Introducing Builders Operating Practices
By: Mike Dutton & Katharine Hersh
This year we are excited to launch a new blog series exploring how purpose-driven companies and management teams actually manage their businesses. Operational engagement with our portfolio companies has always been a pillar of the Builders Fund’s investment strategy, and across our two flagship funds and predecessor firms, we have accumulated experience working with a variety of businesses at the emerging growth stage. In addition to our core team, our “Builders” advisors, former operators and C-level executives who are investors in our fund, are an operational resource to the fund and our portfolio companies. While many large private equity platforms, including the top 25 funds, have internal operating groups, we believe Builders is distinct in our focus for the size and stage of our investments and the integration of our operational focus across all stages of the deal lifecycle.
Compelling evidence exists that operationally-oriented private equity outperforms “buy and hold” or leverage-driven financial engineering strategies. Research on value creation in private equity estimates that up to 69% of unlevered returns are driven by operational improvements such as revenue growth, margin expansion, and cost efficiencies. Even when controlling for overall industry growth, studies show significant improvements in operating efficiency for private equity-backed companies relative to non PE-backed peers.
At Builders, our diligence process focuses on company operational performance from the beginning. In late-stage diligence we co-create an “Operating Blueprint” with management that provides a roadmap for sustainable value creation over the hold period. We actively participate in corporate governance and advise on and support operational improvements ranging from growth strategy and key hires to acquisitions and financing.
In this series we will explore how to drive operational improvements across everything from team meeting best practices to long-term strategy creation and share observations of operational excellence in action.
