Andrew Jones, CEO, Agility in Mind
Private equity investments are made with the belief that the core value proposition established by the original founders is sound and can be scaled. Yet too many investors looking to scale companies fail to reckon the fact that it is not just about value proposition. Faith in the skills and abilities of the organisation’s leaders are paramount. Making an assessment regarding the experience and capabilities of leadership to undertake a period of growth, that will deliver and support the proposition at scale, is a challenge that must be met.
Ultimately, a willingness to identify and resolve growth pains and reckon with the fact the initial assessment contains errors, is important. Not all investments go to plan, and, at some point, it might become clear that the leadership of the organisation does not quite have what it will take to grow a business. Yet a responsiveness to this issue is often hard to come by, particularly when investors are captivated by the vision of company from which it can be hard to detach its founder or leader.
Identifying the skills required to scale a business
Ensuring a responsiveness to this challenge requires investors to first identify what skills are required in the leadership of an organisation attempting to scale. Investors must put in place mechanisms such that timely actions can take place when these skills are absent. This does not always require a top-down change of leadership. Continuing to draw upon the insights and creativity of the creators and founders while quickly establishing scalable practices throughout the organisation is certainly an achievable and desirable goal. The important point is that investors understand how they can align growth-minded leaders with the initial spark that made the investment attractive. This is something that has become apparent through the numerous interventions Agility in Mind has actioned in growing companies.
Over the past decade, our experience working with businesses of varying sizes, and across a multitude of sectors, has shown that the goal for company leadership in the scaling phase should always be to create a working model that delivers on the promises made to customers and shareholders. We have observed the challenges successful founders face when they receive the investment support required to scale up the proposition and exploit greater market opportunities. Regularly, our analysis leads us to bring attention to the fact that founders are often passionate about their proposition, insightful of their industry domain, creative in their approach and expert in selling the concept to others. However, they often lack the experience to build an organisation fit to deliver growth.
One example is our work with an organisation that created a platform to support clinical trials – a growing market with drivers to improve efficiency and rigour, helping pharmaceuticals achieve returns while remaining safe. There was a perceived problem within their engineering function which was a crucial to bring their technological solutions to market. It was, however, not immediately clear why they were not able to achieve the promised date for product launch and why there was no visibility on progress. This was also causing disappointing results in other departments such as sales.
Our analysis of their engineering approach showed that there were clearly areas of discipline, rigour and collaboration that needed to be addressed. But most significantly, we saw the desperate need for new leadership – something which can be underestimated by those looking to scale an organisation.
The founders of this particular organisation faced fundamental questions about their roles and experience leading a product-centric organisation through the growth phase. There was a clear void within the product management function and a lack of alignment with the overall strategy of the company – areas they were specifically responsible for. Changes were needed, and urgently.
Reckoning with growth pains
In pointing out these areas to the founders and their backers we brought home the reality that alterations were required from leadership through product and across engineering, to align market needs with investments in technology. They needed experienced insight into how to build a company that remained creative but also focused on the ultimate objective. Growth. The interventions we made brought this and, in the matter of just a few months, the business was transformed. The founders were placed in roles they could excel at, new leadership was put in place and effective engineering practices established. This speaks to a broader point about the nature of private equity investments.
Private equity businesses buy undervalued or underperforming private companies, improve their performance and sell at a profit at a later stage, on average 5.9 years later. There is nothing new here, but it is worthwhile to point out that if we can reduce that time by 50%, returns are made on that initial investment twice as quickly. Although due diligence takes place prior to an investment, the realities revealed at growth stage are often hard to capture. Investors are so often captured by the passion, creativity, and drive of the founders, not the realities of their capabilities when challenges arise. These challenges are revealed by the process of growth itself. Investors must position themselves to make rapid interventions where necessary rather than accepting the high failure rates of investments in digitally enabled companies, which can be as high as 70%, investors should plan for interventions at the point of acquisition.
Ensuring a flexible approach at the top of a growing company, and transparency in process at each composite level, will help a business overcome the challenges of growth pains. In many ways this flexible mindset applies not just those looking to maximise profits from a company they have invest in. It also highlights how instilling a trajectory of growth requires a culture of evidence-based management where all changes are scrupulously examined based on their potential value. Only then will a trajectory growth be truly embedded in an organisation.
Global Banking & Finance Review
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