Private Equity

Driving Efficient Growth Amidst Volatility

Private Equity is changing their GTM playbook due to market upheaval.

The consensus: efficiency is king right now. Operating and deal partners are looking to strike the right balance of offense and defense to maintain runway and drive topline and EBITDA growth. Working against a recessionary backdrop, several partners spoke with Alexander Group about plans to achieve more efficient growth, changes in the diligence process, and the GTM challenges keeping them up at night.

More Time Spent on GTM During Diligence

With deal volume down and valuations still settling, operating partners are placing a higher level of scrutiny on select GTM levers during diligence. In short, a more focused lens is being applied to revenue growth during due diligence.

While commercial diligence processes remain mostly unaffected, timelines have lengthened due to greater skepticism being applied to certain GTM elements. As PE firms struggle to put limited partner (LP) dollars to work, detailed strategic pricing analyses and revenue deconstruction to identify and validate revenue upside (upsell, cross-sell, new logo, renewal) are increasingly necessary to build buying conviction.

In addition to deeper GTM looks, firms are conducting scenario modeling against various lengths of a recession as they look to stave off any additional risk.

Driving Efficient Growth in the Portfolio

The mantra echoing throughout the PE community is, “It’s no longer growth at all costs.” In most cases, focus now rests on driving efficient growth vs. increased capacity.

How can we do more with the same or less? Operating partners and management teams are working hard to determine which customer/revenue/product segments to invest in and which to cover programmatically. More specifically, as one partner indicated, the objective is to clearly define focus segments and drive account executives (AEs) to self-generate more pipeline vs. relying on marketing spend to do so. The ensuing work is around adjusting sales processes and coverage models, driving productivity, nailing the right headcount and roles, and realigning resources and incentives.

Some companies experiencing tailwinds are rightfully being encouraged to stay aggressive and grab market share, albeit with a watchful eye on profitable growth.

While buyers are planning conservatively for next year, operating partners are still encouraging companies to find creative ways to drive top of funnel activities and new logo acquisition. Worries around SMB/mid-market degradation and enterprise account spend reduction are justified, but companies that fully recede risk losing share. Operating partners are focused on challenges related to 1) maintaining a quality demand stimulation engine, and 2) delivering value propositions aligned to customer segments that clearly articulate ROI.

Other GTM challenges compounded by current macroeconomic conditions include finding and retaining sales talent, battling longer sales cycles, and shifting from farming to hunting motions.

Will GTM Become More Important Over the Next Year?

Unsurprisingly, the answer to this question is situational.

For PE firms that have an established culture around the value of GTM, little has changed. As one operating partner put it, “Anyone who thought they can simply grow through M&A in high-multiple environments before the macroenvironment changed probably didn’t understand Total Enterprise Value or assumed the next buyer would overpay.”

And, while efficiency is king now, companies should look to grab share from competitors and be creative about penetrating underserved segments.

For firms somewhat new to embracing GTM as a core value, it’s a critical time to evangelize its importance. Underwriting GTM is a tough sell under current market conditions (vs. financial engineering) so driving GTM understanding is important. While finance and accounting are undisputedly central to battling through the downturn, putting sales and marketing in hibernation mode is extremely risky.

2023 GTM Operating Partner Research

As operating partners seek relevant insights, Alexander Group will launch its 2023 GTM Operating Partner Study to explore leading practices from around the PE community on key GTM levers, efficiency drivers, commercial diligence and value creation best practices, and sector specific GTM performance and productivity benchmarks. Contact Alexander Group’s Private Equity practice to learn more about the study and to share which insights, topics or benchmarks you’d like to see captured.

Not What You Were Looking For? Explore More…

Private Equity Insights

Private Equity Practice

PE Insiders Council

Recommended Insights:

Article: Priority Initiatives for Portfolio Company Optimization

Article: Macroeconomic Factors – Observations & Predictions

Back to Top