But this over-heated market is driving up prices, forcing deal teams and operating partners to bring a much stronger go-to-market (GTM) lens to sourcing, diligence and value creation. Simply said, the traditional PE valuation drivers of cost reduction, add-on consolidation and pricing optimization are no longer enough to drive valuation growth and a strong exit.
Based on our work driving growth and valuation with hundreds of companies, the key GTM levers that need to be pulled in 2021 include:
PE firms are learning that driving sustained GTM change is often more challenging than optimizing costs or pricing. It requires realigning sales roles, process, territories, metrics, coaching and compensation as well as organizational culture. Slow adoption and missing segment-penetration opportunities won’t cut it in a four- to five-year hold. PE firms and portfolio company (portco) leaders are learning that they have to proactively tackle legacy comfort zones, relationship management cultures, land-lording and risk avoidance.
This is mission-critical for leading PE firms today. Recent Alexander Group research shows that only about 20% of PE firms surveyed are highly confident that portcos will adopt the necessary new GTM approaches. Moreover, those deal partners whose teams can drive GTM change management can now bid aggressively to win the key deals in this overheated market.
Key to this new PE skill set is not just the fundamental GTM levers discussed above (e.g., inside sales, digitalization, lead generation, cross-selling, etc.) but also implementation support. Specifically, PEs need to help portco leaders drive and sustain GTM change by:
Portco leaders are comfortable with the approach and tactics used to reach this point, but they are less confident with the necessary new GTM strategies. PE firms should help them align leadership messaging around new GTM goals as mixed signals often set back rep adoption and growth ramp-up. Indeed, showing sales reps why the company is changing and how to succeed in the new model are crucial. Based on Alexander Group experience as a frequent partner for over-tasked portco leaders, they need help to become the face of change, overseeing the change adoption, key metrics and issues that arise.
Portcos that successfully incorporate new GTM strategies use strong performance data to reinforce roles and accountability. They also use metrics for on-going learning and change and to align behaviors. Therefore, PE teams today must push early to create a metrics-based understanding of the current gaps vs. the growth thesis. Waiting until year two to clearly track GTM change is a recipe for either stalled growth or running the old model too hot. The smart play is to use the VCP to create strong line of sight and accountability between GTM growth levers, sales behaviors and leading indicators. Then it’s key to drive sustained dialog around those key metrics so that learnings and challenges are addressed early.
Let’s face it, reps won’t fund the necessary GTM changes from their own pockets. So, they need to see that the new behaviors are providing a superior Expected Value (EV) for them relative to their legacy sales process. Per Alexander Group research, reps tend to assign new selling models an EV equal to only 35-40% of their traditional approach. Why? “Growth selling” often has a longer sales cycle and lower hit rates, and it can disrupt buyer relationships. To get sales reps on board, PEs must help ensure that compensation carrots and sticks tie directly to new GTM strategies (i.e., a rep can’t just keep making a great living doing business as usual). Also, deploying new subject matter experts and sales support resources can help mitigate the risk to reps and accelerate adoption. Seller playbooks, team meetings and 1-on-1 coaching should be orchestrated to speed adoption and growth.
Alexander Group’s PE GTM Insiders Council provides an outlet to discuss the key GTM challenges and imperatives facing PE leaders and their portcos. These exclusive, invitation-only, think-tank events are held virtually throughout the year. Participants receive knowledge on best practices, pitfalls and challenges within industries like tech/SW/SaaS, business services, healthcare, life sciences, manufacturing, distribution and media. To learn about the PE GTM Insiders Council or to sign up for a briefing on Alexander Group’s latest research and benchmarks, please contact us today.