December 2021 Roundup: BluWave Client Insights

BluWave works with over 500 PE funds from around the globe, connecting them with pre-vetted, best-in-class, third-party service providers across a variety of resource and functional areas. From information technology and manufacturing to healthcare, consumer goods, and beyond, our clients are expert business builders. In other words, they have their heads in the game and their hands on the pulse of news you can use.

Check out the latest, curated collection of reports, insights, and musings from a handful of our PE fund clients on everything from differentiated investments in 2022 to The Great Resignation, cloud security, and sales enablement.

As a wrap-up to 2021, Joe Zidle from Blackstone reflects on differentiated investment opportunities in the coming year. He shares why certain global economies will weather coming headwinds better than others, why he predicts that the ability to generate alpha will increasingly drive outperformance in the US, and more.

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In this episode of the Private Equity Funcast, Jimmy discusses the macro trends that are driving The Great Resignation and how it is specifically impacting the middle market with Tim Schumm of Lucas James Talent Partners. They share why the middle market may be feeling the impacts of this phenomenon more acutely and tactics these businesses can implement in order to ensure they have the talent they need.

Listen to the episode >>>

Permira talks about one of their recent investments in the cloud security space and explains why enterprise workloads are increasingly moving to the cloud infrastructure. They also explain the concept of containers in the cloud and how that is forcing businesses to rethink their cybersecurity tools.

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Katja and Kunal from TCV share their key takeaways from a recent episode of the Growth Hacks podcast, where Scott Santucci shared why the main lesson he advises his clients to do is simplify their sales processes. They talk through the value of the commercial ratio, tips for aligning organizational economic value with the needs of your customer base, and more.

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Read what some of our clients had to say last month.

Interview With Forrester’s CMO Executive Partner Sheryl Pattek

As Forrester’s Executive Partner serving CMOs and Chief Experience Officers, partner, Sheryl Pattek regularly works with senior-level marketing executives to advance their major initiatives, with a special focus on creating customer-obsessed strategies that drive business growth. She has been named “CMO Whisperer” and “One of 18 People in Marketing You May Not Know, but Should,” as well as “one of the thirty most influential women in marketing technology.” Prior to joining Forrester, Sheryl spent over 30 years leading global marketing organizations for both Fortune 500 and early-stage companies in the logistics, transportation, software, software-as-a-service (SaaS), technology, and telecommunications industries.

Are you impressed yet?

Candidly, as a career marketer, she is both inspirational and intimidating at the same time; but gratefully acknowledges she is continually learning and transforming just like the rest of us. When I requested an interview recently, she graciously accepted and dropped knowledge in areas ranging from how to measure marketing success to why interim CMOs are more important now than ever.

Kyle Johnson: Why is due diligence in digital marketing important?

Sheryl Pattek: When you are doing M&A it is imperative to dig in to see what is really there, versus what you are being told on the surface. As today’s consumers and business buyers prefer to engage in digital channels, it is important to understand the tech stack and get a picture of what products are currently used to manage overall customer engagement. It’s also extremely important to know what the data looks like (is it “clean” data or does it need extrapolation) and who owns the data. To create a connected customer experience in today’s digital environment both a strong tech stack and robust data are critical. Customers will accelerate decision-making if they have a good experience, and if not they will “vote with their feet” (and go right out the door) as the saying goes. So, digging into both areas to ensure they are solid is vital to achieving the value a specific M&A is looking for.

KJ: How do you measure the ability of a company’s marketing function?

SP: In terms of its ability to drive growth, the first thing I look at is the business plan and the marketing plan to determine if they are aligned. In a B2B environment, marketing is seen as a driver of growth, owning part of the pipeline and new customer acquisition, in addition, to cross-sell and upsell opportunities. So, alignment between the business and marketing plan ensures that the marketing team will deliver or exceed expectations. Next, I look at the KPIs to see if they map to business outcomes: I want to know the length of time it takes for a customer to make a buying decision, how many “touches” until someone buys, what the ROI looks like, and if they are doing attribution in a way that is actionable. Once I understand the baseline, I try to assess whether or not the existing marketing team has the core capabilities in place to implement go-to-market plans, customer acquisition strategies, or continuous improvement processes. Beyond that, do they have the ability to make data-based decisions and a 360-degree understanding of their customer base.

KJ: Is interim/fractional CMO a thing? Are you seeing this trend post-Covid?

