PEI October - Interview with Jim Corey
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Blue Ridge Partners is a management consulting firm that specializes in helping private equity portfolio companies accelerate revenue growth. They focus on revenue growth because it is the largest driver of value creation. Blue Ridge has developed non-invasive assessment tools to help private equity firms and portfolio company management identify revenue growth opportunities early in the investment process. Their self-assessment tool involves the CEO and management team reflecting on growth-related questions without intensive data requests or interviews. This helps engage CEOs who often view revenue growth as their responsibility. Blue Ridge also developed an assessment tool called "Indicators of Opportunity" that examines growth opportunities and implementation levers across nine areas. They help companies focus on high-impact, easy to implement changes to
![11october 2016 operational excellence special 2016
KEYNOTE INTERVIEW: BLUE RIDGE PARTNERS
Private equity firms should not delay pin-
pointing revenue growth opportunities and
instigating change at their portfolio compa-
nies,warns Blue Ridge Partners co-founder
and managing partner Jim Corey. Here he
explains why.
Why has Blue Ridge honed in on
revenue growth as a key driver of
shareholder returns?
Revenue growth has been the focus of our
firm since we were founded in 2002 – that’s
all we’ve done – and we selected this scope
of practice for two reasons.
One is that revenue growth is the larg-
est single driver of value creation over a
five-year holding period.The second is that
many management teams we see need help
accelerating revenue growth.
The recent survey we sent out to oper-
ating partners came back with an inter-
esting statistic: they said only 24 percent
of CEOs they worked with were highly
capable and self-sufficient in accelerating
growth. Frankly, it is a complicated topic.
It’s a challenging set of issues CEOs have
to deal with.
You say year one is crucial to value
creation. Why?
Many of the meaningful changes that
accelerate growth take multiple years to
implement. It’s not like a cost-reduction
initiative where maybe in 60-90 days you
can see those costs eliminated.
Imagine the lead-time selecting a new
go-to-market channel or to use a new set of
channel partners – it takes time.If you start
The non-invasive path to growth
Kick-starting revenue generating opportunities early in the
investment cycle is critical to boosting shareholder returns,
Blue Ridge Partners’ Jim Corey tells PEI
SELF ASSESSMENT
Corey: revenue growth is the largest single
driver of value creation
late,the benefits will be late and it might be
outside the investment horizon of the GP.
Why is operating partner engage-
ment with management tricky in this
period?
Revenue growth is a delicate topic to raise.
Typically,in year one the deal team is look-
ing for safe ground to engage with the
CEO and very often that does not include
revenue growth. In many cases, it wasn’t
included in the value creation plan, so it
would be a left turn to talk about it.
Also, CEOs view revenue growth as
their responsibility.They know the markets,
products and the business better than the
GP.All too often,unfortunately,we tend to
be called in three or four years after closing
when there has been some disappointment.
We call those the lost years.
So, should you consider revenue
growth in due diligence?
I would argue even earlier, in the pre-bid
period,and here’s why.Asset prices are very
high. Most companies are sold through a
competitive bidding process.A lot of GPs
need to stretch their valuations in order to
win the deal.Historically,investment com-
mittees haven’t been willing to underwrite
growth opportunities,and they don’t focus
on them during this period. As a result,
many firms are losing deals.We’re pretty
active now in the pre-LOI [letter of intent]
phase with a handful of private equity firms
that recognise the importance of growth.
You're a 30-year veteran of the
business.What has your experience
taught you about what works and what
doesn't?
