Episode 25: Dan Cremons of Accelera Partners
on Winning the First 100 Days After an Investment

Episode Transcript

Shiv: Alright Dan, welcome to the show, how's it going?

Dan: Great. Thanks for having me.

Shiv: Excited to have you on. So why don't we start with an introduction about yourself, your background and we'll take it from there

Dan: Yeah, great. So to take you way back quickly, just for context, I am a midwesterner born and bred, grew up in Cincinnati, Ohio. Thought I was going to be a doctor growing up and for a variety of reasons ended up taking a hard left when I was in college and focusing on finance. Had some early career experience in working in sort of a mid-sized local company and doing investment research for a regional RIA here in the Midwest, and ended up finding my way into private equity sort of almost as the intersection point of those two worlds, operating businesses and investing. Found my way into private equity in 2007, really just through frankly, some dumb luck and right place at the right time. Ended up with a firm on the West Coast called Alpine Investors. And I spent 13 or 14 years, I think, all told, working with Alpine through a period of just amazing growth for the firm and personally for me as well.

Played across most of the positions on the private equity field. I've, you know, I've sourced deals, I've done deals, I've sat on the board of different PE-backed companies, helped stand up a lot of our portfolio support capabilities at Alpine during our scale up stage and have played CEO and CXO roles within different portfolio companies. So, you know, I've seen the same private equity value creation movie from a few different chairs and leveraging that diverse experience today to help other private equity groups and their portfolio companies unlock this thing I call people-powered performance. I'm sure we'll talk a lot about that, but it's really how do you make human capital really the foremost value creation strategy in a private equity backed company? So I'm doing that today with my own advisory firm really focused on productized offerings around this intersection of value creation and human capital.

Shiv: Yeah, it's such a small world because Alpine is actually one of our better partners and we've done a bunch of work on their portfolio companies. In fact, just on Tuesday, I did a webinar for their entire portfolio as well. So crazy how that connects. 

Dan: Small world.

Shiv: Yeah, it is. But another thing that I think is interesting about this connection is that you talk a lot about the first 100 days and this concept of the people powered performance, but really about organizational change or design as a path to creating more enterprise value. And we talk about the first 100 days a lot here at How to SaaS as well. And that was actually the subtitle of my first book as well. So, want for the audience, just to understand like how you perceive that and where you see the biggest value creation levers within that time period as in terms of the organization and everywhere else that you play.

Dan: Yeah, I think just at the outset - I mean, I'll say that, I suspect you'll probably agree with this, but I'll be interested to hear your take on this too. Getting the first 100 right is among the most important things a private equity firm can do. That's just the sort of headline statement to all of this. Now, I'll take you back and explain how I came to this point of view, but I remember early days in my deal-making career, the first 100 would go something like this. 

We would - and I'm gonna paint in intentionally dramatic language, but this isn't too far off. You close the deal, you're exhausted from pulling all-nighters trying to get the thing to the finish line, but you close the deal, you got this stack of SIMs on your desk that you need to get caught up on that's like eight inches high. You got all these post-closing documents you need to get wrapped up. You need to get your share folders organized on your share drive with all the closing docs. You've got purchase accounting that needs to get wrapped up. The first 100 period can very easily get overwhelmed with just administrivia. All that stuff's important. We should be clear, all that stuff is important. But it caused me sort of subconsciously, early days of my private equity career to view winning the first 100 - that's language I often use nowadays - winning the first 100 as being about getting all those loose ends tied up. 

What I later came to learn was that, following that playbook or lack thereof, you end up at the first board meeting 90 to 120 days later and like, that's sort of when the action starts. It's, okay, let's use that as the chance to get aligned on where we're gonna take this business, the value creation plan. And in so doing, you've lost a really critical 90 to 120 day period of time when momentum can either be built or lost. And the losing of momentum by way of running that sort of shoddy playbook I described earlier, taught me a hard lesson in, oh, what if the first 100 isn't just about administrivia and tying up deal-related loose ends, but actually using this critical period to gain clarity, together with my new management team partners, gain clarity on where are we gonna take this thing? How are we gonna get there? Who do we need to board? Get aligned on those questions and start to bag some quick wins that get that flywheel spinning. And so just to bring this full circle, I mean, a lot of the work - I ended up - we at Alpine ended up sort of developing and iterating over time on our own playbook for running the first 100. I've taken some of those learnings and developed my own, again, productized offering, really guiding leadership teams on the board through this process. But to zoom way out, I think the core message here is the first 100 is such a critical period where momentum can either be built or lost. And by focusing on getting clarity, getting alignment and bagging some quick wins that can put you in a great, great position to come hard off the blocks early on in the deal.