SP: It is definitely a thing and a model that is growing quickly for several reasons. For midsize companies, the interim model is an efficient way of covering a tremendous amount of ground in a short period of time. Typically, as you likely know, it takes at least four to five months to find a full-time marketing executive. Then, once they are on-boarded, understand the business, and start having an impact, you are talking at least six to nine months. Even then, you don’t really know if you have the right fit.

The fractional model allows you to hit the ground running with very specific deliverables in a short period of time. It enables you to then iterate quickly. If you are midsize to a smaller company, you may have a marketing organization of doers in place. An interim CMO can quickly provide strategy and some leadership to kickstart results and accelerate growth. Then, you’d have the flexibility to bring in a fractional CMO episodically, as needed.

KJ: Any insight for hiring a fractional CMO?

SP: If you’re a CEO looking for interim talent, my number one suggestion is to not do it on your own. By tapping into experienced, robust networks, you can find a resource that fits culturally, skills-wise, industry knowledge-wise, and many times even geographically. The typical CEO is not going to have a deep well of interim experts at their disposal.

KJ: What is marketing’s role in creating value for a company?

SP: First and foremost, building and driving a growth engine. Second, bringing customer understanding to the c-suite so decisions are made from the outside in. Third, typically marketing is thought of as owning the company brand. But I prefer to think about the value marketing creates as going beyond just the brand. It’s marketing’s role to link together the brand’s value, the customer’s experience, and employee’s experience to provide the necessary underpinnings of the growth engine.

KJ: Last but not least, what is one marketing trend you’re seeing emerge in 2021.

SM: There are quite a few, but the one companies need to adjust for now is related to data privacy and the changes being made with regard to third-party cookies. These sweeping changes underscore the importance of first-party data. In short, companies who own their own data will win.

How we did it: Digital marketing due diligence case study

Our PE fund client needed a resource to perform digital due diligence for an e-commerce-enabled aftermarket products business. They needed a full overview of the digital landscape, including SEM, SEO, UX, conversion path analysis, Google Analytics, and digital GTM strategy. We used our extensive experience in digital marketing due diligence to immediately connect our client with expert groups from our invitation-only Intelligent Network. They used the insights gathered from the chosen digital marketing group to make an informed decision and quickly close on the investment opportunity. Ultimately, we were able to help the client find a clear path forward. 

For the full story, read the case study here.

REDIRECTED How to identify key value drivers for your business

In working closely with founders and CEOs during various points of their “company growth journey,” what I’ve learned is—no matter your size or industry—creating value should be the foremost priority. Why? Because the ability to do so is a company’s greatest asset. Ultimately, the question leaders need to answer is “What is actually driving value?” Beyond that, understanding which metrics can potentially increase corporate value, then building upon them, in turn may lead to a higher valuation if and when that company wants to sell.

Over the years, I’ve developed a solid collection of key value drivers that can differentiate a company from its competitors, and make the company more appealing to potential buyers:

#1—Continuous revenue growth: The ability to increase revenue with existing customers by efficiently managing current contracts and securing long-term contracts, contract renewals, and upgrades, drives significant value. The more predictable the recurring revenue is, the more value it will generate.

#2—Sales growth: The continued ability to grow sales with new accounts (i.e. “bookings”) is a strong leading indicator of revenue, and one of the most important metrics for value accretion.

#3—Profit margins: Gross and operating profit margins that consistently exceed industry averages will command higher values.

#4—Management team: Good management teams are hard to assemble and even harder to keep together. The depth, quality, experience, past success, and tenure of the management team are positive value indicators.

#5—Reliable financial controls and business systems: Reliable financial controls and systems used to generate revenue, control expenses, track customers and manage the delivery of products and services, are safeguards for a company’s assets and positive contributors to business continuity.

#6—Branding: Marketing is measured by customers’ response to a company’s products and/or services. Strong branding will improve company sales through increased market share and mindshare.

#7—Little concentration risk: A diversified customer base is essential for the ongoing viability of a business. Companies that focus on their largest customers run the risk of concentrating a great a percentage of revenues with too few customers. If one customer is more than 10% of revenue or if 5-10% of customers account for 25% there is concentration risk and thus a negative indicator

#8—Proprietary products or services: A product or service that is unique to a customer segment, or one that is clearly differentiated, will always drive more value.

#9—Product mix and diversification of gross profit: Multiple products or services and the diversity of contribution to gross profit lowers inherent risk.

#10—Multiple industries: Services sold to multiple industries (with industry diversification) will justify a higher value because each industry represents a specific growth potential.

#11—Market niche: Having a definable leadership position and a clear competitive advantage in an industry niche is favorable for companies looking for a potential exit.

