It is reaffirmed in 2013 that specific alpha growth planning is necessary for most middle market companies and their PE sponsors. After 2 years of contraction (2008-2010), markets have rebounded, but with only tepid growth. Moreover, the IMF and others just revised downward again – even before DC’s latest shenanigans – growth projections for at least 2 more years.
The billion dollar question for middle market companies is: How can relatively unsophisticated companies effectively and affordably find growth for themselves and for their PE sponsors without being able to ride a wave of beta market growth?
One process that MRA has developed to finding growth in middle market companies is basic, straight forward, with clear measurements and most importantly with a track record of success. It is manageable for unsophisticated companies and scalable for PE firms with multiple portfolio companies.
The MRA process for finding growth in middle market companies:
- Dedicate time and effort to doing an objective business assessment.
- Reach consensus on findings and implications with managers and management.
- Develop action plans based upon the consensus of the assessment findings.
- Reach consensus again with the company managers and management on the action plan steps.
- Forecast: revenue, profit and other goals and develop clear KPI’s to monitor them.
- Develop a bonus plan linked to the business plan to reward managers for success.
- Do it all quickly. In middle market companies, this process should not be more than 2-4 weeks from assessment to the start of plan implementation.
- And finally, as they say in hair care, “rinse and repeat”. After the initial plan has run its course, begin the process all over again.
While much of this seems like “basic management 101”, it has been our experience that few middle market companies have: a clear understanding of their objective business conditions, consensus and ownership on the right action plans to implement or KPIs in place to monitor a universal set of goals. It is also our unfortunate experience that only a small percentage of companies actually incent their employees based upon appropriate and meaningful action plans and measures.