Shiv: Totally, and we actually see this with some of our best PE partners and the ones where we can see that they're creating a lot more value with their portfolio companies is how heavily they focus within that period. And one of the things one of our partners said to me once in a conversation is that they said, to make sure you have a really good first 100 days, you actually - that work actually starts in diligence. So when they identify the levers as they start meeting management teams and are vetting the investment and trying to figure out if it's worth actually investing in a particular company, part of their investment thesis or the development of that already uncovers what they're going to do in those first 100 days so that they get a running start. So a lot of them will preload that work during diligence so that when the deal closes, they already have a head start and they can kind of hit the ground running and start creating value right away. And so that's definitely a disciplinary difference that we see between the funds that are overperforming versus ones that I would say more middle of the pack.

Dan: Yeah, you nailed that. I mean, that jives with my experience as well. And I'll just call us back. So I'm busting out my copy of this handy dandy book called Winning Moves - this is not a way to shamelessly plug the book…

Shiv: Oh, please, please do.

Dan: But yeah, the book on the topic of value creation and private equity, I'm busting it out here because something you said lines up with a key point that came out of the research for this book. The research being when I embarked on the journey of writing this book, the first stop was, let me go out there and talk to both investors and operators alike who have demonstrated an ability to make value creation happen in PE-backed companies. Investors that have a process or are known for this, and then operators who have delivered outsized returns. Let me go find those people, learn from them, and then codify that learning into something that others can use, which is called the Winning Moves, the book. And page 298 of the book I'm gonna point you to. Yes, there are 298 pages in this book. Overarching keys to success and value creation planning. This is the header. Success factor number one, start value creation planning early. Pre-closing. This was a resounding theme - hence why it's a success factor number one - a resounding theme that came from talking to firms who have a really well-oiled way of doing this is to start early. And the basic math is simple - the earlier you start, the faster you can go post-closing. And we're working on IRR-driven asset class where speed and time is money. So it makes logical sense.

Shiv: And in your experience in starting early, what are some of the pivotal areas that these firms should be looking at that when post close and you're looking at those first 100 days would drive the most value?

Dan: I think there are maybe - a way to tackle that is think about what is - let's use the value creation plan as the central document of record that a lot of this work points back to, a lot of this work, this conversation, these questions point back to, is coming out of the first 100 days with a clear and aligned value creation plan. We can talk later about what that looks like, how do you go about that, et cetera. But if that's the destination we want to arrive at at day 100, I'd work backwards from there to answer your question by saying that on a value creation plan, I think you really have to answer four fundamental questions.

One is what's the vision for the business? The vision is different than the financial targets. What's the vision for the business? We can double click on that if it's useful. Second is what is the focus set of strategies or value creation initiatives that will drive us towards that vision? Thing number three is how are we going to track and measure and execute those things? Thing number four is who do we need aboard to make those happen? So if that's what we're working towards, is clarity and alignment on those four things as manifested in a value creation plan, to answer your question, going through diligence, I'm developing a point of view on those things as an investor. And then later in due diligence, as I'm starting to shift my attention from confirmatory diligence to now the post-closing plan, I'm starting to engage with management more thoughtfully on those same four questions. And going into a close, maybe not having a fully buttoned up value creation plan, but at least having a working draft that has driven some alignment among management and the board on the answer to those four questions.

Shiv: And so let's go through that and break each of these down. So let's start with the vision, because in a lot of cases, what we see is that the value creation plan is done on a spreadsheet. And you're kind of mapping out your revenue growth targets and how certain business units or product lines will scale and certain opportunities that you've identified. There's this many customers, this much white space. It's very much like a math exercise. And then there's a reality of actually building a business. And so talk about the vision part, because you said that the vision is not about the sales projections and what's done in spreadsheets.

Dan: Those two things ought to be in harmony and aligned. The more tactical, tangible things that you're doing that show up on your spreadsheet need to be pointed in the direction of some overarching vision that is spelling out what defines success in this business at the end of the road. And there's different - I go deep on this topic in some of the writings that I do. 

There's different ways to think about what is a vision, how do you codify your vision. But a few of the parameters I would put on it are, when we talk about vision, we're talking long-term beyond the three-year horizon. Think five to 10 years down the road. And this is kind of a polarizing topic because some people take issue with, hey, how can you predict what the world is going to look like 10 years from now, et cetera? The point isn't to get to high fidelity, picture-perfect understanding of what is the business going to look like 10 years from now, but rather create some direction and allow that to be the means by which we're making intentional decisions about which value creation initiatives are we actually going to deploy in service to that. 

