Is it time for your company to see the doctor?
Value Creation Plan Newsletter #103
Hearing someone say "you should see a doctor and get that checked" can be unsettling, but it can also save your life. The same goes for your company when you notice clear symptoms of things going wrong.
In my last posts, I wrote about the $3.2 trillion Private Equity traffic jam and the 5 types of people you meet in a a typical PE deal.
It is now clear that the longer holding periods due to higher interest rates are putting enormous pressure on portfolio companies ahead of what will likely be a hyper-competitive exit environment.
What happens when you are 3-5 years into an investment and the world looks very different than it did on day one with no exit in sight? Maybe you've hit some unexpected headwinds or uncovered new growth opportunities. Whatever the reason, there comes a point in most PE deals where you need to ask: is it time to see the doctor?
There are telltale signs that it might be time to refresh your value creation plan, particularly for companies that should be successful but struggle to execute. You might recognise some of these symptoms:
Lack of clarity in priorities and incoherent decision-making
Consistently missing budget or falling behind plan
Initiatives not delivering the expected ROI or losing steam
Significant leadership turnover or constant changes to the org structure
Primary value creation levers have played out, and you need to find new ones
If you have any (or most!) of these symptoms, it's time to review your value creation plan.
While it will be very tempting to start that review by looking at changes in market dynamics, pricing, competitors, and other external factors, it is far more insightful to start the analysis looking at the “health” inside the company.
I recommend a "check-up" diagnosis to review execution to date. Do this jointly as a team, to understand that company “health” and ability to delivery on the current value creation plan, or future value creation plan.. or frankly any plan.
Here is a simple list of 5 questions that I like to use as starting point:
1. Do we have a clear strategy with hard choices? Specifically, is the strategy explicit about what the company WILL and WILL NOT pursue? Bonus points if you can provide examples of initiatives that were shut down because they didn't fit the strategy.
2. Do we have a shared understanding of the business model and unit economics? Specifically, what percentage of the direct reports to the executive team understand profitability at the product level and the unit economics behind that profitability so that they can make informed decisions? Bonus points if the whole executive team understands this.
3. Do we have a budget that fully reflects the priorities we often talk about as a team? In other words, are we putting our budget where our mouth is? Bonus points if the money and headcount assigned to priorities are higher than for business as usual.
4. Do we know who is in charge of execution for each priority initiative? For starters, check that you have the two key names for each: who is accountable (owns the ultimate decision) and who is responsible (does the actual work).
5. Do we listen enough? How often does the executive team listen to help desk calls or read customer feedback? A culture that welcomes internal and external input will adapt faster.
This checklist is a good place to start. It will give you a quick diagnosis.
If you successfully pass the "check-up” below, it is then easier to change the value creation plan with the confidence of a healthy organisation that will adapt and deliver it.
What would be on your checklist to assess your company’s health?
I would love to hear your perspective,
Juan Lopez-Valcarcel