Insights from the Operating Partner (Virtual) Forum - March 2021

On Thursday, March 4, Accordion invited a (virtual) panel of Operating Partners to discuss the opportunities and challenges of rebooting for growth in a rebounding economic climate.

What we heard is that while there is pervasive optimism around an accelerated recovery, Operating Partners are focused on the complexities of appropriately scaling to meet anticipated, escalated demand. Those complexities include a focus on go-to-market strategies, a competitive market for necessary talent, and the continued challenges of working in a remote environment.

Here are a few of the headline learnings, lessons, and takeaways:

STATE OF THE MARKETPLACE:

If there’s one word that sums up Operating Partners’ general take on the state of the current market, it’s “optimism.” There’s a very palpable sense that the economy is rebounding faster than originally anticipated:

“The last 6 months, we’ve been focused on how we can best accelerate out of a downturn in an environment that is turning around faster than we would have imagined.”

“We’re feeling pangs of optimism. 2020 felt like hand-to-hand combat. We were just trying to stay one step ahead of the challenges – whether those were liquidity challenges, or resetting costs, or having to interact with all of our customers in a completely different way. Now, we’re shifting out of firefighting mode and trying to figure out how we take advantage of the pretty significant signs of recovery to reposition for growth.”

“Our internal economists are telling us the market is rebounding back – and strongly at that. We’re not assuming it, and we are definitely not planning as though it’s a certainty, but that’s what we are anticipating.”

“We look at China and Australia and they’re ahead of us in recovery. All of our troubled sectors there, (like hospitality and airline travel) have skyrocketed back to 90+% utilization. And it looks like after every downturn, there’s been this big consumer resurgence for a while. Although we know we have issues looming like high levels of consumer indebtedness and mortgages and student loans, we’re still really optimistic about the market.”

But, if there’s another word, it’s “confusion.” Some of the market reboot noise conflicts with individual company and sector indicators:

“It’s hard to figure out. We work with an auto repo business. Even after the restrictions on repos were lifted, repos are still off 90-95%. How does that line up with what we know about the general economy and the unemployment rate? So there’s not one universal outlook. The question is how do we line those different pieces up for each one of our businesses. And that has been the hardest challenge.”

“There’s three or four data points that tell you one way and three or four different data points to tell you the other way, which becomes really challenging for execution.” 

Go-To-Market:

COVID has forced companies to rethink the traditional methods they employ to reach their target customer. As a result, Operating Partners tell us they have been spending a disproportionate amount of time working with management on go-to-market strategies:

“We’re preparing for growth, particularly on the tech side, by fundamentally revisiting our go-to-market models.”

“What’s on my agenda, going forward, is doing a lot of low hanging fruit projects. Things you can do with five to six people: go-to-market, targeted sales, digital marketing.”

“The last three months all of my time has been spent around go-to-market in whatever flavor that looks like. For my most impacted businesses, it’s rethinking the model and making it more streamlined and trying to position ourselves well for when the demand does come back.”

Of course, Operating Partners are also aware that the pandemic has fundamentally changed the customer – and these new go-to-market strategies have not yet been pressure-tested against that new consumer or against full-scale resurgent demand.

“The customers we’re going to be dealing with, as much as we’ve tried to understand their needs throughout this, are going to be different. So it’s not like we just press pause in March of 2020 and in June of 2021 we press play and everything just resumes as it was. The customer needs on the other side potentially are also going to be different, and so the go-to-market strategies and the selling models need to reflect that.”

“What’s really interesting is that some of the go-to-market changes that we have made haven’t really been tested yet in terms of meaningful demand in the business. So theoretically they’re working, but it will be interesting to see how well they actually work when demand fully ramps back up. Can we capture what we used to be able to capture?”

Operating Partners are also clear that the competitive market for talent further complicates the already complicated go-to-market realities for their portfolio companies:

“It’s really hard to hire right now, compensations levels for go-to-market executives are running 20% above normal.”

“I agree talent has been a big challenge on the go-to market side. I’ve had open roles for commercial leaders across the board.”

Transformation Agenda:

Notable from the discussion was the difference in terms of how Operating Partners approached their portfolio’s transformation agenda over the last year.

Some delayed major initiatives:

“We have been putting off bigger transformation programs because they’re hard to do when you are not in the same room to sort it out. One of my leading concerns that keeps me up at night is if things do rocket back and everything seems great again, will we ever get to those more transformative projects that we’ve been putting off?”

“All of our agendas last March to June, were pretty similar: cash, costs, working capital. As we emerged from that, we’ve been really aggressive on M&A, but now we have all these companies on all these different platforms and no real plan for transformation projects to address and unify that.”

“Zoom calls are not helpful with major transformational agendas – you’ve got to be in the room to sort it out.”

