In most funds, nobody follows the commercial plan between board meetings, and a private equity operating partner can fill that gap. The plan is set at closing and then left to the management team, so a delay shows up a quarter later than it started.
How a large fund follows the plan
An investment professional with experience at a global mid-market fund and a Spanish one describes the large-fund model. An associate or vice president runs a review with the commercial director every two weeks during the first months. The partner never goes into the detail. The partner asks one question: how much can sales improve?
Even here, the people who follow the plan do so from a distance. They work from what the commercial director reports.
Why smaller funds need a private equity operating partner
Smaller funds, family offices and search fund investors have no associate to send. Some funds have only two or three investment professionals. Nobody has the time to follow one company’s sales plan.
Size does not remove the problem. The chief executive of a multi-strategy investment firm with about 25 people runs buy-and-build platforms. He says his juniors spend their time integrating add-ons. Day-to-day operations get little attention. Our piece on add-on screening in consumer goods shows why integration work absorbs so much time.
What staying out of operations costs
Staying out of operations is the right principle. A fund that runs the company from the board room damages it. The principle works while the plan is on track.
When the plan slips, however, the owner finds out late. A sales team that has opened no new accounts for two quarters can still look fine in a board pack that shows total sales. By the time the gap is visible, the response is large: a new commercial director, a cut in the budget or a rewritten plan. Each of these resets the 12 to 18 months that commercial growth needs.
Private equity operating partner: three decisions before closing
First, name the person who follows the commercial plan. Decide before closing, not after the first missed quarter. The person needs enough commercial experience to read a sales plan and to challenge it.
Second, fix the rhythm. A review every two weeks in the first months, as the large funds do, is a workable pace. Agree the day and the agenda in advance.
Third, agree the indicators. Choose a few commercial ones that move before sales do, such as new customers opened, ambassadors hired or distributors signed. Add a visit to the market with the sales team every quarter.
If nobody inside the fund can do this, an outside operating partner can. The FMCG Growth Sprint is built for owners in that position. It suits companies in the first year after a change of ownership. It fixes the indicators, sets the review calendar and starts with a market visit and an assessment of the sales team. Most plans that stall do so at delivery, as we explain in why CPG growth stalls.
A fund that cannot name its commercial follower at closing has chosen to find out about problems from the next board pack.
Frequently asked questions
Who should follow the commercial plan in a small fund?
Name one person before closing. If the fund has two or three investment professionals, that person is often an outside operating partner.
What does a private equity operating partner do in a consumer goods company?
The operating partner reviews the commercial plan with the management team on a fixed rhythm. He or she also checks the early indicators and reports to the owner between board meetings.
How often should the owner review the commercial plan?
Every two weeks in the first months is a workable rhythm. Agree the pace after that with the board.
Does following the plan mean running the company?
No. The follower asks questions, checks the indicators and visits the market. The management team keeps the decisions.
To see how the first year after a deal can be organised, read about the FMCG Growth Sprint.
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