Private Equity (PE) Firms are failing to optimize their sales teams from the very beginning of ownership.
It seems that PE Firms fail to grasp that the Net Present Value (NPV) of every acquired portfolio company is a DIRECT REFLECTION of the quality of their sales talent - both salespeople and sales management.
Objectively-measure sales talent potential.
Every portfolio company sales team should be measured to provide the appropriate catlayst to allocated resources to address deficiencies.
What gets measured gets improved.
PE Firms have a reputation of swift business model optimization which translates into often very high shareholder returns.
As of 2016, the average holding period for North America was 6.0 years (source: Preqin Private Equity Online).
HBR's September 2007 article, The Strategic Secret of Private Equity, describes what a PE Firm does best:
"The fundamental reason behind private equity’s growth and high rates of return is something that has received little attention, perhaps because it’s so obvious: the firms’ standard practice of buying businesses and then, after steering them through a transition of rapid performance improvement, selling them."
PE Firms quickly achieve this performance improvement by making the difficult decisions that probably should have been made under prior ownership years prior.
I have yet to engage a PE Firm that had a centralized sales talent optimization strategy.
I have yet to engage a PE Firm that had a centralized, objective, accurate understanding regarding the quality of their sales talent and sales management capacity for each portfolio company.
If you know of a PE Firm that has sales talent management strategy nailed down, I would love to hear from you.
Instead, it appears that PE Firms use the following sales improvement playbook:
This playbook is allowed to played without intervention until some deficiency inevitably shows its ugly head requiring intervention.
Improvement of the sales team should never be an intervention, but rather a strategy.
In accounting there is a standard called GAAP (generally accepted accounting principles). GAAP is a standard of commonly-followed accounting rules for financial reporting.
All competent accountants are familiar with and follow GAAP. If they do not, they get to work at McDonalds.
GAAP enables a true "apples-to-apples" comparison of financial performance between companies and make it easy to compare a business model's performance to their industry.
PE Firms must do with sales talent what accounting has done via GAAP.
If maximization of shareholder value is truly the primary objectdive, then PE Firms must standardize the objective measure of each portfolio company's sales talent and sales management capacity. And they must do this centrally.
Without a central, objective measurement of the sales capacity of each portfolio company, PE Firms will leave serious shareholder return to be achieved by a future owner.
PE Firms can use the acceleration of their sales talent to accelerate sales (shareholder value) by implementing the following six key recommendations:
Why centralize sales talent inventory, job benchmarking, optimization and accountability?
Why make this the previously-mentioned recommendations the standard?
For the following simple reasons.
Fact. The sales management and Human Resources of a portfolio company are never going to match the objectivity nor the experience essential that a PE Firm HQ will in analyzing / optimizing multiple sales teams.
It is essential that sales talent optimization be a centralized, automated strategy at the PE Firm level.
The aforementioned strategy is one that can be a significant game changer for early adopters.
Right now is the best time to proceed. Got questions - give us a call.
Then act like how a PE Firm should act.
Reread what I shared previously:
"PE Firms quickly achieve this performance improvement by making the difficult decisions that probably should have been made under prior ownership years prior."
Get on the leading edge of change. Do not wait for a PE Firm to buy your business or the company you work for to make the changes necessary to thrive. Survival is not enough.
Improve your sales hiring, sales systems and sales culture.
Don't just adopt change; make change happen.
Get in front of change because it sure as hell is a LOT more fun leading change than becoming a victim of it.
Take the advice I just mentioned. Improve your sales team's performance by becoming aware of each salesperson's true sales potential. This advice has the power to dramatically accelerate your career and net worth like no other.