Private equity (PE) leaders are a sharp bunch. We rely on our analytical prowess, our ability to grow businesses, and our drive to create value in our portfolios. To accomplish these goals, we inherently understand the power of information and seek data to inform critical decisions within our own organizations.
To that end, many PE firms use an analytics approach that involves a lot of spreadsheets, a lot of manual data entry, and a lot of ad-hoc analysis.
At the portfolio company (PortCo) level, there’s a massive spectrum of data maturity. Some PortCos don’t do much with data, some run traditional data warehouse environments, and some transform their entire go to market with advanced AI and data science. Regardless of where they fall on the maturity spectrum, PortCos commonly create value by capitalizing on data to drive growth.
Maybe it’s time to evolve this approach; to revisit our data-driven decision-making and to create value more optimally across a portfolio.
What if we could bring data-driven clarity to an entire portfolio with an approach that supports each PortCo’s individual success while also strengthening the whole? Perhaps creating a domino effect?
The data useability challenge
PortCo leadership is often missing key pieces of the puzzle. They helm organizations that have grown quickly through acquisition, but full integration of acquired data and systems takes more time. They feel the market changing but don’t have any data behind how, why, and where.
How does a PE firm find the data to account for these missing pieces? Can they facilitate data-centric value creation within one PortCo while simultaneously helping sister organizations? Can they create a tide that raises all ships and, to get possibly too heavy on the metaphors here, knocks down the first domino?
The data aggregation challenge
PE firms often don’t have direct visibility into the granular data that drives each PortCo. It makes sense: Everyone’s busy, and nobody wants to be micromanaged. But the current state leaves them striving to support PortCo leadership navigating a complex landscape without a detailed map.
External operating partners contend with this inherent reality on a daily basis. Can we bridge that gap strategically without coming across as intrusive?
The first domino
Consider this: What if a private equity firm made a targeted investment in a robust data platform within one of its portfolio companies? Just one.
The intent isn’t to impose firm-level mandates or create cumbersome reporting structures. Instead, the goal is to empower that single PortCo with the tools to drive topline, operate more efficiently, manage costs, and make smarter forward-looking decisions.
Next-generation tools can help achieve a variety of goals such as:
- Forecasting revenue growth via a combination of backlog, company historical trends, and macroeconomic insights
- Gaining visibility across ERPs without the cost of a full-blown ERP consolidation effort
- Optimizing resource allocations and staffing to streamline operations
- Driving customer retention through improved data-driven customer experience
- Highlighting new market gaps and opportunities to inform next moves
- Dynamically pricing to optimize revenue, growth, and win rates
The domino effect in action
As that initial PortCo begins to use its enhanced data capabilities, the positive impact on valuation will become evident. This success story can then serve as a blueprint, demonstrating the tangible benefits of data-driven operations to the next PortCo. And the next. And the next. Until each domino falls, and the entire portfolio has these capabilities.
As the dominos fall, incremental cost decreases while incremental ROI increases. Data assets created within a PortCo become directly applicable to another PortCo. Frameworks and codebases built with extensibility in mind can be deployed into another company.
This approach works because (taking us back to that metaphor of a rising tide lifting all boats) it showcases a winning strategy in action while benefiting peers.
Building trust while solving the data aggregation problem
Investments to solve the data useability challenge within a PortCo then yield valuable insights for the PE firm itself, equipping it to partner more effectively in driving valuation.
The PE firm can even configure PortCo analytics to enable visibility into metrics that enable this effective partnership. Start small—simple and straightforward—to validate the premise, then build on that trust as new opportunities for partnership emerge.
Without crossing operational boundaries, PE firms gain a clearer understanding of the landscape. This firsthand experience informs future investment decisions and provides a more nuanced perspective on the operational levers within the portfolio.
The data maturity of it all
A PortCo’s data maturity level dictates the effectiveness of this approach.
Recognizing where each PortCo lies on the data maturity spectrum is paramount to successful value creation. Meet the PortCo where they are, add value, and leverage that to add more value to the next PortCo.
Keep an eye out for our private equity data maturity model guide to drive right-sized value creation, coming Wednesday. Here are a few things to consider in the meantime.
Data-driven value creation
A successful data program influences value drivers:
- Improves topline revenue
- Decreases costs
- Provides operational efficiency
- Improves employee experience
- Supports M&A strategy
- Drives sell-side valuation
A great data program is a win-win-win that creates value at the PortCo, across the portfolio, and for the PE firm.
By strategically investing in data at the PortCo level, private equity firms can empower their holdings to reach new heights, building a ripple effect of growth and insights ultimately benefitting the entire fund.
Make that first investment and experience the domino effect.
This is just the beginning of the conversation. Let’s connect to discuss portfolio-wide value creation through data.
Book a free 30-minute consultation with me.
