Creating Value Through Commercial Excellence

I have had the opportunity to work in PE portfolio companies for many years. For those of you with similar experience, you know that there is always a focus on improving operations, and by that, I mean delivery, development, etc. It makes sense because cost reduction is straightforward, and the results are front and center. Less popular is investing in commercial capabilities, although studies show a 10% to 20% top-line acceleration, and a 10% to 15% EBITDA bump.?

Investing in?commercial excellence goes beyond the dollars and adding headcount. It requires alignment between your corporate strategy, product / services strategy, marketing strategy, and your sales strategy.?It requires the investment of time to understand how to deliver profitable growth, identify and minimize customer churn, market analysis to understand which services to offer and at what price points, and how to optimize the internal and client facing sales effort.?

To achieve commercial excellence, you must get the strategy right up front. Simply adding a head of sales and salespeople, without nailing the go-to-market strategy first is a recipe for failure. It is not easy and requires heavy lifting, but the return is well worth it. PE firms that work with their port cos to break down the elements of commercial excellence, stack rank them, and execute on the most important ones first will see the greatest return during their hold period.?

According to Bain & Company, it can take two years of commercial acceleration efforts to realize the fruits of your labor. Because of this, the best firms start a commercial diagnostic as early as the due diligence process. This allows them to reach commercial excellence much sooner and it drives value. Unfortunately, not all PE firms have the in-house expertise to help their portfolio companies drive commercial excellence and a CEO or their head of sales is not going to get it done without help. Plans, processes, and programs need to be identified, created, implemented, executed, and measured. This requires the right expertise to assist.

Once the corporate strategy is aligned with the product / service strategy, it will be time to identify your available market, analytically segment your customers and prospects, and then create a unique value proposition along with the right messaging. Marketing, digital, content, and social programs will need to be created. A sales deployment model will need to be created with the right talent selling to the right accounts, including customer and prospective customers and potentially a channel. The portfolio company also needs to be in alignment on what is more important, profitability or top line growth. Yes, they are both important, but one is usually more important depending on the timing and the hold period. The PE firm could also consider the commercial excellence program as a separate investment so that sales and operations organizations are not stealing budget from one another or creating a hostile environment. Market pricing and customer personas, including buying processes, need to be considered, and a?sales coverage model needs to be built, with skills requirements and an on-boarding plan. Finally,?these need?to be measured and analyzed frequently, including your pipeline, and forecasting models.?

PE firms and portfolio companies that focus on efficiency plays and ignore well thought out and executed commercial strategies to drive growth will undoubtedly hurt their multiple. The ability to drive revenue growth will drive top-line acceleration, your EBITDA, and your value. It is attainable with the right commitment from both the PE firm and the portfolio company. ?