All of these aforementioned attributes are important for companies that want to understand the what in terms of potential value drivers. Stay tuned for next month’s insights into the how for driving value.

As always, BluWave is here to assist company leaders, CEOs, and PE funds across a variety of functional and resource areas that drive growth. Please get in touch if there is anything we can do to help you!

Why Your Company Needs a Fully Realized Digital Marketing Strategy

As a player in the private equity space, you know the struggles of growing a company under tight deadlines and budgets. While you may think that digital marketing is better suited for “the other guys,” e.g. B2C firms, larger companies, groups targeting millennials, this isn’t the case. Middle market businesses across verticals can harness the power of digital marketing for business growth.

Digital marketing is one of the most underused tools in the toolbox.  By not implementing these methods and realizing how important a digital marketing strategy is, your leadership teams are leaving money on the table.

Here are a few things you should know:

  • Per McKinsey, companies with strong B2B digital marketing plans/brands see 20% increased performance
  • Per CEB, B2B buyers are now nearly 70% through their buying process before contacting a provider
  • Per Google, B2B buyers are typically willing to consider two options by the time they engage a potential provider

Marketing now plays a much more important role in your selling process.

Digital Marketing is More Affordable Than You Think
Despite the number of acronyms thrown around and the ever-changing stream of marketing platforms, executing against a digital marketing plan is more attainable than many lower middle-market and middle-market firms may expect.

You don’t need high-end, expensive software: there are now a number of powerful, simple to use, and cost-effective tools available.

You can also start by renting a fully capable digital marketing team before investing in an internal one or simply outsource certain roles to augment your existing team’s efforts.

Implementing a multi-dimensional digital marketing strategy may seem like it will stretch your company’s already tight budget, but overspending on a digital marketing budget isn’t necessary. Working with a marketing services agency instead of hiring internal staff gives you the resources you need at a price that makes sense for the bottom line.

Key Elements of your Digital Marketing Demand Generation Plan
Once your company is ready to work with an agency, here are a few items they should concentrate on to gain the benefits of digital marketing:

  • Data – It’s hard to do digital marketing effectively without good data. Make sure you have it and treat data as a resource that needs to be invested in and maintained like any other asset in your business.  B2C data can be relatively robust over time, but B2B data degrades at about 5% per month.
  • Content — Bottom line: your company needs to attract potential customers to its website. Quality content, including blog posts, infographics, and other well-written ad engaging copy can help increase credibility and your position within your industry while intriguing prospects, causing them to stay on your site for longer periods of time, and reach out to you for more information. Make this content targeted:  Per Hubspot, 96% of B2B buyers want content targeted to their own industry.
  • Search Engine Optimization (SEO) — Many people think SEO is cost-prohibitive, but it doesn’t have to be. A technical SEO expert, combined with in-depth content, can effectively raise a website’s ranking in a short time with minimal cost.
  • Social Media — For a company looking to increase their visibility, social media is key. For B2C companies, Facebook, Twitter, and Instagram help your company connect with customers and prospects. Social media is also becoming critical for B2B customers who are finding their customers in both traditional social platforms as well as business focused platforms like LinkedIn. There are also a variety of analytics from these platforms to demonstrably show how your firm is performing, both over time and against competitors.
  • Paid Search Marketing — While there is a financial barrier to paid search, your portco doesn’t need a huge budget to be successful. Even small companies utilizing well-targeted campaigns with the right keyword strategy can yield powerful results that pay for themselves.
  • Email – Most companies already do email marketing in one form or another. It’s the easiest way to get started.  You shouldn’t do email alone, though, as its increasingly hard to get through the noise in the inbox. Use this tactic in concert with all of the approaches above and you’ll see profound results.

A fully-realized digital marketing strategy is a key step in your company’s continued development.  Once a marketing plan and the resources are in place, you should set clear goals and expectations for growth with your internal and external teams and hold them accountable.

Ensure Your Portfolio Companies Have the Resources They Need
Don’t let your company’s digital-fueled growth stagnate or never get off the ground. Your portfolio company can get started quickly by leveraging the skills of a top outsourced agency that has the functional capabilities you need, the industry experience you require, and the budget you have.

Rent 10% of a bunch of A’s versus owning 100% of the B or C capabilities your budget will support: you’ll get better results and save time, money, and the struggle of hiring for a specific set of scarce skills.

Finding the right resources should never be a barrier to success. Learn more about how we help your portfolio company build value by working with PE-tested expert service providers.