A management team that understands the commercial model is essential

YFM’s Partner, Charlie Robinson, was recently asked to participate by BDO in their blog on “Where the real value lies between Sales and Technology?”, giving his views on a crucial subject for many of the businesses that private equity investors work with.  Key themes Investors look for include:

  • clarity over the core value proposition of the business and an understanding of value derived by customers from the technology;
  • an appreciation for the challenge of scaling up commercially, and openness to external input and advice;
  • the beginnings of a ‘product management’ mindset in the business to ensure decisions around technology take commercial considerations into account.

You can read the full article here or Charlie’s contribution below:

‘This is a hugely relevant and important topic for us as investors, especially in terms of the stage at which we get involved with companies. We only tend to work with businesses that have already established some meaningful sales traction in financial terms, so they’ve done the hard yards of proving the technology and getting beyond proof of concept.

‘One of the hardest things for us to assess is always: how good is the sales engine of a business? So we ask: Does the business have a very clear view on their proposition and where the value sits for their customers? Can they articulate that vision to people who, like us, aren’t living their business day in day out, in a way that can give us confidence once we invest? And, given, that most of the time our investment in these kind of companies is to help them scale up, which normally means recruitment of resource, we also need to know: Is there the infrastructure and the strength in depth in the business to start delivering growth when we flip the switch? Or is there going to be more work required to refine the go-to-market and be effectively patient to give people time to deliver?

‘This whole piece has become more and more important to us over time, because you can’t afford to spend too long waiting for a business to get its value proposition right and develop in a new market or even in an existing market place. If the founder or management team struggles to make the business case clear for their customers, if they’re too technology-centric and not customer-centric, then that’s an area that we’d want to look at very closely, and we would need to work out if that can be fixed. Even in a high-growth tech business, the technology is not enough. A management team that understands how to drive revenues and how the commercial model works is essential.

‘The classic scenario you see is where a product gets over-engineered because it’s what the first customer says they want or because it’s what the founder had in mind as a vision, but the business neglects to adapt to changing market demands or needs. It’s so important with software and technology assets that you understand what difference your offering is going to make for the user – what the use case is, what the return on investment is, what customers’ purchasing drivers are, why they’re going to buy it, how long they’re going to use it for and so on. Because if you haven’t got all that in mind, you’re very likely to take on external investment and continue to develop the product in a way that the market may not require.

‘We increasingly look for what I would call product management skill sets within the business, or at least a recognition that they might be required. By product management, I mean the interface between the front-end sales & marketing side of the company and the research & development side, to make sure that you are developing your product in a way that meet the needs of the customer and make the best use of your resources.’

‘To support businesses here, we use a variety of measures, such as interims or consultants that can go in and assess the state of affairs. We’ll also recruit senior sales resource into the business on an informed basis. We look to bring in external expertise wherever possible because moving the needle with B2B sales is hard. Sometimes you just need someone who really understands the base disciplines of the sales pipeline, the rigor around how you manage a sales team to make sure that you’re getting the most out of them, and the quality of opportunities that you’re looking to progress.

‘So, from our perspective, a big part of the attractiveness of a business is a sense that the team has given some thought to commercialising their offering, and to the back-end of how they would actually operationalise the selling. These things can often be fixed, and our capital is there to help businesses do that and develop their proposition further. But we do look for a recognition in the business that this is an area they need help with. And that’s positive for us because we can do something about that. We can’t do a lot about the founder who sees themselves as the best and only salesperson for the rest of the company’s life because that just won’t scale.’

 

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