One of the most important recent trends is the accelerated interest and involvement of private equity investors in distribution and related manufacturing businesses. Your opinion of this trend, your involvement with or lack thereof is not as important as whether you take lessons from these investors to further your own business’s success.
In this article, I will discuss a useful approach, the Private Equity Investor Framework, which will help you think like an investor to improve and grow your business. You don’t have to be a trained financial professional to use and apply it.
As a distributor, we are successful because of our singular focus on our products and services. Sometimes, however, we are too focused. We are just too close to it. But when added to the other factors we use to analyze, run and make decisions about our businesses, this model provides another dimension to our decision-making process and may give us a competitive advantage in the marketplace.
So what exactly is the Private Equity Investor Framework, or PEIF? Private equity investors are all about using best-practice, proven roadmaps to build success. Why? They want to sell the investment and cash out at some point down the road.
This framework is a way of thinking, a discipline and a decision-making tool based on the following major elements (including but not limited to):
- Additional Value Creation, or AVC. It is about more than just improving profitability.
- Thinking of your company as an “investment portfolio.”
- Trend analysis: The trend is your friend.
- The thoughtful, bold move.
- Impact, and not just making noise.
- Diversity: Mitigating risk and realizing the potential of core competencies.
- EBITDA multiple expansion as a key performance measure.
You may be reading this saying: “This doesn’t apply to me,” or “I’m not selling my business anytime soon.” Or you may be thinking: “I get numerous calls from PE firms, and most have not impressed me much.”
I submit that the Private Equity Investor Framework is every bit as relevant as anything else you do if:
- You are committed to profitable growth.
- You are committed to taking market share away from your competitors.
- You are committed to executing and achieving top-tier performance results.
You have more in common with investors than you may think. Both you and the private equity investor are about making successful business decisions in an environment fraught with volatile dynamics and uncertainty. And both of you know having more options is better when it comes to your business’ growth.
This model is about way more than just selling a business.
Below are some of the growth strategies you might be reviewing right now:
- Acquisitions, including smaller local opportunities to access new channels
- Succession planning and execution
- Organic growth, taking advantage of unrealized opportunities
- ESOP ownership
- Selling parts of the business
- Entering new channels and making convergence work for you
- Joint Ventures, product franchises and other collaboration opportunities
- Selling more services
- Website upgrades
- Supplier relationship innovations
The future of your business will be determined by the actions you choose, but also how you respond to new technology, economic up- or downturns, new or aggressive competitors, nontraditional market entrants and changes in your company’s makeup.
Thinking like a private equity investor gives you the ability to generate more options for growth. And having more options is the one certainty that enables you to gain an edge despite uncertain conditions.
In my subsequent blogs on this subject, I will explore in more detail the most important elements of the Private Equity Investment Framework, starting with Additional Value Creation, or AVC.