Maintaining, or returning to, sustainable profitable growth is always a huge challenge for any business, with many of them initiating complex transformation programmes to achieve this goal. Unfortunately, many of these initiatives often fail to deliver the expected benefits. One of the primary reasons for these failures is a lack of attention to the upside sources of value.
To negate this common and often expensive problem, businesses can learn from private equity (PE) investors when planning their transformation initiatives and apply a proven PE approach to delivering outstanding results.
There are many reasons why a PE investor might look to fund a particular business, including the potential for revenue growth and good cash flow generation. However, one of the key factors that drives investment decisions for PE is the potential to extract upside value from a business through affecting operational improvements.
One of my observations is that their model is underpinned by its capacity to identify value upside or the “what to do’s”. This skill helps answer the most important questions for them, namely whether or not they should fund a business and, if so, how much they should pay for it.
Having a focus on these questions that add value and then putting in place an appropriate strategy or programme of change to deliver the value is essential to avoiding transformation failure.
Focus on upside lessons from the private equity