How do PE firms unlock enterprise value?

The working report, ‘Leveraging Digital, Data & AI Technologies to Increase Enterprise Value: How Private Equity Firms Are Getting It Right’ by INSEAD is an interesting and useful read.

For a premium b2b subscription service – where there is no direct transaction between supplier and customer and an absence of big data – the fundamentals are important to master. And sometimes simplicity wins over machine learning and AI.

“…Break customers into value tiers using simple clustering techniques, and then study the characteristics and behaviours of the top tiers…target prospects and customers with similar characteristics for acquisition and retention campaigns. “It’s not cutting-edge stuff,” said the operating partner, “but it absolutely added value. The fact that we put the effort in to collect consistent, correct data about our customers, that had much greater value than the fancy AI stuff.”

Source: Insead

My focus is premium, b2b information using the subscription model to build enterprise value.

After reading the report, here’s a 5 point checklist to unlock enterprise value:

1. Robust Data: Due diligence is the wrong time to be surprised by what is happening in your business. Or find out you measure important things like revenue retention wrong. How robust is your renewal data?
2. Responsive Insights: The standard operating metrics and management information for premium annual subscriptions is flawed IMO because they miss changes in the installed base and use non standard measures. Does your data help you spot changes to your installed base?
3. Directional POV: You need several years of consistent data to see the direction of travel, year on year doesn’t cut it.
4. Course correction: You must be able to spot what is happening and where to intervene, in good time. In annual subscriptions you need decent visibility at least a year ahead of time to avoid a lengthy and frustrating turn around.
5. Subscription mindset: Create a framework and clarity about how to have impact on subscription performance, building know how and a common language across your teams.

“The speed at which you can return an answer and the quality of your explanation is what the investor is looking to evaluate when they ask you for a cut of data,” he explained. “They want to see if you can get an answer in 24 hours. They don’t expect perfect data, but they do expect you to be able to state your assumptions.”

There’s a reason why the due diligence process is tense. It’s because it unearths the important stuff.

So, what if you were to use the perspective from PE to help you build enterprise value, at all stages of your business. Rather than just in the crescendo to investment?

Being more PE

• Have a clear, data-driven understanding of your customer base and growth drivers
• Give management teams visibility and know how to build enterprise value.
• Harness the pressure of due diligence, it is intense for a reason.

“They are bloody terriers, asking questions the whole way through…like…

Do you understand who your best customers are?”

“Do you understand your drivers for LTV (Life Time Value)?’”

“[Why did this] number go up or down?”

Source: Insead

6 takeaways to unlock enterprise value:

1. Identify and Understand Your High-Value Customers: Segment your customers into value tiers. Deeply understand the characteristics and behaviours of your high growth / high value customers. Use these insights to target and acquire more customers like them.
2. Optimise Pricing and Packaging: Align to Enterprise Value for your customers. Understand the measurable results that your customers are willing to pay a premium for. There will be differences across your customer segments.
3. Enable Your Commercial Team: Don’t stop at equipping your sales and marketing teams with data-driven insights to better target, convert, and retain high-value customers. Your product data and other teams need to align on high value customers to perform well.
4. Build a Growth Model: Develop a clear, data-driven model of your company’s growth drivers. This growth modeling provides visibility into the levers you can pull to drive revenue and efficiency improvements. If you can pass the rigorous scrutiny during exits or fundraising, chances are you can make better decisions at any point.
5. Demonstrate Data Maturity: Be prepared to quickly and accurately answer tough questions about your customer data and business drivers. Investors will assess your data capabilities as a key indicator of your ability to drive growth and value. You went through the hard yards of building a subscription business. Now mine the information you are sitting on.
6. Overcome Cultural Barriers: Recognise successfully implementing data-driven initiatives requires as much focus on people and culture as it does on technology. Build trust and credibility with your team to drive adoption.

Do you need help?

If your subscription data is not serving you well, I’d like to help you.

Together we can transform your subscription business’s transaction data into strategic insights that unlock growth and increase enterprise value.