Where to Focus in the First 100 Days?

The PE-Backed Executives Group and TheOperators.pe hosts events every Friday, to include a topical discussion of a subject that PE-Backed Executives find interesting. A recent discussion concerned “Priorities During the Pivotal First 100 Days for C-level Executives to a new PE-Backed Platform Company.” This article reveals the commonly- held beliefs among experienced Operators in terms of focal areas during that critical first quarter. Obviously, size and situation (degree of sophistication of the business) will dictate which of the suggestions are most relevant.

After taking into consideration the situational peculiarities of the Platform investment (is it a turnaround situation? was it a founder-led organization, or is it in the fourth generation of PE-ownership? is it a $2mm ebitda business or a $50mm ebitda business?), the Group of C-level operators who participated in our discussion agreed that the starting point is the Private Equity Owner’s Investment Thesis. An evidence- based case built to support the investment in the first place, it provides macro observations, hypotheses and assumptions (Market, Customer, Competitor, Supplier, Political, Economic, Social, Technological). Inevitably, some of these assumptions will be proven correct, and some will actually be false. “Every deal involves being sold a bill of goods. Things are never exactly as they are portrayed. Our job is to determine which room the elephant is sitting in, and how significant the elephant in the room is.” In other words, things are never as they are portrayed by the sellers, and task one is to uncover weaknesses.

In order to do so, new executives must consider the assumptions and biases and predispositions of the board, but conduct your own independent feasibility assessment. It will prove helpful to review prior due diligence reports and recommendations
thoroughly, as well as to conduct your own assessments (see below) in order to advise the board early and often about what is not achievable, why, and what re-directions and course corrections you would recommend.

The ideal 100 Day plan is “a feasible plan to set off on the right trajectory toward Exit, with bankable projections,” but it is important to calibrate your perceptions of “feasible” with the Board’s views of priorities for the business, and their expectations. While the Path must be navigable, it may be more useful to think about a mutually- agreed-upon definition of the End Point, the Exit Strategy, and make course corrections along the way, with the end point clearly in mind. In other words, maintain an understanding of weaknesses and threats as well as an open mind to all potential levers for value creation, including internal levers such as financial (potential profit or balance- sheet improvements, working-capital optimization), human capital, product/service innovation, or External Levers such as customer positioning, partnerships, supplier relationships, competitive dynamics, market opportunities, M&A opportunities. Executives brought in to run a newly acquired portfolio company must simultaneously manage, measure and scale the business.

Several experienced Operators noted that it is important to socialize false assumptions and weaknesses, hurdles and impediments early, but to have in place feasible work- arounds, next-step solutions, or at least new ways of thinking about how to achieve the exit plan. In other words, do not simply be the bearer of bad news; have a plan to revise the value creation strategy.

Some members of the Group have recommended that 100 days may not be the precise timeline in all circumstances. In fact, several recommended the book, The First 90 Days, by Michael Watkins. In addition, Members explained that, depending on the situation of the investment, staged, sequential 30 Day Plans may be in order! For example, the first 30 Days might involve Defining and Assessing. The second 30 Days might be more about Assigning, Executing and Implementing. The Third 30 Days might be focused on Refining and Focusing.

Defining. As important for the management team as for the Board, define the objective. What is the stated Goal of the business, why is it important, how will it be achieved, when will it be achieved, and who will do what tasks to make it happen. Defining is about setting the bar, identifying where the goalposts are.

Assessing. Conduct assessments of the business in order to identify weaknesses and vulnerabilities, areas on which to focus for needed improvements. A rapid diagnostic in multiple functional areas to understand what work needs to be done and how achievable the various transformation projects are. In other words, the assessments aid in determining what to prioritize in order to ensure value creation.

Assessments should result in an understanding of costs and time required to facilitate improvement, and more importantly, to execute value creation transformation steps. Incumbent in this process is an understanding of which projects will provide the most
substantial and most immediate return.

There are many types of assessments, across all of the major functional areas of the business.

Conduct a Strategic Opportunities Assessment to prioritize value creation levers. Identify new sources of value, organic and acquisition. Prioritize opportunities in terms of where to focus first: Pricing; Customer Positioning; Competitive Differentiation; Market Opportunity Assessment; Systems and Technology; Capital Structure; Human Capital, Operational Efficiency; Brand and Marketing.

Human Capital
The Human Capital Assessments will involve determining who remains and who needs to be replaced to ensure the highest quality team possible, ensuring roles are well defined, acknowledging the importance of core values and cultural alignment,
establishing alignment of interests in terms of roles, tasks, compensation and timelines.

  • C-Level direct reports — Confirm “Fit” within 60 to 90 days. Move quickly on anyone whose performance is questionable. Be sure to have your A-team in place before working on esprit de corps. What roles, below senior-most levels, need what talent augmented?
  • Evaluate your talent acquisition funnel. Help build out a recruiting function.
  • Is there sufficient role clarity, especially after rolling out value creation expectations?
  • Culture assessment and alignment – Ensure alignment in terms of intended culture and core values.
  • Assess management compensation and equity plan.
  • Ultimately, establish/ensure alignment among team in terms of goals, strategy,
    objectives, tactics, timelines, to achieve, priorities

Prioritize the most significant needs in terms of Operational efficiency improvements. Obviously, these may include:

  • Find and eliminate sources of rework
  • Create alerts that highlight developing issues before they become fires to fight
  • Identify areas for improvement in terms of efficiencies and flow
  • Evaluate sourcing weaknesses or inefficiencies
  • Optimize SG&A spend
  • Evaluate inventory optimization opportunities

Conduct financial assessments to ensure:

  • Access to the appropriate capital structure to facilitate growth that achieves the objectives of the business
  • An achievable working budget
  • Financial controls and oversight
  • The existence of an appropriate financial planning and analysis cadence.

Feedback loops and cross checks must be in check as well, which requires access to data.

It will be important to take advantage of business intelligence tools, dashboards and analytics to support not only financial decisions, but strategic and operational decisions, as well. C-level executives will need to ensure the availability, management and analysis of data, the right data. Doing so requires assessing data architecture, the accuracy of data, determining data gaps, and ensuring the availability of actionable reporting.

Institutionalizing KPIs and other reporting standards and expectations will be critical.

  • Assess Functional reporting across metrics that matter most
  • Standardize reporting processes
  • Decide on KPIs and Real-time metrics (such as number of customers, delivery backlog, product forecasting, stock performance, systems downtime, and cashflow)
  • Ensure there is dedicated communication and reviews with relevant stakeholders
  • Pivot, adjust and re-adjust, based on actual data

Concluding the assessment phase entails understanding what support and service capabilities the Company can access, internally and externally. Strive to understand the comprehensive set of resources available from the PEG sponsor, and create a list of partnering needs and requirements. What support can and will the Private Equity sponsor provide? Assess/evaluate service providers, based on assessment criteria. What service provide and supplier relationships are working well, and what needs to be improved? After these assessments are complete, make change decisions regarding internal and external service/support functions.

As the first 90-100 days draws to a close, or in some situations, even more rapidly than that, the assessment phase has resulted in the need to execute changes. Some of these implementations will be designed to take advnatage of strengths and in other cases, improvements are needed to compensate for or remediate weaknesses.

By the end of the First 100 Days, management will have a much clearer understanding of where to focus, why, and how they are being held accountable. Most experienced Operators agree that the single most important area of the business to “get right” in the first 100 days is human capital alignment. As we know, culture trumps strategy, and the right people in the right places doing the right things can fix just about any defect in functional areas of the business.

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