It’s a matter of finding the right levers and
in every company those are different. ››
WHY REVENUE MATTERS
Source: Based on a survey of operating partners conducted
by Blue Ridge Partners for the October PEI Operating Partner
Forum in New York
Value creation sources in
portfolios over next 3 years
Revenue growth
Cost reductions
Cash flow improvements
M&A and other
58%
revenue
growth
26%
11%
5%
This article sponsored by Blue Ridge Partners originally appeared in Operational Excellence Special published by PEI in October 2016](https://image.slidesharecdn.com/a78004d4-666a-444c-8352-039714655ff9-161014201747/85/PEI-October-Interview-with-Jim-Corey-1-320.jpg)
PEI October - Interview with Jim Corey
- 1. 11october 2016 operational excellence special 2016 KEYNOTE INTERVIEW: BLUE RIDGE PARTNERS Private equity firms should not delay pin- pointing revenue growth opportunities and instigating change at their portfolio compa- nies,warns Blue Ridge Partners co-founder and managing partner Jim Corey. Here he explains why. Why has Blue Ridge honed in on revenue growth as a key driver of shareholder returns? Revenue growth has been the focus of our firm since we were founded in 2002 – that’s all we’ve done – and we selected this scope of practice for two reasons. One is that revenue growth is the larg- est single driver of value creation over a five-year holding period.The second is that many management teams we see need help accelerating revenue growth. The recent survey we sent out to oper- ating partners came back with an inter- esting statistic: they said only 24 percent of CEOs they worked with were highly capable and self-sufficient in accelerating growth. Frankly, it is a complicated topic. It’s a challenging set of issues CEOs have to deal with. You say year one is crucial to value creation. Why? Many of the meaningful changes that accelerate growth take multiple years to implement. It’s not like a cost-reduction initiative where maybe in 60-90 days you can see those costs eliminated. Imagine the lead-time selecting a new go-to-market channel or to use a new set of channel partners – it takes time.If you start The non-invasive path to growth Kick-starting revenue generating opportunities early in the investment cycle is critical to boosting shareholder returns, Blue Ridge Partners’ Jim Corey tells PEI SELF ASSESSMENT Corey: revenue growth is the largest single driver of value creation late,the benefits will be late and it might be outside the investment horizon of the GP. Why is operating partner engage- ment with management tricky in this period? Revenue growth is a delicate topic to raise. Typically,in year one the deal team is look- ing for safe ground to engage with the CEO and very often that does not include revenue growth. In many cases, it wasn’t included in the value creation plan, so it would be a left turn to talk about it. Also, CEOs view revenue growth as their responsibility.They know the markets, products and the business better than the GP.All too often,unfortunately,we tend to be called in three or four years after closing when there has been some disappointment. We call those the lost years. So, should you consider revenue growth in due diligence? I would argue even earlier, in the pre-bid period,and here’s why.Asset prices are very high. Most companies are sold through a competitive bidding process.A lot of GPs need to stretch their valuations in order to win the deal.Historically,investment com- mittees haven’t been willing to underwrite growth opportunities,and they don’t focus on them during this period. As a result, many firms are losing deals.We’re pretty active now in the pre-LOI [letter of intent] phase with a handful of private equity firms that recognise the importance of growth. You're a 30-year veteran of the business.What has your experience taught you about what works and what doesn't? It’s a matter of finding the right levers and in every company those are different. ›› WHY REVENUE MATTERS Source: Based on a survey of operating partners conducted by Blue Ridge Partners for the October PEI Operating Partner Forum in New York Value creation sources in portfolios over next 3 years Revenue growth Cost reductions Cash flow improvements M&A and other 58% revenue growth 26% 11% 5% This article sponsored by Blue Ridge Partners originally appeared in Operational Excellence Special published by PEI in October 2016
