessments. Understand historic practices and competitive benchmarks. Work with management to break customers into pricing cohorts and size opportunities at the account level. Find margin leaks rooted in discounting and contracting practices. Work with the business to move from cost+ to value-based models. Gain alignment on roadmaps and work with the business on enablement including messaging and training. Set up monitoring systems and emphasize pull-through. Make pricing part of the annual planning and operating model.

2) Segmentation

Arguably the most foundational commercial value creation play is segmentation. Businesses rarely have their marketing, sales and post-sales teams effectively oriented around the end markets and customers that optimize returns. Often management has yet to appreciate the impact of rationalizing their customer or prospect universe.

Work with your management teams to identify the segments with the (1) most attractive unit economics, (2) largest growth opportunity, and (3) where they have the strongest right to win. The intersection of these three elements is where the company should deploy commercial resources. Anchor the business to this foundational framework. Encourage management to leverage segmentation when developing growth strategy, planning and making in-year decisions.

3) Demand Stimulation

Nothing happens until a business acquires a customer. Some businesses are product led―they have a better mousetrap. Others are riding a market wave―they are in the right place at the right time. Even if your portfolio company is in one of these fortunate positions, there is still value to be created by installing the ability to predictably drive top-of-the-funnel activities.

This is not big “M” marketing. These are the daily, weekly, monthly tactics. A sustainable top-of-the-funnel requires hiring the right people, developing process, harnessing data and installing technology comprising the lead generation flywheel. Bring on experienced leadership―not a CMO but often an emerging leader who has “been there and done that.” Identify an agency partner and specialists (e.g., social, content, events). Deploy a balanced mix. Leverage multiple channels. Use data and tools, and lead nurturing headcount to feed sales with a steady stream of opportunities. Closely monitor performance and redeploy with agility.

4) Enablement

Getting predictable returns from marketing, sales and post-sales investments requires baseline people, processes, data and technology. A Revenue Operations function is needed to establish and governance planning, forecasting, pipeline, proposal development, contracting, reporting, goal setting, CRM maintenance and others.

Bring on experienced leadership to stand up these capabilities. Charter them by instilling a culture of visibility, accountability and continuous productivity improvement. Scope and fund a multi-year roadmap to install critical capabilities. Focus on the basics, and do not be distracted by advanced tools and technology or initiatives that do drive demonstrable productivity.

There will be further opportunities to accelerate profitable organic growth throughout the hold. You will identify opportunities to improve marketing ROI, address lagging funnel metrics, drive cross-sell, build a channel organization, right size quota carrying headcount and territories, adopt customer success plays, accelerate new hire ramp, tune incentive plans, optimize internal processes and more.

These bespoke plays are important and will assuredly create demonstrable value and drive the desired exit multiple. None will be more foundational or impactful than acting on pricing, segmentation, demand stimulation and enablement opportunities.