Here's a great example, just to make this more real. In a company that I was on the board of, the long-term vision was to heal and transform 100,000 lives. This was an addiction treatment business. To heal and transform 100,000 lives by 20 - I think it was 25. To heal and transform 100,000 lives by 2025. And in that, there's a timeframe. That timeframe at the time this was written was longer term. There is some means by which you know whether you've achieved success or not - 100,000 - and these two really powerful words called heal and transform. And it's important to say for this management team, h’eal and transform 100,000 lives by 2025’ wasn't some BS jargony sort of nebulous meaningless thing. They actually went to great lengths to break down what do we mean by heal? What do we mean by transform? And then what are the operational decisions and strategies we're going to have to use to achieve the outcome of healing and transforming that many lives? So what that did was just created - again, created a, you know, this is sort of cliche, but created a North Star that the value creation conversation could be pointed at.

Shiv: Yeah, I think that usually ends up getting lost when you are just modeling on a financial side. And then what you kind of have to do is build a long-term vision for the business and then connect that to how is that going to translate in terms of financial results or sales targets or profitability or anything else that you're trying to measure performance by. And I think that's the disconnect where maybe you're too heavily leaning on short-term wins and I think it's also a symptom of hold periods and generating a return for your fund and internal like rates of return and things like that that kind of muddy the waters in terms of what it actually means to build a business.

Dan: That's right. You made this point earlier in the conversation, but herein lies the disconnect between investing and operating, I think, in a lot of cases. In investing, it's easy to sit - and I've done this before as a former investor -, you sit down, you put together the model, you say, success for us looks like achieving X of revenue, Y of EBITDA. However, in order to make those numbers come true, you actually need people in these businesses to do things and put in long hours of work and stretch and grow. And they're not going to do that unless there's a compelling reason to play the game. And that compelling reason to play the game - and this is where just strength of leadership, I think, can be the difference maker between a vision that's just, you know, doesn't have any impact and one that actually becomes the catalyzing force for the business. But that vision can be an incredibly motivating force for getting people to pursue the sort of aggressive growth agenda that your spreadsheet calls for.

Shiv: So then let's move to number two. So you build out this vision. Let's talk about the focus areas and the strategies that are actually gonna - that are the inputs into creating the enterprise value to begin with.

Dan: Yep. So in the book, what I do is - I'll just give a quick flyover because I think it's useful, but you can dig deeper into it in the book if you want. What I do in the book is take this idea of value creation, which is - actually, let me pause for a second. The title of this podcast is - has value creation in the title. How do you think about or define value creation?

Shiv: I mean, from my side, and the reason for starting this podcast in the first place is that we feel that there's a process that goes into building healthier, more successful companies. And I use the word healthier before just thinking about growth and profitability and things like that, because there are certain fundamentals that healthier businesses have that unhealthy businesses don't. Right. And so when you look at any particular company and you try to figure out where is the right place to deploy their limited capital, there are certain initiatives that should receive more of a focus or higher priority than others. And we find that companies get this wrong all the time. Like for example, positioning and just where your brand sits in a particular market is something that companies often overlook. They overlook their website, they overlook the amount of pipeline that's required to hit their sales projections. They don't have the right message in terms of how they're communicating to their ICPs. They don't have their ideal customers properly defined. They don't have the right TAM and segmentation or understanding of exactly what is the size of market that they're going after. So things like this that companies I think can overlook. And then as you start to right size that or get that right, then everything else starts to flow much more easily and you end up creating a much better business, which also happens to be more value.

Dan: Yeah, I like that lens on value creation. It's like you got to lay that - as you're describing that the visual in my mind is like you have to lay the foundation before building the house. A lot of the pieces that you mentioned are just foundational, but because they're underground often get, you know, often get overlooked. And I ask the question because value creation has so many different definitions that what I try to do in the book and as I talk about this topic is first level set on, what do we mean by value creation? This is the topic of - this is the word of the week in private equity. And I think about value creation, my own definition, as anything that creates equity value in a PE-backed business. Or if you want to use active language, it is the pursuit of things that create equity value in a PE-backed business. So that begs the next logical question: What creates equity value in a PE-backed business? Turns out there are like five things that - five things that can create equity value. You can grow your revenue - which a lot of your work, I believe, probably is pointed at. You can expand your margins. You can do strategic acquisitions. I know you also play in that world. You can pay down debt. You can expand your multiple at exit. Like mathematically, mechanically, those are the five ways to create equity value. So what we then do is break each of those apart and say, okay, what are the component drivers or levers or pick your word that drive each of those things? Revenue growth, for example - there's six ways to grow your revenue. You keep the revenue you've already got, i.e. customer retention. You can expand the customer relationships you've already got, i.e. customer expansion - customer retention, then customer expansion. You can go deeper in your core market (market penetration), move into new markets, (market expansion), deploy new products for those markets (product expansion), or optimize your pricing. Six things. 

So I break it down and deconstruct it in this way as a long way to answer your question by saying, in order to figure out what is the focus set of strategies or value creation initiatives that we're going to pursue, we first need to have a mental model for what does create equity value, and then have the discussions, do the diligence to figure out from that sort of buffet of options, this beautiful buffet of equity value creating options, which ones of those are we actually gonna put on our plate? And there's a whole - I mean, that's probably a much deeper conversation of how do you figure out across the six revenue levers, for example, where are you gonna place your bets? But yeah.