Some focused on smaller transformational projects as opposed to large-scale initiatives:

“We’ve already started the transformation migration to one or two people on the ground for six or 12 months versus five people on the ground for two or three months.”

And some leveraged the season to commit to major overhaul:

“We leveraged the ‘new normal’ to invest. We’re talking about cloud computing capacity and we’re talking about development capacity, insource/outsource, the entire technology agenda. We’re talking about nine-digit transformation programs.”

“We’re probably going to have a billion dollars more coming out of one of our investments because of the transformation projects we’ve completed over the last year.”

“We actually used the environment to our advantage. We have a particular company in which we would have never done this because we were relatively hands off. But during COVID we met twice a week on Zoom with the CFO, COO, CEO, and Head of Transformation Strategy, and we really plowed through a lot of transformational projects.”

Remote Work:

Much of the conversation focused on how the virtual workforce has impacted Operating Partners’ approach to their work, their management teams, and the success of projects and deals.

As creatures of the road, Operating Partners, are, of course, eager to travel again:

“I’m actually going back to the road very soon. We’ve been successful doing discreet projects remotely, but there are some companies that we are looking to really pivot on strategy and that’s really hard to do when you are not face-to-face with your management team.”

“I usually spend 60% of my time on the road. I think we’re all eager to travel.”

“Personally am eager to start traveling again. Of course, the problem I’m having is that my companies aren’t back either.”

They noted, however, that it’s not just about personal preference. Their inability to travel has affected the successful execution of strategy and presents other intangible obstacles:

“We’ve done a couple of mergers, both of which entailed very large commercial transformations and obviously it all had to be done remotely. We’ve done it successfully, but could it have been done better and faster had we been on the road? Yes. So I do think that we lost the momentum.”

“We spent the first half of last year doing a lot of deals and scaling, and because we have not been able to travel, I feel like we don’t know what we own. A big part of our job is to look people in the eye and try to understand what that capability set is. And while I feel good about the assets that we bought from a sector and/or evaluation standpoint, I don’t feel like I really know them.”

Despite the problems posed by remote work, many of their portfolio companies are moving toward a more virtual workplace going forward in a post-COVID environment  The question for these Operating Partners became: are you pushing back on that?

“We did a lot of real estate renegotiations during the early part of  the crisis last year. So in some ways it’s harder for us to push back and say, well, actually I want you back in the same spot.”

“We want them back in the office, and management wants that, but I don’t think we’ll get to the level of prescription to say, ‘we’re requiring folks to not move to a fully remote model.’” 

“My firm has really pushed us to be back in the office. And they want our companies back in the office and offer a lot of support to companies that want to go back to the office on how to do it, whether it’s testing programs, etc.”

“I would split the answer in terms of corporate and operations. We’re recruiting a completely remote customer support workforce, which has been fabulous because not only do we get the real estate cost benefit, but we also get the geographic dispersion, so you don’t have to worry about focusing on talent in one geography. But we are encouraging our executive teams to try to be back together.”

Chokepoints:

As companies think about rebooting for growth, they face certain “chokepoints” along the way – operational complexities that make scaling up more difficult. In addition to the talent chokepoint already addressed, Operating Partners underscored some other obstacles:

“Technology investment was not something that was really on the table for the companies that I worked with last year. So now we are running on systems that have aged another year. We’ve done process redesign which has been helpful, but we’re now facing a massive systems challenge.”

“There’s an element of seller readiness. We can prepare them as much as we want, but until we get people actually back out there and doing it, day-to-day, we can’t truly learn.”

“Another challenge is our supply chain and ramping back up to meet an unpredictable recovery curve. It’s kind of the opposite problem that we were facing last year, where everything was shut down, and we were trying to protect cash. Now it’s about, should we take the leap of faith and invest ahead of demand?”

Operating Partner Support:

Just as customers have changed and the market has evolved, so too have the needs of management. Operating Partners report that portfolio companies are leaning on them for different types of support and guidance than in the pre-pandemic era:

“I sound like a broken record, but they want go-to-market support. Historically that has not been a focus of our portfolio operations team. And so we have really spent time building up that internal capability and find partners in that space.”

“A lot of businesses are leaning on us to ask about where to invest organically versus inorganically. How much money do we support them deploying inorganically?”

“Sector-specific trend analysis for acquisitions – I think that’s where they’re trying to lean on us and where our management teams need the most help.”

“On the inorganic side, we are offering support leveraging bank relationships and leveraging resources like Accordion or other third party consulting relationships.”

“Pricing. They want pricing help. How do we price? How do we package? Here we bring in outside help because  pricing is one of those topics where the management teams never believe there’s any elasticity until you bring in an expert to help them think about it differently.”