The macroeconomic environment has altered the priorities for many private equity firms. The level of investment caution has increased due to economic uncertainty, inflation and rising interest rates. The focus on commercial diligence and value creation has now shifted to optimizing portfolio companies’ go-to-market (GTM) performance.
Through ongoing research and client work, Alexander Group has identified five priority initiatives for PE firms to focus on for portfolio optimization:
Alexander Group benchmarks show that the cost of commercial labor is up 10-20% across marketing, sales and service. Most companies cannot afford to take this hit across all functional areas. Companies must identify critical roles and take the pay hit there, while deploying creative, scalable solutions more broadly.
An application software company prioritized their investment in the marketing leadership roles needed to install foundational awareness and demand stimulation capabilities. Rather than hiring the now very expensive chief marketing officer the firm had been targeting, the Board chose to invest in a high energy, mid-career leader to manage agency relationships, tackle immediate brand and positioning opportunities and stand-up a performance marketing team.
In recent months, Alexander Group has seen a wave of pricing projects. PE firms are working closely with their portfolio companies to audit pricing strategy, identify near-term opportunities to stay ahead of inflation, take price and install the discipline needed to ensure the sales pull through.
After ignoring price strategy for years as they successfully deployed a new M&A strategy, a healthcare services company realized the need to prioritize a new pricing model. The goal was to look across the combined business, rationalize methodologies and surgically increase price in parts of the product portfolio and customer population with the least elasticity (i.e., where demand would not fall).
While many core markets may seem stagnant or declining growth, some segments are more attractive. Operating teams are working with management to understand market and buyer dynamics and target those growth sectors still deserving investment. They are refining their positioning and GTM models where the company has the greatest opportunity to win today.
A healthcare company refined their segmentation model to focus marketing and sales investments on a narrow list of enterprise opportunities. They deployed their strongest resources against those key enterprise opportunities and focused a separate team on the core business. Refocusing resources smartly allow them to do this without significantly increasing sales costs. To support the shift, they also refined their lead generation approach, sales enablement and select operational processes.
Agility is only possible if ownership and management have line of sight into the levers that drive the business. As a result, PE operations teams are working with portfolio company revenue operations to ensure ownership and make certain that executives have insight to make quick, data-driven decisions. As the market shifts, they are focused on resetting hiring, ramping, turnover and productivity assumptions. Simultaneously, they are conducting pipeline, win-loss and forecasting analysis more frequently.
Based on their declining core buyer group, a manufacturing company was focused on diversifying its customer base and installing a scalable sales and service structure. After a review of how their commercial model needed to be modified to align to new segments and buyers, the management team shifted into deployment planning. By recalibrating the specific tactical pieces of headcount, sizing and territories, they were able to cover the new growth segments without raising overall costs as a percentage of revenue.
As companies prepare for a tougher marketplace, PE operations teams are helping management build out the underlying operational capabilities that allow portfolio companies to scale and weather the storm. These processes provide the data to make quick decisions, the support to improve scale and productivity, the tools to enhance productivity and planning, and the tactical execution oversight to ensure the ROI on sales resources and models. Key processes that will determine success in the year ahead include lead generation, buyer nurturing, sales collaboration, solution adoption, expansion selling, sales resource onboarding, reporting, quota setting and compensation planning.
A tech-enabled service organization was challenged with aligning marketing and sales with declining demand levels from core customers. The pipeline was robust but filled with opportunities that were not viewed as “sellable” or were low quality. As a result, the team reengineered the lead scoring and qualification process, while optimizing the use of foundational workflow tools. Marketing mix and second half of the year campaign programming was shifted to align to new quality and lead type objectives. The new process improved yield by 15%+.
PE firms are working diligently to get their portfolio companies ready for the tougher period ahead. As deal volumes and velocity cool, PE is focusing less on commercial diligence consulting and more on projects optimizing portco GTM models. Focusing on the five priorities—leadership and talent; pricing; growth segments; commercial modeling; and process excellence—can help PE firms deploy GTM best practices to drive growth now and in throughout the coming year.
Contact an Alexander Group Private Equity practice leader to learn how we can help your firm.