Shiv: Which one? Where are you going to focus? Yeah. Don't you think - and the reason I'm pressing on this is that I completely agree on those levers. We're very aligned on the mechanics of it or the formula, if you will, right? It's like revenue growth, better retention, pay down your debt, scale with M&A. Like I understand multi-product expansion or different geographies and cross-sell, upsell, et cetera, and pricing, obviously. But don't you think that in the mechanics of it, sometimes the value creation piece is lost. 

And I'll give an example of this is like, we know a lot of PE firms that have invested heavily into M&A. And in 2021, when debt was very cheap, it was a phenomenal strategy. And now, as the interest rates have climbed, their debt service rates are just so high that a bunch of the EBITDA that they're generating is just going towards debt service, or they're not profitable because a lot of it is or their cash on hand is being eaten up by the debt service. 

And then same thing with pricing. Sometimes like you can model out a pricing increase as part of your investment thesis, but in a particular market, maybe that particular product line is not necessarily ready for it. So like in order to figure that out, there's other components that go into that. So I'm just curious what you think about that.

Dan: Yeah, I mean, to the case study you're pointing to around debt service coverage growing in a rising rate environment, like organic M&A - or I'm sorry, inorganic growth, M&A growth. That is a value creation strategy that some firms probably deployed with an eye towards how do we buy businesses that are creative, make them better under our ownership and grow revenue then organically in those acquired businesses. The market moved on us.

I don't think anybody, when capital was being aggressively deployed into add-on M&A back in the - when did that hit its peak? Sort of 21, early 22. I don't know that anybody understood that rates were going to get jacked in the way that they did. So I don't know. That case study doesn't challenge for me the notion of organic M&A, inorganic - 

Shiv: As a strategy, those are still legitimate strategies. I completely agree with that, yeah.

Dan: But it is to say that there is - I think an underlying point to your question is we are living in a world now where financial engineering - this gets talked about a lot in private equity now, but we're living in a world where financial engineering, we're value buying, we're cost cutting, the sort of old school levers that private equity used to pull to drive quote unquote ‘value creation’, ain't gonna cut it anymore when it comes to driving alpha.

Shiv: Yeah, I think that's more my point is just on - all these strategies definitely apply. And even when we think about our businesses, there's a great book called Profit From The Core and it kind of talks about these things as well, and one of my favorite business books. And agreed on that - I just find that the financial engineering aspect of it sometimes overlooks or you kind of speed past some other core value creation things that make that part possible. As an example, if you're going to increase your prices, you have to work on product. And if you speed past that, you kind of aren't really delivering more value in a lot of cases. But then there are also products that have high NPS scores and net revenue retention rates above 110%. And they haven't increased their prices in 10 years. And so that's - in those cases, it's a no-brainer. So I think that straddling that line is a tricky one.

Dan: Yeah. Well, and it's - yeah, like you said, I mean, this is like you're implying it is an ‘and’. I mean, if you take the extreme scenario of you deploy and use all of these growth driving revenue growth generating winning moves, using the board from the book, pricing optimization, et cetera, but you don't lever these deals. Like, guess what? You're not going to outperform in a world where everybody is levering their deals.

So this is the age-old question in private equity, but what's the right balance? And I think of making sure we are leveraging the financial instruments and the financial instruments that we have at our disposal to make smart capital allocation decisions, the finance part of the equation. And we are building in an enduring and healthy way, using your word, building businesses that are going to be more valuable under our ownership than what we bought.

Both of those are in play and need to be in play in order to produce alpha in this market.

Shiv: So let's assume that that part is true and the dynamics of the business are in a healthy place. How do you determine which of the focus areas or strategies you should deploy to actually generate more value out of all these different levers?

Dan: Yeah, I mean, the - well, this is a conversation when I've worked with leadership teams in the first 100 days, this is a question that we spend, you know, a day or two in a workshop on. So for my simple brain, here's a simple construct I use, which is the old - at the risk of being unoriginal - the old two by two. Two by two is not the end all be all, but it gives us an entry point to this conversation.

What I do is say, one of the things I like to do early in the first 100, when you're getting the board, you're getting the management team sitting down and saying, okay, let's first create a shared reality on where are we today? Like, what do we learn in due diligence? And then using that in a fact-based objective way to sort of create a shared reality with management. Step one. 

Step two, start to socialize, starting to socialize the vision for the business, which to your earlier point, presumably you've done some of that pre-closing.

Then step three, without any commitment at this point, without any commitment to what are we going to do, talking about what could we do. Again, we have this buffet of value generating things we could go do. We know we don't have the stomach space to take it all on. So we need to go from a laundry list of things we could do to the small focus set of those that we're going to do. And a really simple construct for thinking about that - it's not especially analytical or mathematical - is the two by two.

