4 Ways Manufacturers Can Meet the Rising Expectations of Private Equity
By James Dorn, President
Given the continued rapid growth pattern of the private equity market (recently reaching a 3-year sum of $608B in capital), it has become even more imperative for manufacturers owned by PE firms to deliver increased value. With this steady stream of capital keeping buyout multiples high, knowing how to generate growth—and the best ways to align your organization’s growth strategies—is critical.
But to create real, sustainable growth, it’s important to first understand where the potential for growth comes from. At Dorn, we try to simplify and streamline the path to growth by starting with rigorously researched data-driven strategies that offer turn-key ease of implementation. To do so, these are the 4 main building blocks we utilize to develop powerful strategies that will boost the confidence of your Board of Directors (BoD).
1. Make Fact-Based Decisions
Building a knowledge-rich fact base is crucial in demonstrating to your BoD that you have done your homework and can make well-informed strategic decisions. Giving them accurate, compelling data and insights will go a long way towards gaining their trust in your corporate strategy.
- Harness intelligence from within: Manufacturers can have intellectual capital splintered throughout various departments and workforce. Survey it completely, organize it, and perform a gap analysis.
- Outside-in perspective: Include insights pertaining to macro trends, market sizing, segmentation, end-users, customers, competitors, channels, product portfolio, infrastructure, and brands.
- Condense your fact base into a single document: Share it with leadership to help them draw new observations and make informed decisions.
- It’s a living document: Continually review your fact base and recalibrate accordingly.
2. Develop a Shared Vision for Growth
Most manufacturers have multiple products and/or service lines, along with multiple customer segments. The more complex your business is, the more important it is that you align your product, marketing, sales teams with ownership. But one of the most difficult challenges a CEO can face is getting ownership and leadership teams to unite around a singular vision for growth.
- Involve your leadership team: As a team, re-establish the purpose of the organization.
- Implement your fact base: Encourage leaders to combine your purpose with your fact base to help them view the organization in more meaningful ways.
- Coach them to be courageous: Discuss new observations and potential strategies as a group. Motivate your team to play less defense and more offense.
- Frame your ideas into hypotheses: Validate the leading hypotheses with feedback from key internal and external stakeholders.
- Be mindful of timelines: Be sure to align organic investment thresholds to ownership’s time horizon for exiting.
3. Align Your Teams Through a Synchronized Go-To-Market Strategy
Once a shared vision for growth is in place, your company’s C-suite is then better positioned to pursue a core growth strategy. This helps to rally daily operations and business development efforts towards organic growth and “right-fit” strategic acquisition targets.
Now it’s time to break the collaborative process down into organizational silos. This is particularly relevant for your revenue-generating functions of product, marketing, and sales. When assessing your product and marketing strategies, begin by asking yourself:
- What is the driving force behind your company culture?
- Are you predominantly a sales-driven company?
- Are you driven by product innovation or production capability?
Be honest in your answers and use them as guides to creating a more customer-driven approach.
From this perspective, your team can:
- Develop integrated strategies to enhance customer value throughout the product, marketing, sales and customer service functions
- Structure your commercial groups to act as peers to one another, helping to elevate the role each function serves in delivering value to customers
- Enable your organization to build competency and expertise within each function
4. Implement Cross-Functional KPIs
Shared key performance indicators (KPIs) are extremely valuable when measuring the effectiveness of single or multiple functional groups. They help create a visual, easy-to-digest common language for your commercial execution team, while also encouraging accountability. Bottom line, KPIs measure how effective your organization is at creating customer value and driving organic growth for the BoD.
- Start with your strategy: Linking your KPIs to your strategy will help identify the questions you need to answer (questions give the KPIs context).
- Identify data needs: Ask yourself what you need to change, tweak, or implement to ensure the data collection is completely aligned with the strategy and will fully answer your questions.
- Communicate KPIs effectively: Avoid excessively long reports; clearly illustrate KPIs with succinct, visual insights so that the data are clear, accessible, and actionable.
With the private equity landscape becoming more and more competitive, PE ownership is demanding greater levels of revenue and profit growth—and within accelerated timeframes. They didn’t purchase your organization to maintain enterprise value; they purchased it for the potential of increased value. Manufacturers owned by PE firms must adjust to these new expectations. Remember:
- Leverage your industry and operational expertise.
- Establish a substantive fact base.
- Plan for strategic growth by developing a shared vision for growth.
- Develop a customer-centric approach.
- Structure your product, marketing, and sales functions to be peers.
- Elevate your commercial execution using modern action plans, systems, and resources.
- Make your teams accountable through shared KPIs.
James Dorn is President of Dorn, where he has helped design innovative growth strategies for numerous manufacturing companies for nearly two decades of Dorn’s 40-year history.
Do you need help meeting the expectations of private equity ownership? Contact us today to learn how Dorn can help: