Private equity is the undisputed Formula One of business models. It’s a high-octane race in which you buy a company, rev it up for 3-5 years, and sell it at the finish line for a 3-5X return. It’s a gear-grinding sprint from start to finish.
But there’s a problem.
Private Equity’s instrumentation is abysmal. The car itself is great – aerodynamic chassis, beastly powertrain, professional management team, experienced board . . . but the dashboard is reminiscent of those CRT phosphor green-screens from the 90s. “Green” because portfolio analytics are mostly in Excel, an indispensable tool, but not for navigating turns at 150 mph.
If Max Verstappen (2022-2023 Formula One World Champion) had the visibility typical of mid-market portfolios, he would come in dead last, every race.
Portfolio executives spend around 20% of their time wrangling, studying, and reporting data. What they get is a retrospective snapshot of numbers, brief moments of isolated insight in a sea of conjecture, reactivity, and frustration. Where Max experiences mastery and control, portfolio executives often experience a kind of managed chaos.
Here’s the reason.
Private equity’s instrumentation is “good enough”. If every other sponsored midmarket company is using Excel and ERP system-reports to navigate the track, qualifying for the race and achieving industry-standard alpha is pretty straightforward (though most firms we speak with say it’s getting tougher). However, I haven’t met a PE partner who isn’t obsessed with performance improvement. They’re never satisfied with the ingrained and old-school. They’re dedicated to staying ahead of the pack when it comes to applying people, processes, and technology to reliably execute to plan.
To use another analogy, if data were a movie, it would be a “sleeper,” not a blockbuster (at least not yet, that’s coming down the pike with AI).
If it doesn’t feel like data is at the forefront of your value-creation philosophy, consider this…
No complex system can sustainably run at full speed without good instrumentation, whether it’s a turbine, a CNC machine, or an F1 car. And if F1 cars are complex, PE-backed, buy-and-build companies are orders of magnitude more so, in part because they’re a system of humans. Give humans visibility, and you give them ownership, agency, the ability to focus on priorities. Give them confusion and contradiction, and they’ll slam their helmets down as they leave the office.
We’ve done this for 12 years running and have tested every approach for getting a company to data-driven. Through the process, we’ve developed a methodology that gets the job done in almost any midmarket company, and fast. Here are some examples of the instrumentation we can roll out in a matter of weeks.
We’re leading the fractional data team revolution in the midmarket and private equity. Drop me a line at 970-214-1652, or an email at jon@bluemargin.com to discuss further.