On one of those axes, you have cost. The other axis, impact. An impact can be measured by - you know, pick your measurable, but five-year revenue impact or exit value creation or whatever. And go about the exercise. Again, you can put math to some of these things, but like in a cursory way, go about the exercise of plotting every one of the 15 things that you could do onto that curve and ask yourself the question - ask yourself several questions. 

Number one, what are the things in the top right, which are low cost, high impact, and how do we just accelerate those as potential quick wins? Number two, to what degree do each of these things move us towards the vision we've established? And number three, based on the organizational capacity, how many of these things can we actually take on in the first 12 to 18 months of the deal? And use those three questions to go from a list of things you could do to start to really home in on what should we be doing early days. That's not the only - I'm sure people that come out of management consulting have other more sophisticated ways of going about that, but that's sort of a layperson's way of at least beginning to have this conversation.

Shiv: Yeah, definitely. I think that's a worthy exercise for a lot of companies. One of the things that we do is, almost a step one is like a diagnostics or scorecarding stage where you're trying to understand each aspect of the organization and where, where is it quite strong? Let's say a five out of five. And where is it kind of strong or average, like three out of five, and where is it weak? Like one out of five. And which of those levers are actually worth moving given the context of the particular business. 

So as an example, if your SQL to close rates are quite weak, then investing into sales process and sales efficiency or sales training or sales enablement immediately emerges as a major value creation lever. And on the flip side, if your net revenue retention rates are, let's say less than a hundred percent, now we need to look at expansion and cross-sell, upsell and ways to drive more value from our existing customer base. And so just as that diagnostic, I think kind of level-sets the business to say, where are we actually in a pretty good place? And then obviously, there's the organic versus inorganic side and then the financial side. So you kind of have to filter by all three of those areas. 

But I think a lot of companies would be well served to going through a diagnostic phase. And then definitely this cost versus ROI as an approach to measure which things are worth doing more than others is definitely another filter to look through.

Dan: Well, then also - yeah, you said another filter to look through. I think that's the right way to think about it, which is there are different - if the core question here is what should we go do to start to get our value creation agenda or to codify our value creation agenda and start generating value, there are different lenses through which you can look at that same question and all those lenses are valuable. As you're talking about - as you're talking, what occurs to me is one way that my brain has been trained to answer this question is to actually go into the financial model of the business. It's not the end all be all, but go into the financial model and just use the pattern recognition that I've accumulated through having seen hundreds of businesses over time to say, okay, like where are the optimization points? 

As an example, if I see a, you know, to pick on a type of business that you know well, if I see a SaaS business that is sort of mid-market SaaS, enterprise SaaS, that is something less than 90% retention, I'm probably digging into that a little bit to understand what's going on there, what's driving churn, why is it that way? But that initially is a tip-off to me that, hey, there may be an opportunity here. So I'm gonna sort of chase that rabbit hole a bit more to understand A, what's getting in the way of that not being sort of better in line with market benchmarks and B, are there some quick wins we can deploy using my pattern recognition of having seen companies reduce retention before some quick wins we can deploy to boost retention and create some value. 

So the core message there is just having people at the table who have that pattern recognition, which you can - some firms have internally and operating partners and the like, or you can rent it with firms like yours can just be very, very valuable as another lens to this question.

Shiv: For sure. And I think all of those are really good insights. And I think as you start to go through all these different exercises, you start to have almost like a prioritized list of where you want to focus. Because when you look at the entire list of what you could possibly do, there's not enough time, not enough budget, and not enough human power to actually focus on all those initiatives. So let's say you do have a prioritized list and there's five key areas. Let's move to the third thing you mentioned, which is the tracking and measurement side. So how are you staying on top of that, the performance of the identified initiatives, to make sure that the investment thesis was right and the chosen initiatives are taking the company in the right direction?

Dan: I would apply a little bit of just basic sort of project management discipline to this topic. Every value creation agenda needs to have a plan. That plan's gotta be written down. The writing down of that plan needs to - you know, we need to ensure that it's simple, it's widely understood. Each initiative needs to have a name next to it. Each initiative needs to have a small set of leading and lagging indicators, leading indicators being that things were actually focused on moving actionably in the business, and the lagging indicators being the results or the outputs of that. And that plan needs to be something that we turn back to as the central document of record in every board meeting, every monthly financial call, every engagement I'm having with management. 80% of the conversation should tie back to things that are on that plan.

And in my humble opinion, that plan should be no more than a single sheet of 8.5 by 11 paper, which just forces focus. It ensures clarity and it makes sure that all the conversation is being pointed towards the quote unquote ‘vital view’. So like that's not unoriginal, but I think in the highfalutin world of private equity, sometimes we overlook the nailing of the basics, which is just create a plan, make it simple, put names next to it, put indicators on it and keep turning back to it at every turn.

