Lessons From Private Equity Any Company Can Use

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Roam capture metadata — Author: Orit Gadiesh Hugh MacArthur · Reading Status: Books Read · Source: https://medium.com/@kwharrison13/2018-in-books-part-i-7d3590e7f5e8 · Recommended By: Cicero Group · Tags: #Books

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  • “The private equity lens and its defined investment horizon merely provide the clearest view of how these lessons work. But to effect any transformation in your business, you have to be willing to challenge people in your organization and probably your board, and let them challenge you — all with the imperative of focusing your organization maniacally, relentlessly, and zealously on results. This is accomplished through a rigorous application of six main lessons:
  • 1. Define the full potential: The target is increased equity value — how to turn $1 of equity value today into $3, $4, or $5 tomorrow. Strategic due diligence is the way to set the number, and growing cash flow by pursuing a few core initiatives is the way to get there.
  • 2. Develop the blueprint: The blueprint is the road map for reaching your full potential — the who, what, where, when, and how. It zeroes in on the few core initiatives and delineates a step-by-step plan to turn them into results. The emphasis is on measurable action.
  • 3. Accelerate performance: This involves molding the organization to the blueprint, matching talent to key initiatives, and getting people to own them. It also involves creating a rigorous program to achieve your ends — one that combines tools, discipline, and the monitoring of a few key metrics.
  • 4. Harness the talent: This requires creating the right incentives to recruit, retain, and motivate your best talent — and get them to think and act like owners. It also requires assembling a decisive and efficient board.
  • 5. Make equity sweat: The challenge is to embrace LBO economics. This calls for managing working capital aggressively, disciplining capital expenditures, and working the balance sheet hard.
  • 6. Foster a results-oriented mind-set: The goal is to inculcate PE disciplines so that they become part of the company’s culture and create a repeatable formula for achieving results.
  • “They have a special room where they have all their performance data on the wall, and for fifteen to twenty minutes they go through their own performance, and they decide what they have to do in order to improve. The fact that they have to decide counts.”
  • “PE firms for the most part don’t run companies. They don’t want to run them, and will be the first to tell you that they wouldn’t do a very good job if they did run them. The best PE firms simply want to ensure that management is positioned for success. They are there, with internal and external resources, to help management deliver on its blueprint.”
  • “[PE firms] seek managers who, however experienced, are hungry for success, are willing to put their own financial upside at risk, and relish the challenge of transforming a company.”