- 2. 12 private equity international october 2016 growing while others in their industry were.In a diagnostic,we found three things were holding them back.They were too dif- fused over different products and geogra- phies.They needed to pull back and focus their time and capital expenditure on fewer areas and refocus on their core. They had also lost track of market pric- ing. We discovered that in 80 percent of their markets, they were the low-price bidder.They thought they were mid-pack. They raised their prices and that made a big difference. Thirdly, a number of their sales people didn’t have the right skill sets or motiva- tions. The company upgraded its talent pool.The valuation of that company tripled in 18 months. Your operating partner survey asks firms to rate their operating team's ability to diagnose revenue growth and identify the proper levers. How is that best done? It goes back to analysing data and getting market feedback.But study work is an inva- sive approach. If the CEO hasn’t accepted that they have a problem with revenue growth, it will be unwelcome.An alterna- tive that shines a light on where there might be opportunities is our self-assessment tool. We examined the 400 companies we have worked with to find out what made the difference regarding revenue growth and included those 60 factors in the assess- ment.Wherever we could, we quantified the benchmark. The tool can make a big difference to the way that operating partners function.They might already have a checklist they review with the management team.The feedback we hear from them is that the checklist is nowhere near as comprehensive as our self-assessment tool. In general, getting sales and market- ing organisations to change is difficult. Successful sales people have their own formula and are change-resistant. There are a lot of great ideas that never ring the cash register because companies can’t get change implemented in their sales organi- sation. The second thing that I have learned is that most sales organisations are doing too many things at the same time and getting grades of Cs and Ds. I’ve found it works better to focus on a few things and get A-grades, then pick up the next set and then the next, in waves of change. Most companies, surprisingly, are also missing insights about their markets and how they are changing.Most sales organisa- tions are not highly analytical. If they did analyse the data,they would see things like the distribution of performance across the sales organisation, which would generate insights.And they don’t spend lots of time asking really hard questions of customers, like why do you buy from this competitor and not us? INDIA ROUNDTABLEKEYNOTE INTERVIEW: ACTISKEYNOTE INTERVIEW: BLUE RIDGE PARTNERS ›› What problems do companies encounter trying to accelerate revenue growth? Most lie in two areas. Sales people have a tendency to spend a lot of time with existing happy customers. If they under- stood better where to focus their time in the market and what message they should deliver, they would be more successful. The other is sales force effectiveness – the tools that the sales force is given, whether they get the right sort of coach- ing,whether they have the proper skills and motivation to be successful.Sometimes it’s just a skills problem. Studies also show the vast majority of CEOs lack prior experience in leading sales organisations. Sometimes they fear if they change something in sales there might be unforeseen negative results. Can you give us an example where you’ve navigated significant chal- lenges? We worked with a US-based construction equipment rental company that wasn’t THE BEST OPPORTUNITIES FOR GROWTH Key: Circle size reflects self-assessed magnitude of opportunity Low Low High High Establish the essence of the growth strategy Sharpen the go-to-market model Enhance sales effectiveness Create a productive sales environment Get pricing right Digitally enable the business Enter new geographies Sell into new end-customer markets Add new products/services Sizeofopportunity Relative ease of capturing opportunity High potential opportunity This article sponsored by Blue Ridge Partners originally appeared in Operational Excellence Special published by PEI in October 2016
- 3. 13october 2016 operational excellence special 2016 Jim Corey chairs a panel on factoring revenue growth into the traditional value creation plan at PEI’s Operating Partners Forum in New York this month. How do you go about making chan- ges based on the results of the self-assessment? One UK-based GP is working through the self-assessment at each of its dozen or so portfolio companies. We will summarise what we’ve learned in a cross-portfolio leadership workshop and outline any con- sistent issues across the portfolio that might need investment. Onecompanyhighlightedthatgrowthwas constrainedbytheslowpaceofnewproduct roll-out.They were known as being pretty innovative in their industry but they hadn’t releasedanynewproductsinquitesometime. Looking closer, the new product team had become very bureaucratic,wasn’t con- nected to the market, and worked in an isolated laboratory environment. When they did release new products they were at the wrong price point or had the wrong functionality.We discovered lots of differ- ent issues with product commercialisation. The firm emphasises the 'non-inva- sive' nature of the self-assessment tool. Why? CEOs are concerned that someone is going to come in and shine a big bright light on things they haven’t been doing well.They are naturally resistant to that invasiveness. This tool involves self-discovery. And it doesn’t take a lot of time. n KEYNOTE INTERVIEW: BLUE RIDGE PARTNERS How does the self-assessment tool work? The questionnaire is a non-threatening way to engage with a portfolio company CEO on issues related to revenue