Shiv: Yeah. And I want to highlight something that you mentioned is this concept of focus because the larger a company is, the - it's almost like trying to boil the ocean because there are just, you're just swimming in opportunity everywhere. And companies have this almost like a bad habit of trying to do it all at once. But - and I completely agree with this one sheet of papers at the end of the day, there are actually three to five initiatives that'll move the needle the most from most companies. And nailing that and putting all your resources behind those initiatives is going to create way more enterprise value than trying to do it all. 

And coming back to the point on bringing those metrics to the board, one of the mistakes that I just see constantly is the value creation plan is made, opportunity areas are identified, and then somewhere along the line, we just stopped reporting on those metrics. And a year out, like half the initiatives aren't being tracked the same way or we're just reporting on vanity metrics and not actually showing the impact on the real metrics that are actually going to move enterprise value. 

And so I think that's one ongoing discipline that needs to exist week to week, month to month, quarter to quarter. It should be at the board meetings. It should be in the one-on-ones with the CEO. It should be what we're communicating at the all-hands meeting. It kind of cascades all the way through.

Dan: Amen. Amen. And this is like - I hate to reduce it to this level, but it's just discipline and consistency. I mean, it's a thing of a marathon training plan, if you've ever run, like there's nothing magical to it. You create a plan. When I've done training for marathons in the past, you create a plan. Plan's pretty simple. Just fit on a single sheet of paper every day. I know what I got to do. I'm checking that box. I have ways to measure my progress. And it's just a matter of having the discipline to follow it and constantly.

And I think at some level value creation planning is probably not that much different. It does beg a question I'm curious for your take on, which is if your observation and, for whatever it's worth, my own as well, is that it's easy to drift from the discipline that needs to go with that. What causes that or what gets in the way of firms sticking with it, so to speak?

Shiv: Yeah, I think it's a couple of things. One is distraction. For example, if you identify sales efficiency as an opportunity area or demand generation as an opportunity area, and then you go acquire another company, as an example. Now that inorganic lever that you just pulled has so many other things you need to focus on that the now the next board meeting is about that, and sales and efficiency is not a focus, or demand gen is not a focus. Then a couple of quarters later, you're having a meeting about integration, or maybe you need to talk about product. And before you know it, a whole year can go by, and you've made maybe some progress in those areas, but it's sporadic. And the people managing those areas are kind of on this concept, they're working in the business, not on the business. And the ‘on the business’ part is the actively tracking metrics, knowing what the return on those dollars are. Are you actually making progress that you anticipated? Should budget be moved? Should we make adjustments? Like the board coming back together around that topic just doesn't happen often enough. And I think it's the responsibility of the leaders to keep that in focus and keep bringing the conversation back to see how we're tracking. 

And on the metric side, the other thing that I think companies definitely need to do is this concept of forecast versus actuals. Like you make a plan, make a forecast. It doesn't have to be the perfect forecast, but then see how you're trending against that and then constantly update that and then report back on whether you were right or wrong on your forecast and then make adjustments to hit the forecast. I think both of those pieces are just missing.

Dan: Yeah, yeah, touche. Well, and something you referenced a minute ago, this example of, hey, you have these organic growth initiatives, but then a big deal comes along and you do it, and that sort of throws it all out of whack. It made me think that it's okay for priorities to change. That's okay, and that's actually to be expected because we live in a dynamic world where opportunities and risks are going to come out of nowhere.

What's key is that you have a mechanism built into the way you're managing the business as an executive or you're engaging with your portfolio company as a board, whereby you are coming back to the question you posed earlier of what are the top three to five things in this season of our build? What are the top three to five things we're going to be focusing on? And you're making deliberate intentional choices about putting things on that list and taking things off, not just putting things and taking things - primarily putting things on that list and not taking things off in a haphazard way that just doesn't have some sort of forcing mechanism to create focus.

Shiv: Yeah, I think one of - I didn't mention this, but I think one of the things that I've seen is that it's almost like when you're successful, these things fly under the radar. So for example, if demand generation was a priority and then it turns out that the last couple of quarters, we've surpassed our sales projections, people stop thinking about it. And then if in a couple of quarters later, now you're missing your pipeline targets or your sales targets, it becomes a problem again. 

And I think the discipline there is that there's - if you were to kind of - the two by two matrix of important and urgent, or important not urgent. I think companies are really good at important and urgent. They're pretty good at urgent not important, but they're not very good at addressing important not urgent. And I think that's where a ton of value creation activities actually sit. Because it's kind of like this concept of go slow to go fast. And you constantly have to do that. You kind of have to improve your sales process. You might need to change territory assignment. You may need to change quotas. You may need to change your training to improve demand generation. You might need to overhaul your plans across different regions or different product lines or campaigns and things like that. So there's this constant audit and adjustment phase and there's a cost to that. And so I think that that's something that shouldn't be overlooked and that's critical to making some of those value creation levers successful.

