Private Equity

Last weekend I spent a long day in rural Yorkshire in the North of England. Tramping the fields, we had plenty of time to chat and I met a man in Private Equity.Car no engine

It’s an interesting profession. Investing in enterprises with potential for growth. Persuading others to invest. Taking an active role in the Board. Pushing for performance. Supporting initiatives that drive success. And then exiting with a tidy profit.

Sounds easy, but isn’t. Along with Financial Skills you must have an appetite for risk that modern bankers lack. You must quickly understand sector dynamics. You need a working understanding of a many disciplines, from Sales and Marketing to Production and Procurement. And if you get it wrong, your prospects of return and, perhaps more importantly, your reputation may be diminished.

I asked my new friend what steps he and his colleagues took to understand the companies that they bought into. He waxed lyrical about various aspects of Due Diligence. He was extremely confident on matters financial, as you might expect. When we came to brand value he seemed to be on shakier ground. A strong brand was ‘a good thing’. But how to measure brand strength was more of a puzzle.His approach seemed to blend an assessment of what auditors call Goodwill with anecdotal feedback from other parties – industry experts and media. He was unaware of the difference between Brand Stature (a combination of how well understood the brand is with how well respected) and Brand Vitality (its level of differentiation multiplied by its relevance to consumers). I surprised him with the news that the major global advertising agencies had been evaluating brands on these dimensions for more than three decades.

On understanding customer needs he rallied, demonstrating an appetite for reading published research to understand the drivers of purchase and loyalty. However, I didn’t get the impression that people like him actually commission market research.

Our discussion then turned to the ambulatory assets of a business. How, I asked him, did he and his partners assess the quality of the people who walked in and out of the business at the beginning and end of the working day. He reassured me that they took great pains to evaluate Directors and senior management. Even investing in various kinds of psychological profiling to understand individual skills and team fit.

“And how about the broader staff? The people who actual deliver what the business promises?” I asked him. “No, he replied,” we usually don’t have time to look at them.”

Which sounded to me like a man who was willing to buy a car without examining the engine.


Chris Harrison leads The Brand Inside

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