growth. It’s not like an intrusive study with data requests and interviews. Rather the CEO is asked to reflect on some thoughtful ques- tions to see where energy might be reallocated to accelerate growth. The operating partner could sit down with the CEO and walk them through the self-assessment and discuss it. It’s also very informative for deal partners as a cheat sheet of questions they might ask the board. But the most common way is to have several people at the company and the operating partner fill it out and compare results. We’ve organised 60 factors into nine areas that we call ‘the roots of growth’. Our back-end reporting shows how responses differ across those areas.Then you might see how the CEO is in a very different spot from the sales organisation and that may be worth talking about in a workshop facilitated by the operating partner. The survey also asks about the potential impact of fixing these topics and how easy that would be.The key is to look for big impact changes that are relatively easy to implement. n EXAMPLES OF SELF-ANALYZERTM QUESTIONS EXAMPLES OF SELF-ASSESSMENT FACTORS STRONGLY DISAGREE 1 2 3 4 STRONGLY AGREE 5 DON'T KNOW 6 Sales and service channels are responsive to buyer values for the customer segments they are serving (direct sales, third-party sales, telesales, digital and others) O O O O O O The company is effective at generating leads for entirely new customers O O O O O O The productivity of the sales organisation (gross margin/ total sales organisation cost) meets or exceeds industry averages O O O O O O At least 70% of sales reps are achieving quota O O O O O O Revenue forecasts prepared 60-90 days in advance are +/- 5% accurate O O O O O O The sales force knows how to sell value to avoid leaving margin on the table O O O O O O The company understands its pricing power and is able to capture premium pricing opportunities O O O O O O The pipeline of new products/services is robust and is likely to generate at least 25% of new revenues within 2 years O O O O O O CEOs view revenue growth as their responsibility
- 4. 14 private equity international october 2016 Blue Ridge Partners is a specialised management consulting firm with a unique combination of strategic insight and prag- matic implementation expertise.We believe that knowing “what to do” for revenue growth is only 20% of the challenge.The other 80% is knowing “how to do it” so changes get implemented and stick. We are often asked to start our work in evaluating the potential for accelerated revenue growth in the pre-bid period when valuations are set and then continue in due diligence and post close. During the holding period, we assist portfolio companies with four primary services – assessing/developing the growth strategy, improving commercial effective- ness, optimising pricing performance and revitalising product and service portfolios. About a year before exit (“T-1”) we help refresh growth plans and develop exit strategies. We consider both organic and inorganic growth options for each business.Based on our experience with over 85 sponsors and 400 companies, we created an integrated, comprehensive suite of tools, called “Top Line”, for use by our teams to accelerate growth in a company’s Revenue EngineTM . Two of these tools are available for use by our private equity clients. Deal and operations personnel can engage with CEOs and their management teams using the Self-AnalyzerTM tool early in the holding period.With minimal time demands, this non-invasive tool stimulates thinking about strengths,weaknesses,and revenue growth opportunities. INDIA ROUNDTABLEKEYNOTE INTERVIEW: ACTISCOMPANY PROFILE: BLUE RIDGE PARTNERS Helping companies grow faster We help portfolio companies accelerate profitable revenue growth by addressing issues with the company’s Revenue Engine® throughout the life cycle of an investment. Sponsor and management teams use The Indicators of OpportunityTM , a com- prehensive yet simple tool, to examine the range of growth opportunities and levers available in the company, align thinking and define priorities for the most impact- ful levers to pull. Built around nine areas we call “Roots of Growth” such as the go-to-market model, sales force effective- ness and pricing, the tool also serves as a useful reference when preparing for meetings with the management team or Board. With personnel in North America, the United Kingdom and Continental Europe, Blue Ridge Partners is positioned to serve the needs of global firms.We have earned high marks from private equity sponsors and CEOs for delivering material, rapid, pragmatic and cost effective results. For additional information, visit www.blueridgepartners.com or contact Jim Corey, Managing Partner, at +1-703-624-0286 or jcorey@blueridgepartners.com. TOP LINE ANALYTIC ENGINE PRICING OPTIMISATION EXIT PLANNING ("T-1") PRODUCT PORTFOLIO REVITALISATION GROWTH STRATEGY POST-MERGER INTEGRATION COMMERCIAL DUE DILIGENCE 120-DAY PLANS COMMERCIAL EFFECTIVENESS This article sponsored by Blue Ridge Partners originally appeared in Operational Excellence Special published by PEI in October 2016