Dan: Yeah. Well, as you're talking, like the visual that's flashing in my mind is this - I'll share this because I think this can be useful to your audience. The visual flashing in my mind is this thing that when I was at Alpine, we called the one page plan. Other firms have one page plans in their own version of this, but this was the central - I mentioned earlier - go to have a central document, document of record that spells out the plan for the business. Got to fit under a single sheet of paper. This was the one page plan for us.

And if you can picture a single sheet of 8.5 by 11 paper with four columns on it, the leftmost column would be your purpose, your core values. This is the bedrock, the foundation that's gotta be strong and clear in order for the rest of it to have a chance at happening. So that was first column. 

Second column was the five year column. What's our vision? And what’s the sort of strategic thrust? These were our questions one and two from earlier. What's our vision for the business and what are the strategic thrusts we're going to pursue to make that vision come true. 

Column three is the one year plan and within the one year plan, what financial targets and critical numbers do we want to hit? What are the list of initiatives? You can debate the number that you'll allow on there, but when I was an operator, we'd have no more than eight to 10 things on that. And then the quarterly plan.

The fourth column was the quarterly plan, which is where the eight to 10 things we're going to prioritize this quarter to make the one year things happen, which then move us in the direction of making the five year vision column happen. And what that did - that did a lot of things, many of which we've already hit on. It created clarity, it created focus. It was a forcing function to make sure we weren't taking on too much. But it also achieved something you were hitting on, which is it ensured that the things that we were choosing to take on this quarter, this year, we're actually hitched to a clear point of view on what is the long-term vision and strategy that we're trying to execute. Whenever we came back to this one page plan, that vision strategy is in our face because it's on the second column. And we're working backwards from there to say, OK, based on where we are with that, here's what we're going to prioritize this quarter to keep moving in that direction.

Shiv: And pivoting to the fourth topic, how much of that do you think is dependent on the people in the right seats and getting the right person into the right roles? I know this is a big part of what you help private equity firms with. So this is a place where I want to dive a little bit more into. So how much of that is at play here and how much more time should PE investors or investors in general be investing into this aspect of value creation plans?

Dan: At the risk of sounding trite, if you don't have the right who in the right where, right people in the right roles, your what, your value creation initiatives aren't irrelevant. Good luck. Everybody knows that. You don't have to go get an MBA to understand that yeah, people are important to business performance. I think most people in private equity accept that to be true and believe in that. And yet what I've found is that there's a big knowing-doing gap in private equity land, which I'm in part helping to try to fill with supporting PE firms in this way, but a big knowing-doing gap between the intellectual recognition that people are important and that has to be a key driver of how we make our value creation happen and returns happen. And actually doing the things and building the machinery into your firm and into your portfolio companies to ensure that people become the greatest strategic thrust for your value creation agenda. So there's a lot to talk about about what are those common gaps and how do you plug them. But I think just to answer your question directly, if you don't have the right who and the right where, then good luck on the rest of it.

Shiv: And so what's the process to go through there? Because obviously it's hard to tell, especially as you're coming into new business, you got to kind of evaluate the talent and then figure out if people are in the right seats in the first place. So just trying to understand like, how do you go from that to making sure the right people are in the right seats and then executing on the plans that have been laid out?

Dan: Yeah, there's a whole work stream that I'll lead companies through in the first - starting pre-closing and spanning into the first 100 - I call it people planning. Think of it as like the addendum to value creation planning. If your value creation plan spells out the what and the how, the people plan comes in right behind it and dictates the who. The who being right people in right roles. And so to make that more real for you, the really sort of simplified way of approaching that is, start with the vision and the value creation agenda. Like, I don't believe in just sort of abstractly putting people in box and wire diagrams without a clear understanding of without a clear understanding of what value creation initiatives are we trying to drive. So that's sort of step one. 

Step two, work backwards from that and say, okay, if we know what we're trying to drive, what capabilities do we need in what roles to make those things happen, question number two, and that will take the form and shape of just a little mini scorecard for each of the key, you know, functional areas or executive roles. A little mini scorecard, three bullet points, hey, here are the most important capabilities we need in each of these roles. 

Step three is then going about an effort, and I do a lot of this work pre-closing as part of our due diligence, going about an effort to understand, okay, who are the human beings we actually have in the business today? What are they great at? What aren't they great at? What gives them energy? What are their care-abouts, et cetera, just understanding the humans. 

