Today, I’d like to talk about business turnaround strategies in the case of private equity (PE) backed businesses.
As a strategic interim marketing consultant and business development director, I’ve worked with companies across various sectors and locations for over almost 30 years. In this time, I’ve been pulled in, on quite a few occasions, to help organisations improve business performance or effect turnarounds .
What is Business Turnaround?
A turnaround is precisely what the name suggests. The aim is to help businesses that have been in decline for a variety of reasons to turnaround, cut unnecessary costs, often grow and start making profits again.
There are multiple reasons for underperformance, including inferior products, outdated strategy, unnecessary complexity, new competition and much more. As a result, there may be different factors to look at when considering actions for a private equity-owned business turnaround.
PE businesses often bring in senior professionals and interim engagements to help with analysing and determining strategy, from finance to marketing and operations. As a business turnaround specialist, I am often called in for such tasks.
How do I Help Private Equity Businesses Effect Turnaround?
When working with PE businesses on turnaround projects, I often consult on their marketing strategies and opportunities. At this point, I’d like to say that marketing is quite often mistakenly seen as a miracle cure for an underperforming enterprise, but in my experience, a company could be performing poorly for many reasons and not just a lack of marketing or strategy.
It could be bad management decisions, or that a new competitor has entered the marketplace or, quite often, it’s lack of investment over a period of time. In the latter case, marketing isn’t a sole and immediate cure and, therefore, is not going to work a miracle on a turnaround situation.
However, if marketing is the problem, here are the business turnaround actions that are typically necessary and work well.
Most businesses, when they start, begin with a strategy and a plan. However, to remain successful, management needs to revisit the strategy and assess whether it remains relevant or if it needs to be changed to meet the demands of a changing market.
Quite often, I have found that PE business owners continue to rely on old strategies simply because they have worked in the past. They hold on to it even though it might not be suitable for the market now.
This is fundamentally the first thing that needs tackling; reviewing business strategies in light of updates in the market, competition, supply chain, customers and much more.
Most companies that have been in business for years tend to develop layer after layer of complexity over time. It could be because they add new products without reviewing old lines to consider which are generating revenue and which are making the most significant impact, and why. They may have also bought businesses but failed to integrate them properly.
As a result, the business loses sight of what is working and what is not.
In such cases, it is often best to review business products, subsidiaries and overall structure and approach to market reduce complexity and focus on what matters.
As I mentioned earlier, the decline of a PE business could be due to a new competitor in the market. However, it could also be a change in the customer base or the fortunes of certain key customers.
The world is continually changing and, sometimes, it becomes necessary to adapt as this happen. In the course of adapting, it often becomes essential for businesses to experiment to see if something will work or not.
This might mean research, talking to certain segments of the customer base, trialling new products or using new approaches. An iterative approach of testing and evaluating feedback could result in new opportunities or improving existing ones.
One of the key areas affecting PE business turnaround requires decisions on whether old and established practices need to be abandoned. In the process of streamlining and making operations less complex, the organisation may find that employees and external stakeholders may not be ‘on board’ or are silently fighting against the change.
Misaligned objectives or fragmentation internally will impact on the likelihood of success. Cultural change may indeed be an overriding factor on whether the turnaround will succeed. In these situations, the PE owners need to stay committed to the turnaround strategy but equally ensure that management objectives and incentives are in line with the plan, helping stakeholders remain focused on the end result.
Evaluate the Management Team
PE businesses often put one or more of their own key senior management staff into the company as well as an executive or non-executive chairman. It is imperative that these people integrate with current management at the same time as instigating change, as they can often be seen as outsiders and encounter passive resistance.
In such cases, the company needs to assess if the management team leading the business fit with the new direction or turnaround. For example, steady-state or growth CEOs are not necessarily the same as Turnaround CEOs.
One area of conflict that may arise is the duration it takes to change. Corporate turnaround often takes time, but PE backed CEOs may want changes to happen sooner as they are more financially focussed.
As you can see, all of the strategies mentioned rely on ongoing planning and adapting to the changing market. When a current business strategy stagnates, the PE business’s profits start showing a downward trend, which is when turnaround intervention becomes necessary.
I think the moral of the story here is to involve marketing and strategy at a much earlier level before that decline happens, at the first signs of things going off course.
This is why bringing an interim marketing director like myself into your PE business needs to be carefully thought out. If your business is dying, you may not be able to accomplish a turnaround. However, if you are noticing a decline in performance, a change in marketing strategy might be able to turn your business around in time.
If you think your business could benefit from my intervention, please do get in touch. I’ll be happy to discuss your business needs over a free consultation.