And then step four is sort of plotting that inventory of people, that stable of people against the requirement, the role requirements that you've established in step two and saying, okay, where do we actually have a tight tongue and groove fit between what we really need in this critical functional area or this critical growth driver and what this person brings? Where do we have a gap? And if there's a gap, what am I going to do about that gap? It could be train them up. It could be replace them. It could be find somebody else from the organization who has some of the requisite skill sets, but maybe isn't being deployed against that sort of initiative today and we can repurpose them over. So there's a bevy of different decisions you could ultimately make. The key part of the people plan is you want to have a plan for what you're going to do, what decisions you are going to make, whether fire, fire, repurpose, redeploy, train, et cetera, promote.

What decisions am I gonna make early days in the investment in order to give our value creation plan a shot?

Shiv: How often do you find that companies have the right people in the right seats or what percentage of time would you say that the executive team needs some sort of a change in order to make the value creation plan a reality?

Dan: In the umpteen or due diligence projects I've done with private equity firms, 100 % of the time - I can say this quite confidently - 100 % of the time there is a change to be made. And again, period. 

Next paragraph - what that change is is gonna depend widely. There's some situations - at the most extreme, there are some situations in which, hey, what got you here ain't gonna get you there. You need to really think about a bigger overhaul of the leadership team. There's other situations in which, hey, I think we have a lot of the key pieces we need. We might need to bring in one more key piece, at least for the next 12 to 18 months of initiatives that we're trying to pursue. Or it might have this other key piece somewhere else in the organization we should sort of elevate or repurpose. So there's those scenarios too, where you have a pretty well-built team that just needs some adjustment or augmentation and then everything in between. But 100% of the time, the leadership team that is coming with the business is sort of under-optimized or incomplete for the more aggressive value creation agenda that the private equity firm is trying to pursue.

Shiv: Yeah, I especially find this to be true in founder-led companies where the founder or the founders are really the engine behind the company. And then you have a quasi-executive team that sits in certain roles. Like you could have a VP of Sales trying to do something that a CRO would do or a Director of Marketing trying to do what a CMO would do. And you kind of have this tension because the company's trying to cross the threshold, but the people in the company aren't there yet. And so in order to push past that, it's really about either training them up or finding the right person that can take the company to the next level.

Dan: It's generally one of those two things - or maybe one of three things - either hire-fire. And this - just to say, I think this is where private equity's head goes first and tends to often goes exclusively, which is, okay, if we don't have the right leader, how do we just fire and hire? But the other way is, hey, you have some people in the organization that have some of the raw materials needed. They just need some training or some development. I mean, that's the second one. The third one is we have the right people or a right person for something we're trying to do. They're just not in a role that is actually conducive to doing that thing. And so then the name of the game becomes recrafting job descriptions such that people can play closer to their zone of genius and where their zone of genius actually intersects with the needs of the value creation agenda.

Shiv: Yeah. Yeah. I'd also say a fourth one is that if the team or the team members are valuable and we definitely see the way in which they can support the growth of the business, then it's also about getting them the right resources and access. Training is one type of resource, but I think also just access to expertise and external advisors. Like that's where we get brought in a lot, where we often come into companies that have directors of marketing and we kind of come in and play the role of CMO and partner with the leadership and the private equity investors. So things like that where - I know that the same is true in pricing, the same is true in sales, where you can find partners to support that until the company's kind of ready to run on its own with the person growing into the role.

Dan: Yeah, that's right. It's another arrow you have in the quiver that answers the same question of how do we get the right who into the right where. You've got this - I mean, think about this like a - yeah, just to use the overused metaphor, like a quiver of arrows. You have a bunch of different options as to how you can quote unquote ‘optimize’ talent. The key thing here is just creating a mechanism. It doesn't have to be overly complicated, but a mechanism in your pre-closing diligence and your post-close planning, first 100, creating a mechanism by which you are making thoughtful, disciplined decisions about the team. And I was going to say - and if you want to, we can probably spend a whole other conversation around the tactics of that. I have a bunch of tools in the toolkit and many of which I work with private equity firms on, but I think that's just the, that's the key thing a lot of this points back to.

Shiv: I think that's awesome. So I know we're running out of time here. So before we close, where do people go if they want to work with you or learn more about your book or potentially partnering on an engagement?

Dan: Yeah, the book's called Winning Moves. It's on Amazon. It's like 10 bucks. Get it on there if you want to dig deeper into some of these topics. And in terms of how to link up with me, I spend a lot of time on - not, I'm trying not to spend a lot of time on, but I am pretty active on LinkedIn, just sharing things that have worked for me and I also love learning from others there too. So link up with me there.

Shiv: Awesome. And we'll be sure to put all that in the show notes. And with that said, Dan, thank you so much for doing this and sharing your expertise. I think the audience is going to get a ton out of the conversation. So I appreciate you being on.

Dan: Yeah, thanks, man. Enjoy the conversation and learning from your experience in this world, too.

Shiv: Likewise.